Aclaris Therapeutics, Inc. (ACRS) Earnings Call Transcript & Summary

Good afternoon, everyone. Welcome. My name is [ Lucy ]. I'm an associate on the JPMorgan health care team. I have here with me Aclaris Therapeutics. I'm very honored to introduce to you the CEO, Doug; and we also have with us the CSO, Joe; and we also have with us on stage, the CMO, Gail; and we also have the CFO, Kevin, with us. All right. I'll leave things to you, Doug.

Great. So thank you, [ Lucy ], and thank you for -- to JPM for the kind invitation. I'm sure you all feel it's great to be seeing people in 3 dimensions again. So you all look great in 2 dimensions on Zoom, but it's a lot more from when you can interact with people directly. So I'm thrilled that that's the case. And I've been CEO only since last week, but I am honored to speak on behalf of the 100 employees of Aclaris Therapeutics and to share our story with you. The slide deck that I'm presenting has been posted to our website. So you don't need to madly write down notes. You can just access it that way. When you do so, by all means, do read our cautionary note on forward-looking statements and take heed of it. All right. So who are we? What do we do? So we're, as I mentioned, 100% company who are based in Wayne, Pennsylvania. We've been around for about 10 years. We actually started as a derm and spec pharma play. Founded by my predecessor, Neal Walker, who's now the Chairman of the Board, and our former CFO, Frank Russo -- Ruffo. In the mid-2010, they began interacting with a really interesting group of scientists, formerly of Pfizer in St. Louis called Confluence Discovery Technologies, and they were working on a topical soft JAK. In 2017, they had the good idea of actually purchasing Confluence, and by so doing, acquired a world-class discovery engine that basically is the source of a very, very good pipeline, I think, is the envy of most of the companies that are science. So our secret sauce is really kind of threefold. One of them is around the expertise of our scientists, led by our CSO, Joe, who is the Head of Confluence and is now leading those efforts there. We've added, more recently, a world-class development capability led by our CMO, Gail Cawkwell, a [ caring ] rheumatologist. Our friends in St. Louis have a proprietary platform called KINect, which basically allows us to explore and exploit the human kinome in ways -- in creative ways that are different than pretty much everybody else. The result of that has been 6 candidates nominated for IND enablement over the last 5 years with 4 drugs actually getting through to IND and 3 of them being in active dosing in the clinic. So why go after the human kinome? So this is a very target-rich area of human pathophysiology. You can see on the left-hand side of this slide, there are over 30 drugs that are using kinase-based mechanisms to treat either oncologic or immuno-inflammatory diseases. These drugs, many of whom are mega blockbusters, accumulate up to about $50 billion a year in annual sales. So that is great. But the human kinome is large. There's over 500 proteins in it and 90% of them have not been targeted yet. So there's a tremendous substrate here for us to be exploiting, but one has to do that in a way that's more clever than others. So the way we've done this, again, using the KINect Platform is we have multiple different programs and each of those programs have resulted in one or more drugs getting through IND enablement and into the clinic. The first approach is to find novel ways to target the MK2 pathway, which is a sub pathway of p38, which I'll explain in a few minutes. We have 2 offerings in that space, zunsemetinib, also known as ATI-450 is in Phase IIa and IIb development currently, but we also have a drug ATI-2231, which is chemically proximate to it that is about to be -- have it in an IND file, then we should be dosing patients relatively soon. The second program is what we call tissue-restricted JAK inhibitors. The premise there would be to get the efficacy of JAK inhibitors, either in dermatologic conditions or GI conditions, but in such a way as you don't get systemic exposure and it does not tribute to the safety concerns that one sees with JAK that has resulted in fairly onerous bit of labeling for them. And the third is to take an approach to ITK using covalent chemistry that allows us to capitalize on that pathway. So those 3 programs have resulted in this current pipeline. So ATI-450 is an active Phase II development. Our largest study is a Phase IIb study in rheumatoid arthritis, but we also have Phase IIa studies in the hidradenitis suppurativa, which I'll call HS for the rest of the presentation, and in psoriatic arthritis. Our ATI-1777 is the topical soft JAK that we initially engaged conference for. It is being developed for atopic dermatitis with the Phase IIb readout this calendar year. And then rounding out the field in terms of clinical assets is ATI-2138. It is an