Axcella Health Inc (AXLA) 2020 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Axcella's fourth-quarter and full-year 2020 conference call. Please be advised that today's conference is being recorded and that all participants will be in a listen-only mode until the question-and-answer session. (Operator Instructions)

And now for opening remarks. I would now like to hand the call over to Jason Fredette, Vice President of Investor Relations and Corporate Communications at Axcella. Please go ahead, sir.

Thank you, operator, and thanks to everyone who is tuning in this morning. We would like to advise that certain remarks we will make on today's conference call, such as those relating to our planned IND submissions and clinical trials, include forward-looking statements that are subject to various risks and uncertainties. These risks and uncertainties are detailed in our most recent Form 10-Q and our other SEC filings, which can be accessed on our website, axcellahealth.com or on the SEC's website.

All forward-looking statements represent our views as of today, March 17, 2021, and should not be relied upon as representing our views as of any subsequent date. We undertake no obligation to update these forward-looking statements.

Please also note that all of our clinical investigations to date have been non-IND clinical studies that were designed to evaluate product candidates for safety, tolerability, and effects on normal biological structures and function. These studies were not designed or intended to evaluate the ability to treat or prevent the disease. Our upcoming clinical trials of AXA1665 and 1125 will be conducted under INDs and will be aimed at this goal.

Now, I'd like to turn the call over to our President and CEO, Bill Hinshaw, to begin the discussion. Bill?

Thank you, Jason, and good morning, everyone. Thanks for joining us. We're happy to have the opportunity to reflect on 2020, which was a period of tremendous excitement, execution, accomplishment, and validation for Axcella. We're also pleased to highlight more recent updates, including the clearance of our first IND, that position us well for key milestones ahead as we enter late-stage clinical trials.

Now a year ago at this time, Axcella was looking forward to a milestone-rich 2020 as we were executing multiple studies and approaching important readouts. And we and the rest of the world were just starting to grapple with COVID-19. Thanks to the proactive work of our team and clinical sites, Axcella navigated through this challenging period and delivered positive data on or ahead of our original plans.

Most recent was the readout from the second study of AXA1665, our multi-targeted oral product candidate for the reduction in risk of recurrent overt hepatic encephalopathy. As many of you know, OHE is an all-too-common complication of cirrhosis in which patients are severely impaired to the point where they're unable to care for themselves. This state can lead to a coma and ultimately, death.

It's estimated about $7 billion is spent each year on OHE hospitalizations alone, but the burden on the patients and caregivers is truly immeasurable. With 1665, a proprietary composition of eight amino acids, we're initially striving to improve on today's standard of care. We also believe the opportunity exists to eventually become the standard of care.

Why? Well, there are a few reasons. For one, today's standards of care, lactulose and rifaximin, have limited mechanisms that focus on ammonia reduction, a downstream driver of OHE. Secondly, despite being on these medications, many patients continue to experience OHE events.

And finally, there are widely recognized tolerability and adherence challenges associated with today's frontline agent, lactulose. This product removes toxic ammonia from the gut via four or more loose stools per day. This is not only unpleasant, but it can lead to a number of other complications, including dehydration.

Now AXA1665 has been safe and very well tolerated to date, and it has the potential to address the needs of patients much more comprehensively. It seeks to enhance nitrogen and ammonia handling while also overcoming the dysregulation in amino acids and decline in muscle function that are hallmarks of cirrhosis. So, we reported encouraging data in each of these areas in our 002 study this past August.

Best of all, we also demonstrated how this comprehensive intervention may also improve cognitive function in cirrhotic subjects. We saw positive, dose-dependent improvements in all three of the neurocognitive measures included in the 002 study, including statistical significance in the gold standard test for diagnosing HE, the PHES test.

With this data in hand, our team began preparing for a comprehensive IND submission for 1665. We were pleased to report clearance of the IND in January, and now, we're headed straight into a Phase 2 trial just four years after completing this candidate's design. This, of course, is a key milestone for 1665.

It is also important to note it validates how we gather a significant amount of clinical data in the non-IND setting and then leapfrog into later-stage development. We believe this bodes well for our other lead program, AXA1125, as well, as we prepare for a second IND clearance with the same division of the FDA. More on that soon.

