Arcturus Therapeutics Holdings Inc (ARCT) 2022 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Arcturus Therapeutics Third Quarter 2022 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Kyle Gutstadt, Senior Analyst of Investor Public Relations. Please go ahead.

Thank you, Keith. Good afternoon, and welcome to Arcturus Therapeutics third quarter 2022 financial update and pipeline progress call. Thank you all for joining us. Today's call will be led by Joseph Payne, our President and CEO; and Andy Sassine, our CFO. Dr. Pad Chivukula, our CSO and COO, will join in for the Q&A session.

Before we begin, I would like to remind everyone that statements made during this call regarding matters that are not historical facts are forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of performance. They involve known and unknown risks, uncertainties and assumptions that may cause actual results, performance and achievements to differ materially from those expressed or implied by the statement. Please see the forward-looking statement disclaimer on the company's press release issued earlier today as well as the Risk Factors section in our Forms 10-Q and 10-K filed with the SEC.

In addition, any forward-looking statements represent our views only as of the date such statements are made, November 9, 2022. Arcturus specifically disclaims any obligation to update such statements to reflect future information, events or circumstances.

And with that, I'll now turn the call over to Joe.

Thank you, and good afternoon to all. Thank you for joining Arcturus' Q3 quarterly call. the recent period has been characterized by remarkable progress we've made both with our pipeline and also in completing transformational business development agreements with CSL and BARDA.

I'll begin with our recently announced collaboration with CSL. I want to first express my gratitude to the entire team here at Arcturus that worked tirelessly on this deal, particularly the deal team led by Lance Kurata, our Chief Legal Officer, and Kevin Skol, who leads our business development efforts. They all did an exceptional job. Indeed, there's an extraordinary story behind every extraordinary deal. So thank you to the team, many of which are listening to the call.

This collaboration with CSL is designed to develop and commercialize self-amplifying mRNA vaccines targeting COVID-19, influenza, 3 additional pathogens and pandemic preparedness. This broad, strategic collaboration will drive the development, manufacture and global commercialization of novel self-amplifying mRNA-based vaccines. This was a transformative deal for Arcturus, both from a financial perspective as well as in positioning our company to become a leader in the development and delivery of mRNA vaccines and therapeutics.

CSL Seqirus is one of the top 2 companies in the multiple billion dollar influenza vaccine market, and they bring profound capabilities, especially related to advanced vaccine manufacturing, development, distribution and commercialization. The collaboration combines CSL Seqirus's well-established global vaccine commercial and manufacturing infrastructure with Arcturus' manufacturing expertise and innovative STARR self-amplifying mRNA vaccine and LUNAR delivery platform technologies. Together, we will focus on the development of self-amplifying mRNA vaccines targeting COVID-19, influenza, 3 additional defined respiratory infectious disease vaccines and pandemic preparedness. And we look forward to providing continued updates on our plans and progress in the coming months. The agreement will become effective upon the expiration of the Hart-Scott-Rodino waiting period.

Andy will provide further details about the collaboration, but I'll briefly mention some highlights. Arcturus will receive $200 million upfront, up to $4.3 billion in potential development and commercial milestones, 40% profit sharing for COVID-19 vaccines and up to double digit royalties for influenza and 3 additional defined respiratory infectious disease vaccines. These are very meaningful figures, and we expect this deal to provide meaningful funding to support the development of our pipeline over the coming years.

With the CSL partnership in place, we are prioritizing our regulatory and clinical efforts toward larger commercial markets. CSL is responsible for providing guidance and updates pertaining to ARCT-154 and any of its future derivatives.

Now on to the BARDA agreement. This is our second recent external agreement with the Biomedical Advanced Research and Development Authority, or BARDA. This transaction provided Arcturus with an award valued at up to $63.2 million over 3 years. The award will support preclinical, manufacturing, nonclinical safety studies, along with development and regulatory support for Arcturus' self-amplifying mRNA vaccine platform technology for rapid pandemic influenza response through Phase I clinical studies.