ITK/JAK3. It's much harder on ITK. It activates ITK much more than JAK3. And it just completed an SAD study for which we reported data late last year. And just this week, we began dosing of the first cohort in the MAD. In the immuno-inflammatory space, we also have a gut-biased program, where we hope to have a candidate nominated for IND enablement this year. And then lastly, ATI-2233, which is our second MK2 offering is initially being developed for oncologic indications in collaboration with WashU in St. Louis with whom we're very tight. Okay. So the next set of cassettes are basically a little bit of a deep dive on 450, 1777 and 2138. So why go after MK2? So in the early 1990s, there was an awful lot of interest in activating the p38 pathway. It was thought to be kind of a master regulator of autoimmunity and immuno-inflammatory diseases. A lot of companies invested in trying to drug that target and it was actually relatively easy to do so. But what they all found relatively rapidly were 2 things. One of them is that, although they saw a good benefit initially in terms of biomarkers of reduced disease activity as well as clinical effect, those good effects tended to wane over the course of the next 4 to 8 weeks. That is called tachyphylaxis. It's, I think, biologically understood how that happens. But also p38, being ubiquitously expressed and phosphorylating over 60 substrates, there was an awful lot of on-target toxicity that was undesirable, most importantly, dermatologic GI and hepatic toxicity. So interest in p38 kind of went away later in that decade until it was discovered that the virtuous sub pathway of p38 is MK2. So then again, interest in MK2, the trouble there is that, unlike p38, was very difficult to drug. So Joe and his very clever, former Pfizer scientist at Confluence in St. Louis, found a very clever way to block the activation of MK2 by creating a molecule that basically works as chemical glue between the p38 and MK2 complex, thus locking in MK2 in a catalytically inactive state, and thus, preventing any of its downstream activity. So to our knowledge, we're the only company that is doing it this way. There is at least one other MK2 that is out there that is actually a covalent binder at the active site, but our approach is extremely unique. So what do we hope to achieve with blocking MK2? So MK2 modulates the activity of multiple different cytokines, TNF alpha, IL-17, IL alpha and beta, IL-6 and IL-8. So we know, from monoclonal antibodies that have come to market, that knocking down any one of those pathways is going to have major effects on various diseases. The overlapping Venn diagram you see on the left is basically just a display of what are the indications for which monoclonals are currently indicated, monoclonals against TNF, IL-17, IL-1 and IL-6. And you can see the universe of indications that would be privy to a molecule that could actually knock them all down simultaneously. And that is the central value premise for our MK2 inhibitor for 450 is that it is almost like a combination product of IL-17, TNF, IL-1 and IL-6 blockers. So a little bit of a complicated slide, but these are the data that shows why we believe that we actually can knock all of these cytokines down. So on the left, our data from a healthy volunteer study, so these are in vivo data. On the right is an ex vivo study of healthy volunteer donor blood. As you can see with each of these, we're seeing very appreciable knockdowns. But let's focus a little bit on the upper left-hand part of the graph and that's -- of the slide rather, and that's TNF levels. So at the 50-milligram BID dose, which is the anchor dose for a Phase IIa program and the high dose in our Phase IIb portion of the program, what we're seeing is 93% knockdown in TNF presence at peak and 85% of trough. And when you take into account is it also affects downstream signaling. We believe that this oral MK2 actually is eliciting TNF knockdown akin to what you see with injectable biological monoclonals against that target. And you can see that similar trends we're seeing with basically all of the other cytokines that I mentioned. And how does this translate to the clinic? So last, I guess, 1.5 years ago or 2 years ago, we first reported on the Phase IIa data of a relatively small study in patients with rheumatoid arthritis. In fact, those data were just published last week in the ACR Open Journal of Rheumatology (sic) [ ACR Open Rheumatology ]. So the citation for that is seen on the lower left-hand side of this slide. But what we saw was exactly what we hope to see, which was significant improvements in terms of quantitative markers, objective markers such as CRP, but also on clinically significant markets like ACR20/50 and 70. Critical in this slide is the fact that the results that we see both in terms of circulating biomarkers like CRP as well as clinical activity is that you do not see that tachyphylaxis, so post week 4, post week 8, post