As for the upcoming Phase 2, this will be a global, randomized, double-blind trial in which we'll compare just one active dose of AXA1665 to placebo over 24 weeks with a four-week safety follow-up. This highly streamlined design is, again, a testament to the power of our approach and the thorough dose-ranging we've completed in past studies.

Approximately 150 patients will be enrolled across more than 70 clinical sites. All patients must have experienced at least one OHE event in the prior six months, and they must demonstrate neurocognitive dysfunction at the time of screening. These criteria are expected to enrich the population with the patients who are most likely to experience another OHE event.

1665 will be provided on top of lactulose and/or rifaximin and we'll stratify the arms on rifaximin use. This is both patient and enrollment friendly, and we believe it will enable us to demonstrate 1665's effect clearly. The primary endpoint will be the proportion of patients who achieved at least a two-point improvement in the PHES from baseline to week 24.

These secondary endpoints will include the number of OHE events, timed OHE events, including hospitalization. We expect to see a separation of these events in the active arm versus placebo over a six-month treatment period. Ultimately, OHE events are expected to be the registration endpoints. So, these will be important data for our end of Phase 2 discussion with regulatory agents. Other secondary endpoints agreed to with the FDA will focus on changes in physical function and patient-reported outcomes.

Now in planning for this trial, we have reviewed a number of key factors, including previous study execution, the fact that this is our first experience enrolling patients with overt HE, which is a relatively rare condition, and the potential impact of the ongoing COVID pandemic. Based on these considerations, our initial estimate is we'll be in a position to report topline data from this trial in the first quarter of 2023.

Of course, we'll be closely monitoring enrollment dynamics once the trial is underway and we'll provide updates as appropriate. We've received a good amount of inbound interest on this trial from physicians. Our team has made great progress in engaging clinical sites, and we expect screening to begin over the next several weeks.

Meanwhile, AXA1125, our multi-targeted oral product candidate for adult and pediatric NASH, is progressing in tandem with 1665. In May of 2020, we reported topline data from our 003 study, showing that 1125 generated meaningful reductions in key non-invasive tests versus placebo. These included MRI-PDFF, insulin resistance, ALT and fibrotic biomarkers like PRO-C3.

Reduction was most pronounced among subjects with type 2 diabetes, which is notable since these are difficult-to-treat patients that represent nearly half of the NASH population. Similar to 1665, 1125 has been safe and very well tolerated to date.

We followed up our presentations about the 003 study at EASL and AASLD last year with additional presentations just last week at NASH-TAG 2021. Included among them were new insights into 1125's differentiated and multi-targeted mechanism of action. This poster presentation is now available on our website.

On the regulatory front, we participated in a Type B pre-IND meeting with the FDA in the fourth quarter, and we're able to affirm that there are no barriers to opening an IND, including no gating toxicology or drug-drug interaction work. Most importantly, however, we were encouraged by the agency to proceed directly into a Phase 2b paired biopsy clinical trial.

This trial is expected to include a 48-week dosing period, two active arms versus placebo, and standard histological and non-invasive endpoints. We will enroll patients with F2 and F3 NASH across approximately 70 global sites, and we'll be stratifying patients based on type 2 diabetic status to inform our future development plans. This trial will include an interim analysis and it's expected to get underway in quarter two. We look forward to sharing the final details once our IND is cleared, so stay tuned.

Based on our data and the commentary we receive from treating physicians and key opinion leaders, we believe 1125 is well positioned to be a potential first-line NASH treatment. And we're eager to investigate it not only in adults but also in adolescents. Despite estimates that up to 10% of our children already have NASH, there's virtually no clinical development aimed at this population today.

Given this unmet medical need [on] our modality using amino acids with well-established safety, we're seeking to be a first mover in the field. We plan to reengage with the FDA regarding potential development steps once we have the Phase 2b underway.

Finally, I am excited to welcome Dr. Alison Schecter to the Axcella team given the integrated nature of our research and clinical development model, our upcoming IND enabled clinical trials, and the exciting work we have ongoing to expand our pipeline. This is an ideal time for her to join us as our President of Research and Development.

Alison, who's on the call today, is overseeing all of our research, product candidate design, clinical and regulatory efforts. She brings tremendous experience within both biotech and big pharma across the full drug-development lifecycle from research and translational science to clinical execution and commercialization. Our team's execution has been excellent and we're well positioned for our next trials. And I am confident that this track record will continue under Alison's leadership.