Our low-dose lyophilized vaccines are preferable when stockpiling footprint and pandemic preparedness are taken into consideration. Self-amplifying mRNA vaccines have the potential to provide safe and effective protection against disease with the specific advantage of rapid scale up, lower doses and easier transport and storage. These are qualities essential to a rapid response against pandemic influenza and are consistent with strategic objectives of the U.S. government's national strategy for pandemic influenza. We believe that this highly sought after BARDA award provides further validation for our technology and its promise to deliver important new vaccines and medicines.

This agreement with BARDA establishes a meaningful contractual relationship with the U.S. government. So when the next pandemic occurs, heaven forbid, Arcturus may have a more streamlined process to accessing pandemic-related government funding. I also want to acknowledge that the CSL collaboration agreement allows for Arcturus to perform its obligations under the BARDA contract.

Now moving to ARCT-810. This is our therapeutic candidate for ornithine transcarbamylase deficiency, or OTC deficiency. Our therapeutic candidate aims to address the deficient OTC enzyme in the liver of individuals living with this disease. ARCT-810 has the potential to restore urea cycle activity, prevent or slow the progression of neurological damage and potentially expand dietary options and improve on the quality of life for people living with this condition. All subjects in our Phase Ib single ascending dose study have completed dosing, including the cohort dosed at 0.4 milligrams per kilogram without requiring steroid co-treatment.

We continue to advance ARCT-810 in a Phase II randomized, double-blind, placebo-controlled nested single and multiple ascending dose clinical trial whose design will enroll 24 adolescents and adults living with this disease. The study is being executed in multiple European countries. The participating sites are working with several dozen identified patients through the pre-screening process with dosing beginning this quarter. Next year, the company will strategically share interim ARCT-810 clinical data simultaneously with the announcement of new additional liver therapeutic programs. So we look forward to that.

Now moving on to our cystic fibrosis program. We continued to progress the necessary preclinical and nonclinical studies to enable ARCT-032 to move to the clinic. ARCT-032 is our inhaled messenger RNA therapeutic candidate for cystic fibrosis. New preclinical data was presented and well received at the 2022 North American Cystic Fibrosis Conference last week, and we included some of that data in our press release today. The new data slides presented at the NACFC are readily available on our website if you click on the Publications tab. These data provide further support for the therapeutic potential of ARCT-032.

3 critical steps for an inhaled messenger RNA are required to be successful: delivery, protein expression and functional restoration. So the first critical step is delivery, getting that messenger RNA to where it needs to be. And these new preclinical data demonstrated effective delivery of messenger RNA to bronchial and tracheal epithelial cells, even in the presence of CF sputum or mucus. These successful delivery data are attributed to Arcturus' proprietary LUNAR technology. We have previously shared successful inhaled delivery data in multiple animal models, including healthy mice, rats, ferrets and primates. These new data, however, were collected utilizing a well-established CF ferret model, wherein these animals present mucus that coats the airway epithelial cells in their lungs. The observed effective delivery of messenger RNA in this CF ferret model is noteworthy.

On to the second critical step of protein expression. Treated human bronchial epithelial cells from CF donors. They were -- these cells were treated with ARCT-032 in vitro and demonstrated robust expression of mature CFTR protein at levels comparable to control, non-CF or wild type donors.

As for the third critical step of functional restoration, additional in vitro data demonstrated robust restoration of CFTR transporter activity. Bronchial epithelial cells obtained from human CF donors were treated with ARCT-032, and after the treatment, we observed a significant increase in chloride ion current, up to 70% restoration compared to control BECs, or bronchial epithelial cells, obtained from non-CF donors.

So to summarize, we've observed successful delivery of mRNA to tracheal and bronchial epithelial cells in the presence of mucus in a CF ferret model. We also observed robust in vitro expression of CFTR protein alongside functional restoration of chloride ion current, all comparable to controls. All of these are important milestones for the ARCT-032 program. We believe that this therapeutic candidate, ARCT-032, may bring significant benefits to individuals living with cystic fibrosis, including those unaided by currently available treatments. We continue to anticipate submission of a clinical trial application, or CTA, for ARCT-032 by year-end.

I will now pass the call on to Andy Sassine, our CFO, to provide financial updates.

Thank you, Joe, and good afternoon, everyone. The press release issued earlier today includes financial statements for the third quarter of 2022 and provides a summary and analysis of year-over-year and sequential financial performance. Please reference our 10-Q for more details on the financial performance.