week 12. In fact, if anything, you're seeing a deepening of the effect as opposed to the waning that was seen with p38 inhibitors. So we feel that with these data, we've kind of put the rest any concerns that MK2 might have had the same problems that p38 had. Okay. So where are we going next? So I mentioned we have 3 different Phase II studies that are actively enrolling. Let's go a decent sequence. So the first that's going to read out is our study in HS. This is a 12-week Phase IIa study. It's 50 milligrams BID compared to placebo. These are in patients with moderate to severe HS. And we expect to see the top line data in March or April of this year. The dosing was completed in December. We're in the post-dosing safety monitoring phase. And so whether it's going to be March or April, just depends on when that last patient comes in for their last sampling. Next to readout will be a large Phase IIb study in rheumatoid arthritis. This is basically aping what we had done in Phase IIa, including overlap of sites as much as possible, 240 subjects, [indiscernible] between 3 arms, placebo, 20 milligrams BID, 50 milligrams BID. And the patients, again, moderate to severe RA on -- who are not fully suppressed with methotrexate. And those data are expected in the second half of this year. And at the tail end of the year, we have a Phase IIa study in psoriatic arthritis, 70 patients, 2 arms, placebo versus 50 milligrams BID. These, again, are in patients with moderate to severe disease. All right. Let's talk about ATI-1777, our soft JAK. So we're going after atopic dermatitis. So you may all know, it's an extremely attractive market, huge prevalence in the U.S. and the Western world, a disease that does impact disproportionate young people. And so unfortunately, people live with this disease for a very long time. The good news is that with monoclonal antibodies and with JAK inhibitors, we've seen some pretty impressive results. The trouble is, though, that with the existing standard of care, for instance, biologicals, they have a very slow onset of action in a disease that's characterized by flares, oftentimes in children. And because of the long systemic half-life after discontinuation of dose, if you have an adverse event such as an opportunistic infection, it could take quite a while before that's going to resolve. As for the JAKs, again, very good efficacy, orally administered, which is highly desirable. But as you know, all of the drugs current -- all of the JAK inhibitors currently indicated for RA, come with a pretty onerous black box, which is a burden on patients and on physicians. And so the goal of the ATI-1777 program was the design from scratch a molecule that would have all of the activity of a topical JAK with minimal to any systemic exposure, thus obviating the need for the labeling that are seen, for instance, with topical RUX. And the good news is that, again, Joe and his folks were able to do exactly that. So we reported the Phase IIa data previously. There's nothing new in the slide, but just to reiterate, that for the primary efficacy endpoint as well as all pertinent secondary endpoints we saw, there was exactly the results that we were hoping to see that's prompting us to want to get into Phase IIb. But perhaps, most importantly, for this program, when you look at extensive PK sampling of all 25 patients who received the drug, only 3 of the 25 had any detectable levels of ATI-1777 in the bloodstream. Of those 3, none of them actually had drug present at every sampling. None of them had any single sample that was above the 50% of the IC50 for all pertinent JAKs. And in all patients, including those 3, the average presence of drug was less than 5% of the IC50 for JAK. And lastly, the systemic half-life of ATI-1777 was less than 30 minutes and this is compared to a systemic half-life of greater than 100 hours for topical RUX. So the data remains to be seen for a Phase IIb study and beyond, but we actually do think that we have truly designed a soft JAK that gets all the benefits of topicals -- of a topical JAK without any of the downstream risk of toxicity. So where are we with it? So as I just mentioned, we -- I think that we have positive proof of concept for moderate-to-severe atopic dermatitis. We've been able to show minimal to 0 systemic exposure, which should pertain to very good labeling. The PK supports our thesis in that respect. We think this drug could be positioned either to be used in monotherapy, or we think, more valuably yet would be in combination with systemic biologicals. We did strike a licensing deal with the company in China called Pediatrix for development and commercialization rights for 1777 in Greater China. And as I mentioned before, we're expecting the Phase IIb top line data to be shared by press release and investor call in the middle of the year. And the last of our clinical stage assets is ATI-2138. So we thought, given our prowess in terms of exploring the