In summary, we're excited to have enhanced our tools and knowledge, successfully completed multiple studies, reached important regulatory milestones, and worked aggressively towards a number of milestones ahead. These will include updates later in 2021 about our work to develop our next generation of EMM compositions. EMMs have the potential to impact a substantial number of other complex diseases and conditions and Axcella is intent on extending its lead.

Now let me turn the call over to our CFO, Laurent Chardonnet, to review our financials. Laurent?

Thank you, Bill, and good morning, everyone. 2020 was a tremendous year for Axcella and with our most recent IND clearance, we've proven how rapid and efficient our model is. This morning, I'll share a high-level summary of our results for the fourth quarter and the full year 2020, starting with our balance sheet.

We ended 2020 with $107 million in cash and marketable securities compared to $117 million as of September 30, 2020. This change reflect a solid cash management and a wind down of our clinical studies. We expect our cash balance will be sufficient to meet our operating needs into the third quarter of 2022.

Turning to the P&L and our research and development expenses, we continue to prepare for upcoming Phase 2 and Phase 2b while also investing in our next-generation of EMM candidates. R&D expenses were $10.6 million and $37 million for the 3 months and 12 months ended December 31, 2020. This compared with $10.8 million and $41.7 million for the same periods of 2019.

The year-over-year decrease is mainly due to the completion of our most recent clinical studies of AXA1665 and 1125. We expect R&D costs to begin increasing again in the quarters ahead as we enter our later-stage development.

G&A expenses were $3.9 million and $16.8 million for the 3 months and 12 months ended December 31, 2020. This compares with $4.6 million and $15.8 million for the same period of 2019. The year-over-year increase is mainly due to additional costs as we became a publicly traded company in 2019. We expect G&A costs to remain roughly flat in the near term.

Axcella's net loss for the fourth quarter of 2020 was $15.2 million or $0.40 per share. And our net loss for the full year 2020 was $56.5 million or $1.78 per share. This includes $1.4 million and $6.3 million, respectively, in non-cash, stock-based composition. Our net loss for the for the 3 months and 12 months ended December 31, 2019, was $15.7 million or $0.68 per share and $59 million or $3.55 per share, respectively.

In summary, we are very excited by all the progress we've made, and we're in a very strong financial position, and we're looking forward to an eventful year ahead.

Now, operator, would you please open the line for questions.

We will now begin the question-and-answer session. (Operator Instructions)

First question comes from Yasmeen Rahimi with Piper Sandler. Please go ahead.

Hi, [team]. Good morning. Can you hear me okay?

Yes.

Cool. This is [Jessie] on for Yas, and I had two questions and thank you for taking them. Can I ask both of them at once or do you want me to go one at a time?

Both at the same time, we'll take notes. Thank you.

Okay, cool. The first one is, can you comment on what's the logical end point such as NASH resolution, a one-point improvement of fibrosis or both of them that you plan on powering for the Phase 2b NASH study. And the second one is, will there be any overlap in the sites between the two studies, the OHE and the NASH? And can you comment on which one you expect to enroll faster and why? Thank you.

Great, Jessie. Good morning. This is Bill. Thanks for the questions.

First, on your first question about the endpoints that we should -- we will be measuring in the Phase 2b. First, we had a great Type B pre-IND meeting with the FDA. We aligned on the outlines that we shared with you that that will be a histological set of endpoints, 48-week dosing period. And you will see the standard measures that you're used to in that field.

We'll give the exact details once the IND is cleared, which we will -- we're very much on track to initiate the trial next quarter, and we look forward to sharing those final and very specific details with you upon the IND clearance because then we're in a position to be final. And that's why we're waiting for that next step in the near term.

In terms of overlap in the sites, the sites are distinct for each trial. There is, of course, in some cases, the opportunity within major institutions where there may be overlap. And again, we're still -- we've had excellent inbound interest for both studies. We're well prepared to execute. But again, we'll be in a position to communicate that more distinctly once the Phase 2b is underway for 1125.

I will say the interest in our mechanism, the breadth of it, the multi-targeted nature of it, the profile that it presents have put us in great position with both audiences and set up well for a nice, differentiated trial that we're getting ready to execute in both cases starting next quarter. Thanks for the questions.