I'll begin with a summary of the CSL agreement we signed last week. Under the terms of the agreement, Arcturus will receive $200 million upfront and is eligible to receive over $1.3 billion in development milestones and over $3 billion in commercial milestones. In addition, the company is eligible to receive a 40% net profit share for COVID-19 vaccine product and up to double digit royalties for vaccines against flu, pandemic preparedness and 3 other respiratory pathogens. This is a 60/40 profit sharing agreement on COVID-19 vaccine product. And with respect to the program cost, we expect the milestones will cover all of our expenses going forward. We provided CSL some R&D credits, which are spread out over 5 years and will likely be applied to the flu and other programs.

CSL transaction is subject to filing under the Hart-Scott-Rodino Antitrust Act. The HSR filings have been made by both parties, and we are in the waiting period. Assuming the transaction closes and we receive the $200 million upfront payment, we expect that Arcturus will be funded for 3 years based on our current pipeline and assuming no revenues from any product sales. This assumes the milestones will cover all of our COVID program costs.

In evaluating new collaborations, we take a comprehensive view of new potential agreements and how they align with our existing agreements to ensure that our plans support our longer term strategy to advance our pipeline and create shareholder value. Last week, Vinbiocare and Arcturus mutually terminated our mRNA license and COVID-19 supply agreement and entered into a study support agreement. Vinbiocare did not strategically fit in with the combined CSL-Arcturus global manufacturing plan. However, we continue to work closely with Vinbiocare in Vietnam to prepare the clinical data collected for regulatory approval in certain countries.

I will now provide a quick summary of our financial results. We reported revenues of $13.4 million for the third quarter of 2022 compared to revenues of $2.4 million in the 3 months ended September 30, 2021. The increase in revenues was predominantly driven by the Vinbiocare agreement.

We reported total operating expenses of $50.2 million during the third quarter of 2022 compared to operating expenses of $56.3 million in the 3 months ended September 30, 2021. The decline in operating expenses was primarily due to lower manufacturing costs.

Finally, we reported a net loss of approximately $35.3 million, or $1.33 per basic and diluted share, for the third quarter of 2022 compared to a net loss of $54.1 million, or $2.05 per basic and diluted share, in the 3 months ended September 30, 2021.

As Joe mentioned earlier, we also signed an agreement with BARDA that will provide up to $63 million in funding to the company over the next 3 years. Supported by these 2 agreements, Arcturus is expected to be in a very strong financial position over the next few years. As discussed, the company is expecting to receive $200 million from the CSL upon expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act. We believe that our company has the resources needed to achieve multiple value-creating milestones for our vaccine and therapeutic programs.

I will now pass the call back to Joe.

Thanks, Andy. We are highly encouraged about the potential of our mRNA vaccine and therapeutic pipeline. We're very pleased with our recent progress. This recent period has been highlighted by the closing of meaningful agreements and continued advancement of our pipeline of mRNA vaccines and therapeutics. We believe our agreement with CSL Seqirus opens enormous opportunities for our company, and we're excited to continue to execute on our mission to bring meaningful new treatments to patients while also rewarding our shareholders.

We look forward to providing you with future updates on our progress, and I'll now turn the call back to the operator for questions.

(Operator Instructions) We'll take our first question from Yasmeen Rahimi with Piper Sandler.

This is [Lauren] on for Yas. Just two quick questions for you. The first, can you provide some color on the timing for the interim analysis and what exactly will be included in that interim? And then second, how far are you away from filing the CF program in the U.S., and what's left in regard to the CTA?

Sure. So the first question, are you referring to ARCT-154 or ARCT-810? The OTC program or the --

810.

Okay, the 810.

Yes, the OTC.

Yes. We indicated that we're going to strategically share that data simultaneously or concurrently with the announcement of our new program. So new liver therapeutic programs. And so that's going to be sometime in 2023. Of course, we are disappointed with the progress of recruitment this year. However, we fully intend not to repeat any -- some of those challenges that we have incurred this year, and we look forward to getting the data as soon as we can next year. But what's important to understand is there's going to be a strategic communication of the -- communicating the data, the interim data that will be concurrent or simultaneous to the disclosure or declaration or announcement of additional liver therapeutic programs.