kinome that maybe we could crack the ITK nut. So there are others who've gone after this. There are offerings that are currently being developed that are ITK/JAK3 inhibitors that are heavy on the JAK3 and light on the ITK. We designed our drug from scratch to do the opposite. So it has very strong activity against ITK with a 10- to 20-fold lesser activity against JAK3 and basically no activity against JAK2, which is the main driver of hematopoietic toxicity with the JAKs. And so with that, we feel we've got a drug that could be extremely useful in terms of T cell-driven diseases. ITK, as you know, blocks T cell signaling. The JAK3 is going to reduce all of the IL-2 gamma common cytokines that are also pertinent in terms of T cell activity. So this is a very T cell-specific approach and could actually work in the universe of T cell-driven diseases, which I mentioned in a few slides. We just presented last fall, the SAD data, we did -- and the beauty of having very experienced scientists like the ones we have in Joe's organization in St. Louis is that we do things very well. So we did, of course, all of the usual PK and safety monitoring. No safety signals were detected in the single ascending dose in healthy volunteer study. The PK was as planned. It was predictable and dose dependent. But best of all, we did do extensive PK and we saw exactly the impact on downstream function that we expected to see. We only have 1 data display here, but this is basically showing a combination functional assay of both ITK and JAK3 function as measured by a CD3 and IL-15-induced interferon gamma protein production. So basically, we know that we're seeing activity both against the ITK as well as the JAK3 downstream function. So this is exciting on multiple different levels. But as you may know, there are a lot of diseases that are T-cell driven. We've decided for mechanistic and end market reasons to primarily go after ulcerative colitis as our initial indication, but we are planning on expanding this very rapidly. T cell-driven diseases include all of the inflammatory bowel diseases, but also includes a lot of rheumatological diseases, RA and others, but can even include diseases such as COPD, most importantly, asthma. So there's an awful lot that we could do with this. The MAD study, as I mentioned, was started this week, and it should be read out in the middle part of this year. So just to end, I did already talk to you about our people, our platform and our pipeline. Just to add, we have robust global IP protection for ATI-450, our composition of matter patent takes us out to 2034 with patent term extensions. We expect that to be carried out to 2038 to 2039. And with various [indiscernible] other extensions, we should be getting out to the early 2040s. We're in a great cash position. We ended the third quarter with about $250 million in the bank, and that's not including a $5 million upfront payment from Pediatrix for ATI-1777 in Greater China. And our North Star in everything we do, of course, is our patients. And so everything we do is urgently trying to bring medicines to squelch serious unmet medical need. So we have 100 or so employees that are led by this extremely capable team. I've already mentioned Gail and Joe, who are up here at the podium with me. Also, we hired -- sorry, we promoted internally our new General Counsel, Matt Rothman, as well as our CFO, Kevin, who's here. And then lastly, not in the room is Jim Loerop, our new CBO, who joined almost exactly a year ago today. So Jim and Kevin are going to be very active this coming year because we have a lot going on. So this is basically a redux of the pipeline slide that you had seen earlier, but just mentioning where we're at currently with partnerships. So we had the 1 deal for Greater China for ATI-1777, but we are looking for partners for all of our assets. So we believe that ATI-450 has the potential to be a mega-blockbuster oral INI drug. To realize its full revenue potential, we probably, with a partner, will need to begin Phase II studies in as many indications as we think are viable to accelerate the time to peak sales. So we're looking for partners for 450 as well as for the rest of the world for 1777 and even for 2138. And so if you want to leave this talk with any punch line, it is this. This is going to be a great year in terms of clinical data readouts for us. So 5 major readouts across 3 programs. So just to go through this sequentially again. ATI-450 Phase IIa in HS is going to read out in March or April of this year. ATI-1777, atopic dermatitis Phase IIb is going to read out in the middle of the year. ATI-450 study in RA, the Phase IIb, the 240-patient study will read out in the second half as will the MAD study for ATI-2138. And then closing it out will be our ATI-450 PsA Phase IIa at the end of the year. So we're looking forward to an exciting year. And my team and I are more than happy to answer any questions you may have. So thank you.