Thank you.

The next question comes from Michael Morabito of Chardan Capital Markets. Please go ahead.

Hi, Jean. Thanks for taking the questions. Two quick questions for you. One for 1165, I think you gave some details on the call. I think -- please correct me if I -- I think you said 70 sites overall. But I was just wondering like how many sites total if that number is incorrect? And what do you expect your split to be between US and ex-US? And how do you expect that to change or be potentially impacted by COVID -- as in what mitigation strategies are you employing on that front?

And the second is, you know, since both 1125 and 1665 will not have data until 2023, once these trials are launched, what can we expect from the company news-wise for the rest of this year and going into next year?

Okay, great. Thank you, Michael. Good morning.

First on 1665. Yes, it's a 150 patients over a little over 70 sites is the plan. And that gives us -- we have a very enrollment and patient friendly protocol. We have strong inbound interest from the physicians. We're well set up to start the sites in the next few weeks and initiate (technical difficulty) standpoint.

We've got a split between Europe and US site-wise of roughly 40% in the US in terms of sites. We are reaching nine countries across Europe. We've worked with an excellent CRO, which is experienced in this field. And so, we're anticipating excellent uptake across the field.

Now in terms of COVID, as you're familiar with, we were able to execute our studies last year in the heart of the pandemic and deliver on time or ahead of time. We are in a situation now where we have, of course, worked with the sites and the CRO's about [into] COVID mitigation circumstances, how they're progressing. We're favorable and, of course, [this has buoyant that] another Flagship-founded company, Moderna, and many others are bringing vaccinations at a good pace and level. And when we looked at the engagement and enrollment curves, we very much plan to be in good shape that way.

Now we'll obviously monitor it and we'll pay attention to it, and we'll look at mitigation actions in addition if they're necessary. I'll remind you that last year, we were able through proactive steps like home health, other visits, et cetera, to deliver and many of the sites and other groups are now very familiar with those technologies and techniques in order to deliver against clinical trials.

Now in terms of your second question on data, I would say we were in a position for several data readouts this year or events this year. And data is not necessarily going to come in '23, okay? First, with 1125, when we update you once the IND is cleared and share with you the intention around the interim analysis on that trial, you'll be able to have a better sense once we get an initial enrollment to share when that will be. So, I would suggest that you stay tuned on that. Don't anticipate data will necessarily be in '23.

The second piece is one of the reasons why we're very excited about this stage is not only do we have these two late-stage programs in important diseases that matter, is we have learned a significant amount through our data generation, our platform advances, and we're in a position where we will be announcing later this year additional opportunities that we'll be pursuing.

Now these will both be in areas of adjacency, i.e., the liver, metabolic, inflammatory information we've already demonstrated. There's also the potential beyond that. And so, we will give you an update on the areas that we're looking at, the experiments that we'll be conducting and that's the types of data readouts that we'll be looking forward to continue to advance this platform.

We also have the news, of course, of the events with the IND and then the trial initiation and how we're doing on that. So, I think we'll have a good news flow of events and we'll be set up to tell you where the next expansion of the pipeline is and we'll be in a position to share with you the time (technical difficulty) I mean, [really to] 1125 and that important analysis there.

Excellent. Thanks for the clarity,

Yes, thank you, sir.

The next question comes from Paul Choi of Goldman Sachs. Please go ahead.

Hi, thanks. Good morning, Bill and [Jean], and congratulations on all the progress in 2020.

I want to follow up with a few more questions on 1665, if I could. And specifically, Bill, just with regard to the enrollment timeline, is the primary factor in terms of the wide range out to 2023 that you've given just more driven by conservatism around COVID? Or is the assumption that across the 70 plus sites, especially the international ones, it just might take a little -- the site activation might be just a little bit on the slower side?

Yes. First, I think, Paul, as I alluded to in the call section, this is our initial estimate. Now first and foremost, a couple of things. Number one, we know OHE is a relatively rare condition. This is our first experience recruiting directly into the more advanced overt hepatic encephalopathy patients. As you know, we're enriching those patients to have an event, to be precluded to have that event. And so, those are two factors that we've considered.

We have considered the pandemic and the fact that that may have an impact on the overall trajectory. And it is possible we'll be in a position to pull that forward, we're going to do everything we can to do that, of course. As you know -- and thank you for your comments on the progress we've made -- we have an excellent track record execution.