And the second question is around the CTA. Now, there's very -- for CF. There's very little left remaining to do. We indicated that we remain on track for a filing of that CTA this year, this quarter. So that there's not many weeks left. So anything to add, Pad, with respect to the final remaining elements? It's just the application process.

Yes, just the drafting. So all the work has been done, and we're just in the process of just -- of drafting the filing. That's it.

We'll take our next question from Seamus Fernandez with Guggenheim.

Thanks for the question. So can you just maybe help us understand how -- it sounds like most of the communications for the COVID program are going to be rolling from CSL. Just hoping to get a better understanding of how you guys are working towards that -- in that process. How the reimbursement for R&D expenses, given the sort of 40% profit sharing agreement, how that's going to work. I just want to get a better sense of what the time lines for communication around the 154 program might be, and what kind of is written into the contract for you guys to at least influence that on the margin. And then the second question, at the R&D event that CSL posted recently, they did talk about their own self-amplifying mRNA program. Just wondering if you guys have rights to that program, should that program advance, or if your own influenza program and theirs may in fact be competing?

Sure. Sure. There's a few questions there. I'll address them one at a time. First of all, it is correct that CSL is responsible for providing guidance and updates pertaining to ARCT-154 and any of its future derivatives. But we are actively supporting them and working with them on the clinical efforts and regulatory efforts.

With respect to the question on any sort of CSL flu development programs, if CSL uses Arcturus technology or its platform or manufacturing know-how in any way, that will trigger the financials for that program, meaning the associated milestones and royalties. Now there was a question about the 40/60 or the 60/40 ratio. I don't know if you wanted to elaborate on that, but I can turn that to Andy. But did I address the two major questions?

Yes, you did. Thank you.

We'll take our next question from Yigal Nochomovitz with Citi.

Just a few questions here. This is sort of forward looking, and you may not have all the answers, obviously. But with the CF program, what is the envisioned target profile there? Are you thinking this is going to be a daily, a weekly, a monthly inhaled? I know it's very early, but if you have a hypothesis or a vision for what kind of profile you're looking to achieve.

Yes. So what we understand is that we'll be able to express the protein CFTR shortly after administration. But what we also recognize is that protein does not have a very long half-life. However, the effect, the functional effect of that protein may extend the durability of it. And that's still being determined by the field. So how often these treatments will be is speculative at this point. We're anticipating weekly, but we do not know that detail until we collect the data.

Okay. Got it. And then also a clinical question on OTC. In terms of what you want to see on ammonia reduction to achieve proof of concept, what is your threshold there that you're looking to achieve?

Yes. Thankfully, the field is maturing its understanding of what sort of restoration of the enzyme is required for normal function. And we've seen that in analysis and publications that have been shared that it ranges from 4% to 16%. So if there's 4% protein restoration, that that is viewed as preventing death, which would be very meaningful in this disease, especially in young males. And then all the way up to 16% protein restoration would be required for -- or are expected to establish normality in general.

Okay. Got it. And then I don't know if you can answer this one. It might be more of a CSL question. But I think in the CSL press release, they mentioned that they're starting program with their own bicistronic influenza vaccine next year.

Correct.

So is your flu vaccine that they might work on going to be a parallel program or a backup program, or how does that all work?

Yes. I think it's best to say that we're combining our efforts on this program. If -- whatever comes out of it, if a combined or one of the -- either program is successful, as long as it uses a portion of our technology or manufacturing know-how, it will trigger the full financials of milestones and subsequent royalty. But with respect to which of these programs are ultimately going to be selected to move forward in advanced development, we refer you to CSL.

We'll take our next question from Pete Stavropoulos with Cantor Fitzgerald.

I have one quick question on the OTC program. It's more of a -- when you think about the patient population and the heterogeneity in terms of presentation, the neonatal and the late onset OTC, as well as other programs in development such as gene therapies, assuming 810 achieves the target product profile you hope for, how and where do you sort of see this fitting into the evolving treatment landscape?