And in setting, the fact that we have [in] patient and enrollment friendly design -- meaning the patients are on standard of care, lactulose and/or rifaximin, that we have a situation where 150 sites or excuse me -- 150 patients across 70 plus sites in a number of nine countries where the need is there. There is not a lot of other activity in this field, unfortunately, for these patients and the inbound interest has been strong.

So, we're going to do everything we can to pull it forward. This was an initial estimate based on some of the assumptions that I talked through and we look forward to updating you once we have the enrollment curves underway. We don't anticipate a particularly long site activation or any of those things, Paul. We're, in fact, in very good shape that way, and then we're optimistic we'll be able to continue to, I'll say, underpromise and overdeliver is something that we strive for in every case, and that's what we're hoping to do here as well.

Okay. Thanks, Bill, for the context.

And maybe two for Alison. Nice to have you on the call as well on. Can you maybe just comment with regard to study 002, how the patients with the worst PATS baseline scores performed relative to those with more moderate scores? And just given this, how maybe the relative differential in terms of the performance then changes given that over half the patients did have more than a two-point change? That's my first question.

And then second, just with regard to the addition of the therapy on top of standard of care, including lactulose and rifaximin. Can you maybe just walk us through how you're thinking about the incremental differential here on PHES, given that it is a more severe population and specifically, what the statistical powering assumptions are here? Thank you very much.

I'll have Paul -- Paul, I'll jump in here because this is Allison's day two, okay?

Okay.

From that standpoint and you're asking excellent detailed questions that I have all the confidence that she and Margaret will be able to answer in the near term. But a couple of key components. First, in terms of the more advanced population, we did show in the ammonia measurement where you see MHE, where we saw roughly a 15-point difference between placebo and the MHE arms and the active AXA doses.

So, we did see an impact on that because their baseline ammonia was elevated. In general, we have seen a trend, both in the 001 and 002 study, where the more advanced patients had a more pronounced effect on the measures. That is -- there are really several reasons we're excited to move forward into this more advanced patient population.

Number one is our broader and differentiated mechanism, we think, can have the power to really demonstrate benefit here. We're talking about the imbalanced amino acids, the ammonia handling as well as the muscular metabolism, then, of course, the neurocognitive impact. The other aspect is the fact that we have demonstrated, as you noted, a statistically significant benefit in PHES related to this standard placebo arm, in this case, equaling what we see with lactulose, rifaximin, et cetera, in relatively comparable patient settings.

From that standpoint, we also believe because these are more advanced patients or enriched to have a breakthrough -- and in addition, as you're aware, Paul, up to half of the patients on lactulose have broken through in clinical study settings in the six-month period. And that's in a clinical study setting not in the real world. We believe we're well set up to show a difference.

Now our powering is consistent with what you see with the Phase 2 study, and we are set up this to see that. We are stratifying by lactulose and rifaximin in order to show -- both represent what occurs in the real world as roughly only 30% of the patients out there are on the combination as well as show the difference to what you're asking.

So, we feel we're well set up to show an impact. Even on the backbone of standard of care, we feel we're in a position to answer the question of is there a better impact in the double or single monotherapy arms. And we believe that our profile overall, as you know very well tolerated, will set us up here to hopefully improve the standard of care and then eventually become and replace it.

You had a multipart question there. So, I'll make sure that I paused and see if I captured all of your key points there.

Yes. That's great. Thanks for the additional color and clarification, Bill. And I'll jump back in queue here.

Okay. Thank you, sir.

The next question comes from Andreas Argyrides of Wedbush Securities. Please go ahead.

Thank you and good morning. This is Andreas on for Liana Moussatos.

Thanks for taking our question. Regarding 1125, could you provide additional color on the process to achieving IND clearance and the FDA's suggestion to initiate the Phase 2b prior to clearance? Thank you.

Yes, thanks, Andreas. Good morning. First, in terms of 1125 in the prior process. There are no barriers to us initiating an IND and opening this up. As I'll remind you, we're using our model where we've gathered significant data in the non-IND setting in order to inform a late-stage IND i.e., going directly into a Phase 2b.

Let me clarify your second question. We had a good pre-IND Type B meeting where we discussed the plans and the potential of IND submission with the FDA. In that setting, we aligned on a series of important details such as they encouraged us to go test this directly in a histological fashion in a paired biopsy study, 48 weeks, and we are going to be doing two active arms. We're going to be stratifying for type 2 diabetics status. We're going to have an interim analysis as we have shared.

I want to be clear that they did not encourage us to start the study prior to IND clearance nor is that our anticipation. We just had a standard meeting with the agency about the next stage of development. We were able to align on important information that we shared with you guys in the most recent updates.

And now as we clear the IND, which we're very much on track to do, we feel very good about that both because of the interaction we had with the agency as well as the fact that this is the same division that we just moved through with 1665. So, we understand the interactions. We're well-prepared on some of the key discussion points and we're anticipating starting that study next quarter.

I apologize if, for some reason, we led you to the incorrect conclusion that they encourage us to start beforehand. That's not the case, we had a excellent discussion. We're well set up, and we are in a good position to start next quarter.

Great. Thanks for the clarity. I'll step into the queue. Congrats on the progress as well.

Thanks, Andreas.

(Operator Instructions)

The next question comes from Julian Harrison with BTIG. Please go ahead.

Hi, good morning. Thank you for taking my questions. On the pediatric NASH opportunity, can you remind us what the key questions still to be discussed with the FDA are? And when might you have some clarity on the path forward? And then is the natural history well understood here, for instance, how many typically progress to cirrhosis and/or HCC and maybe over what time horizons? Thanks.

Yes, good morning, Julien. Thanks for this important question. Because as you know, we see 1125 as a potential first-line agent in adult NASH and that's the spontaneous reaction of the medical community when they see our profile and our mechanism. There are other opportunities like type 2 diabetics and importantly, as you're raising, the pediatric population where, unfortunately, it is large, it is growing and there's very little development here.

We believe our profile, meaning our mechanism and our safety, offer an excellent opportunity here to move that forward quickly. Right now, our focus is on getting the Phase 2b adult trial initiated and working through that. Then we will go back with the agency and discuss the next and most effective and efficient steps with the pediatric program. There is no specific question that we have to address with the agency. To be clear, we will simply go back and discuss the strategy and the best approach with them.

In terms of the natural history of the disease, it is emerging and evolving. It is not as well-characterized as adults, of course, both because of the circumstances of the large number of trials that are going on in the adult population.

What is well understood is that it is very metabolically driven, that there is overall progression, of course, to cirrhosis. The question is at what timing in their lifecycle. And what we have to consider is if they're starting in NASH and often diabetic status at an adolescent age that this does not bode well for their overall health nor their impact on the health system. So, again, we believe that this is a great opportunity for us to demonstrate a differentiation for 1125 and set up for a long-term benefit for these patients and the health care system.

Got it, very helpful. Thank you.

Thank you, sir.

The next question comes from Mayank Mamtani of B. Riley FBR. Please go ahead.

Good morning, team, and thanks for taking our question and great to have Alison onboard.

Bill, appreciate all the context on the OHE study from a PATS endpoint standpoint. Could you maybe also comment on the -- are you looking at the breakthrough events? Could you just comment on what are the assumptions there? Because this is the first time, we'll see that on top of standard of care also. And how confident do you feel that -- as you think about the registration trial, you could have PATS as the primary endpoint? Just your updated thoughts on that would be great. And then I have a follow up on NASH.

Sure. Good morning, Mayank. Thanks for the question, and welcome for Alison. In terms of this, this is a really important question. We wanted to set out and understand the science and set ourselves up for a very efficient, well-informed Phase 2 that would then inform the Phase 3.

To your point, our primary endpoint in this Phase 2 is a change in PHES over the 24-week period. Now we are basing that both on our mechanism as well as the fact that we've demonstrated that outcome in our 002 study. So, we have an excellent opportunity to power this properly, understand the impact , and move forward in this more advanced patient population.

Now to your point, and it's a really important one for our differentiation and our modality, we are indeed measuring time to OHE breakthrough. We are measuring time to hospitalization. We are measuring time to the breakthrough and number of events, percentage, and proportion of patients.