Yes. Great question. There are significant advantages to the Arcturus therapeutic candidate for OTC. Being a messenger RNA therapeutic, it's a transient effect, which means that any side effects that are observed would also be transient in nature. There's flexibility and attenuatability of the dosing. This is a -- there's a wide variety of presentation in this disease so that in some cases, it may require lower or higher dosing and adjustable dosing there, and that's something that this provides. We also lack steroid co-treatment at least so far with respect to this therapeutic candidate. And this is potentially a considerable advantage, especially in the OTC deficiency community. So we bring forward all of those elements. And then, Pad, anything else to add?

One other point is that when -- this is a neonatal disease. So going after the younger kids, we think a protein replacement with an mRNA is an ideal solution.

Correct, versus the other options out there.

Yes. So I guess part of that, neonatal OTC patients usually need a liver transplant, from my understanding. So you view this more as replacing that need for liver transplant or as a bridging agent?

Both, depending on the age of the participant and the data that we collect as -- throughout the next year will help guide those decisions. But absolutely. The full intent is to replace any need for protein -- or I mean for liver transplant, and establish normalcy and really be a disruptive medicine. But in some cases, it may be used as a bridge just to extend life to get you to the next stage of therapy.

Okay. And one quick, if you have -- can you provide any color on near-term milestones from the CSL agreement?

I'll let Andy address that. We did mention that there's $1.3 billion in development milestones across 5 targets, but Andy?

Yes. We're not going to give specific to near term because what we've articulated is that the COVID-19 programs are going to be covered by the milestone. So that certainly will extend our runway significantly. And I think I've given kind of guidance that it'll be at least 3 years. So from that perspective, that should alleviate any near-term concerns about funding.

We'll take our next question from Gena Wang with Barclays.

This is [Sheldon] on for Gena. We have two, one on the CF program, another one on the BARDA agreement. For the CF program, you showed the data from F508del patient BEC cell line. So in your Phase I trial from the CTA, what patient population are you going to evaluate first? Because I suppose the mRNA therapy is most potent in the Class I patients, which are not addressable by the current drugs. So could you share your thoughts on the target patient population in Phase I and beyond? And my second question is on the BARDA award. You mentioned that the $63.2 million is going to be spread out over 3 years. So at what pace, or what cadence should we expect those milestones? And because it also covers the pandemic flu, is there an overlap with the CSL collaboration where we will receive benefit from both?

Great. There's a few questions there. I'll first -- I'll begin to address the first question. The Phase I trial for CF is intended to involve healthy volunteers. And the strategic thinking there is it allows us to escalate the dose and identify the dose parameters quickly, and therefore lock in the dose quickly. And then when we transition to patients, we'll be more optimistic about the specific dose. With respect -- I can address the BARDA-related questions as well. But Pad, anything to add, or did I capture -- did I address the question on the CF CTA or Phase 1 question?

Yes, exactly, as Joe mentioned. So we're going into healthy volunteers. And that's the regulatory feedback that we received. And based on that regulatory feedback, we're going into healthy volunteers to pick the dose. And then of course on our Phase II, we'll be looking into getting into patients, and that will be a multiple dose study.

Yes. And with respect to the next question on -- yes, it is correct that that $63 million value award is spread over 3 years. But this is a cost reimbursement structure that's very typical that you see in BARDA agreements or agreements with the United States government. So there's nothing out of the ordinary with respect to how it's reimbursed. And was there a third question? I think that's --

No. I mean, is this flu pandemic program also one of the indications that covered by the CSL collaboration? So are you going to also receive reimbursement from CSL?

No, no. The BARDA agreement is considered separate. I mentioned that CSL will -- I'm referring to my notes in the script, but just give me a moment. I mentioned that -- because I want to be careful in my messaging, see us just entering a new partnership. There it is. That the CSL collaboration agreement allows for Arcturus to perform its obligations under the BARDA contract, just to give clear guidance there. So it is a separate agreement. We have a relationship with the government, and we can operate accordingly. And Edelman on the CSL R&D call recently said that they would approach working with Arcturus as using the best of both companies' technologies to what is advanced in each of the vaccine fields.

Got it. Very helpful.

We'll take our next question from Yale Jen with Laidlaw & Company.

I just want to be clear that the 154 will be the same or similar COVID vaccine for the CSL, or if CSL will start over with a new version of the COVID vaccine?