Now what's important to understand is that these patients will have had one prior OHE event. They will have a PHES of minus four or greater, indicating that they have active MHE and are thus enriched for a 30% to 50% probability of having an OHE event in that timeframe. That is on top of the background that normal patients in this setting have a breakthrough 40% of the time on lactulose, 22%-plus of the time in combination even in a clinical trial setting.

So, we feel we're well positioned to establish an efficient understanding of the impact of our modality, gather important information on the registration endpoint, which we have agreed with the agency, which will be time to breakthrough and risk of recurrence of breakthrough. We also will be, of course, gathering important information on muscle function, and this is a key mechanistic differentiator for the product. It is also something the agency has agreed could be a key secondary endpoint, allowing us to differentiate not only in mechanism but in claims and label and potentially population downstream.

So, we feel that this is a very efficient, well-informed Phase 2 that will set us up directly into the right Phase 3 and then potentially also allow us to expand into additional opportunities faster than if we had taken a different development route.

Very helpful context. And then on NASH quickly. Over the weekend, obviously many of us followed the NASH-TAG conference and it was great to see a couple of your posters highlighted there. I'm just curious -- a lot of discussion there on non-invasives. I am sure this is a big part of your interim analysis.

Can you share to the extent you can how you are thinking about the time points and different non-invasives that are out there. And again, there are different variations of programs that have been run in Phase 2. So, just curious if you can share your latest thinking on that.

Yes. As you're alluding to, obviously, non-invasive markers are a critical element of understanding the impact on the disease. And then, as the field goes to continue to correlate these non-invasive markers to the histological and clinical outcomes, this is something that will help inform all of us.

As I've stated a number of times, we'll give you the final details of the Phase 2b once we have cleared the IND, which we anticipate in the near term. That will include both the histological measures -- what I can tell you is, Mayank, you should expect the standard state-of-the-art things that you're used to seeing in the field and that we've demonstrated already to date. So, you can count on that being clear.

We will also update you as to the timeframe of the interim analysis. And again, you should expect that to be within the standard parameters that we're used to seeing in the field. We're excited by the opportunity to have a broader differentiated mechanism, one that we believe the impact of which will compound over time.

As you know, we've demonstrated important thresholds, reaching those thresholds of impact on MRI-PDFF, on ALT, on cT1, on ProC3 and others that correlate towards outcomes and both in terms of all subjects and then importantly, the type 2 diabetic population. So, we'll be stratifying for type two diabetes in this, and we'll be in a position to share that information with you once we've cleared the IND experiment.

Excellent. And final question for Laurent, quickly. On the R&D spend to think about in the next four quarters or even like seven quarters when the [runway] -- does that factor in the adolescent study and also some of the non-disclosed programs that you may move in the clinic?

Yes. Thank you. Yes. We are in a very strong financial position with $107 million at the end of the year. Yes, the cash runway includes the studies and additional programs that we have in our pipeline coming. We have a cash runway well into the third quarter of 2022. And there's a number of variable here that are come in play and we'll remain very opportunistic as to when, how we are looking at the financial markets and we'll do it in a very appropriate manner so that company is well-funded while minimizing our dilution.

Mayank, the last part of your question, we do plan additional programs in that in that cash runway. And we're very excited in order to come back to you guys and share what that will be. That's one of the main applications of this design platform that we have, we can move very quickly. We can test very quickly and efficiently, gather significant information.

I'm really proud that we've been able to reach the IND status with Phase 2 and Phase 2b trials inside of four years. You've spent good time with us so you know how unusual that is. Now, we're ready to take the next steps, and we look forward to sharing that with you. And that's also included in that -- in what Laurent shared with you.

Great. Thanks so much for taking my question.

Yes, thanks, Mayank.

(Operator Instructions)

The next question comes from Jessica Fye with JPMorgan. Please go ahead.

Hey there. Good morning. Thanks for taking my questions. I'll just [close them off] with -- the first one is for Dr. Schecter. I was hoping you could talk about what attracted you to Axcella and what in the pipeline you're most excited about.

And the next two are on 1125. Just curious if there are any other learnings from the pre-IND meeting that you're able to share with us and also hoping you could help us understand the potential mechanistic rationale, if any, for a stronger benefit in diabetics. Thank you.

Well, thank you for the question, and thank you for the warm welcome.

The reason I joined Axcella is I was extremely impressed with not only the scientific platform, but also the compelling clinical human data and the potential for innovative medicines, and, of course, the very strong team that I'm joining. But most notably, I think these products, especially the NASH, is that it truly differentiates as well as the 1225 for hitting multiple targets, the sarcopenia, which no other therapy is [hitting]. And I think there's such an unmet medical need for this, that it was a very appealing and very exciting time to join.

Thank you.

Great. Thanks, Alison. And, Jess, good morning, good to speak with you. In terms of your question on the 1125 in the pre-IND meeting. It was a very rich interaction, which was also, I'll say, enabled and stood on the shoulders of our interactions with 1665, which you know have been several. From that standpoint, a couple of key aspects that we gained.

Number one is the FDA looked at our data in our supplemental filing and said, yes, let's go to a Phase 2b level study, 48 weeks, histologically paired biopsy. So, that was something that they were very encouraging on. We have also in a position and this you're familiar with, with our model, no gating tox, no gating drug-drug interactions, steps that usually takes significant time, money, and, in fact, offer risk.

Now this is because we have the information and we provide the information in our submission, similar to the 1665. We also are in a position, based on those interactions, to say we plan to take the two doses forward, and that's something that is, again, efficient.

You know in our Phase 2b for, excuse me -- our Phase 2 for 1665, we're taking one active dose forward because we've already studied for and we have a really good understanding of that. That allows us to be faster, more efficient, spend less money, be more attractive to the patients in enrollment. And we are going to position here as well.

Now to your question on diabetes, I think, mechanistically, we have -- we're [of course], focusing on metabolism, inflammation, and fibrosis simultaneously in an integrated way. Metabolism is a core aspect and the hallmark of 1125's mechanism of action.

And because there's a strong [bi] and nodal relationship between the two diseases, we have seen, as you know, the impact on HOMA-IR insulin resistance overall, lipotoxicity, very pronounced. And we believe that since we're, in essence, reprogramming and working with the body's natural processes, that this is one of the reasons why we've seen these distinct results in the field to date and replicated from 002 into 003.

We're very eager as are the physicians to study this in the next trial, gain an understanding both of the interim and the topline data and have that inform our future development plans. So, it's very congruent with the mechanism and we showed some of that at NASH-TAG this weekend, and we look forward to continuing to evaluate this with the experts.

Right. Thank you.

Thank you. The final question will come from Thomas Smith with SVB Leerink. Please go ahead.

Hey, guys. Good morning. Thanks for taking the questions. Just on 1655 and the OHE study, I think you've previously talked about implementing an interim analysis into this Phase 2. Can you just talk about what you're planning here, what the expecting timing would be for this interim and how you intend to communicate the results of that analysis to the Street? Thanks.

Yes. Thank you, Tom. Good to speak with you.

A couple of things. As a reminder, these are patients with advanced liver disease. So, we wanted to be both efficient, as we always are, as well as patient sparing. In alignment with that, the plan is to do an interim futility analysis, and I want to be clear about that. And that will be -- that will occur when about 50% of the subjects have completed the treatment.

Now in that analysis, an independent data-monitoring committee will receive the safety information, which will include hospitalizations, an important factor here both for safety and activity in this setting, along with the PHES relative to the placebo arm. Now, they'll communicate the outcome of that assessment to us so we can confirm that the trial should proceed and we have all the optimism that that will occur and that will continue to move forward on that piece.

To be explicit, we're not planning on sharing data from that analysis, so I want to be clear with you all. And in terms of the timing, subsequently, again, we'll update you post the initial enrollment curves, understanding that dynamic so we can give you a more accurate approach. This is something that will help inform us. Again, we're very confident based on the mechanism, based on the data we've demonstrated to date, and the enthusiasm in the field that we'll get through that as quickly as we can.

Got it. That's helpful. Thanks for the color, Bill.

Yes. Thanks, Tom.

This concludes our question-and-answer session. I would like to turn the conference back over to Bill Hinshaw for any closing remarks.

Thank you, operator. Thank you, everybody, for joining this morning and for your continued engagement and interest in Axcella health and our progress. We are at a very exciting stage for the company. We look forward to sharing with you in the near term, hopefully, our positive updates on 1125 and continuing to make progress on our platform and our pipeline. So, thank you very much, be well, we, hopefully, will see you in person soon and take care. Thank you. Be well.

(Operator Instructions)