Well, you can imagine all of the above. But the strategic thinking and direction and messaging pertaining to ARCT-154 and any sort of future derivatives is going to be communicated by CSL. So it would be inappropriate for me to provide guidance with respect to their strategic thinking on any future derivatives.

Okay. Maybe just one more follow-up here, which is the CF program, the 32. How should we think about based on the current preclinical data comparing to some other mRNA-based CF treatments, maybe earlier ones, or any comparisons you can make from that?

Yes. I'll start and allow Pad to fill in some of the gaps or provide any additional comments. But we have some unique aspects to our CF therapeutic. It's the only one that I know that utilizes the LUNAR delivery technology. We've applied our proprietary and trade secret know-how on the manufacturing of the messenger RNA, so it's suitably pure for inhalation applications. And then with respect to the data, we have showed data in healthy animals, in mice, rats, ferrets and primates. And this new data set is a fifth animal model, and this time it's a CF ferret model. And I think we're the only ones to have this collective set of data. But Pad, anything else to add with how this differentiates compared to other?

Yes. From the data that we've seen, at least we generated in the in vitro model, we look very, very promising. Obviously, we've restored the CFTR expression to almost wild-type levels. So that data is pretty encouraging. We haven't seen similar data sets with others yet.

Okay. Great. That's very helpful. And congrats on all the development.

Thank you, Yale.

We'll take our next question from Yanan Zhu with Wells Fargo Securities.

So first on the COVID-19, or rather the CSL milestones. Is it reasonable to assume that the weight across different, the 5 different programs might be different, and the COVID-19 may be weighted more heavily in milestones? And if so, could you share a proportion for that -- share the proportion for that? And then also on the new program that you plan on announcing sometime next year, I'm wondering what features are you looking at in making the decision in terms of the biology, whether derisked targets or novel targets? And any other considerations that goes into that decision?

Sure. Yes, two good questions, Yanan. With respect to the first one, I'll reiterate that there's $1.3 billion in development milestones across 5 programs. And while we haven't disclosed and will not disclose the relative amounts of each of those milestones and time lines, it is true that the COVID-19 vaccine is the most advanced and has the shortest development time line remaining to potential approval, of course, as being the most advanced of those 5 programs. But other than that, we're not disclosing any additional information.

With respect to the new targets that we're seriously considering to add to deliver therapeutic targets, we hold those cards very close to our chest. We understand the value and the specific value of our therapeutic technologies. We have come to realize that the LUNAR technology is exceptional at delivering large RNA molecules, and that the technology is biodegradable and non-accumulating, and the applicability of this technology through systemic administrations and inhaled administration. So we're going to definitely leverage our technology differentiation with the LUNAR delivery technology, but with respect to specific guidance, it's too early to do that. We -- there's other competitors, as you can appreciate, in this space. So we'll be strategic when we provide more hints there.

Got it. If I may add a question for the CF program. With all the animal models you have studied, how -- in terms of multiple dosing, what's the experience there in terms of any potential immune reactions after multiple doses or antibody -- anti-drug antibodies, things of that work?

Yes. Well, I'll start with the most advanced animal, human beings. And then I'll turn the time over to Pad to discuss some more collective preclinical valuations in general of the LUNAR franchise. But I want to reiterate that in our Phase I study that we -- our therapeutic has now been injected in Phase I and Phase Ib. That's 29 people have received the ARCT-810. And in the Phase I studies, we actively investigated and looked at lipid decomposition, and we observed that there was no lipids remaining in the plasma after 48 hours. So that was viewed very positively in humans. With respect to other safety parameters or the immunogen -- I'll turn the time over to Pad.

Yes. And we've talked about this in the past. You might recall that we shared data of our 9-month safety data -- 9-month tox data for the CF program -- for the OTC program. Essentially, we gave weekly dosings for 9 months in non-human primates, and we didn't see any loss in activity of the delivered protein. So that was pretty encouraging for us, showing that LUNAR was at least preclinically, it showed quite a promise.

At this time, there are no further questions in the queue. I would like to turn the conference back to your presenters for any additional and closing remarks.

No closing remarks. Just thanks for participating on the call. And if there's any remaining questions, please reach out to the team, and we'll get back to you right away. Thanks to everyone. Good night.

Ladies and gentlemen, this concludes today's conference. We appreciate your participation. You may now disconnect.