Please also feel free to submit questions online if you prefer that. So Doug, why don't we start off with a few questions from me.

Sure.

So can you please help us think about what you're looking for with the HS trial data?

So let me start, and then I'm going to have both Joe and Gail speak to this. So the decision to go into HS was made before I joined the company, but I think it was an extremely wise one. So psoriatic arthritis already tend to kind of co-migrate together in terms of activity. So we see the PsA Phase IIa study is being much more confirmatory. The read-through study for our Phase IIb RA was the successful Phase IIa in RA. So that, we think, is kind of taken care of. HS is kind of at the opposite extreme of the spectrum in terms of diseases to address with a drug like this. If we see a good signal there, I think that we and others are going to think that we truly are an oral version of TNF plus -- TNF plus IL-17, TNF plus IL-6. Mechanistically, we think that it's an obvious place for us to be going. If you look at successful drugs in the HS space, obviously, HUMIRA is the only one approved currently in the U.S. But there's a couple of Phase III studies for IL-17 that just came out that are consistent with our thesis that, in fact, knocking IL-17 down also could help. And even the [ IRAC4 ] data would suggest that that's very much aligned with our kind of central thesis mechanistically. So I'll get Joe first to kind of elaborate on why we think this is going to work, and I'll get Gail then talk about the -- what we expect to see in the study.

Yes. So as Doug said, mechanistically, the MK2 pathway regulates the production of these key cytokines that are involved in HS such as IL-17, both [ ANF ] as well as TNF alpha, IL-8 and IL-1 alpha and beta. And in addition, it regulates the signaling of a subset of these cytokines, namely IL-1 alpha and beta, TNF as well as IL-17. So understanding the biological data from the compounds that are now in late clinical development or on the market and the mechanism of those, it matches up perfectly with ATI-450 inhibition of MK2.

And in terms of the study, I think from a Phase IIa study, this is our first chance to see how well this mechanism will play out in a disease like HS that really represents still a large unmet medical need. A primary endpoint is change in nodule count. And I think what we most like to see is that our results on the primary endpoint and key secondaries are well within the ballparks that we've seen from the TNF inhibitors and from IL-17 inhibitors and that our safety profile is promising. It's a Phase IIa study so every piece of data will be important from PK to PD, to primaries to secondaries and helping us understand how this drug works here and where to go next.

So just as a follow-up, can you talk about what does the bar or what does good look like for this data?

So I think -- let's go back to that ballpark that the TNF inhibitors are in, the IL-17 inhibitors are in. I think what you saw in the PIONEER studies with HUMIRA was a change in nodule count of 3 to 4. So I would hope we're at least in that ballpark. I think based on the mechanism and the fact that we, as Joe said and as Doug said, not only do we hit TNF, not only do we hit IL-17, but we hit cytokines that impact neutrophil activation, neutrophil effects, which is a very important part of this particular disease. I think more would be better, but I would be pleased to get us in that ballpark of 3 to 4.

Amazing. And if the audience doesn't have more questions, I'll continue with more questions from me. Should we think about the results of the HS trial having any read-through to the RA and the psoriatic arthritis trials?

So as I mentioned, I don't think there's any efficacy read-through positive or negative in that respect. Again, the predicate for Phase IIb success in RA was the Phase IIa. I do think the read-through is going to be on safety. So just to give people an appreciation of the size of our safety database, we currently only have 15 patients that have been exposed for any period of time that have been unblinded and those are the patients that were in the RA Phase IIa study. We'll be adding another 45 to 50 patients with the HS data readout in March or April of this year, then there'll be another 160 patients with the RA Phase IIb readout and another 35 patients in the psoriatic arthritis Phase IIa readout. So by the end of this year, we'll go from having the safety data on 15 patients to 250 patients. So we think that, that is going to -- obviously, we'll ultimately need to have a larger safety database to get the drug approved in the U.S. and elsewhere. But we think that that's going to be a large enough, a critical mass of safety data for us to have a pretty good idea on what the profile is. I will say to you, though, preclinically, we have not seen any signature toxicities with this drug, and thus, with this drug class. We've already mentioned that clinically, we haven't seen anything akin to p38, in fact, we haven't really seen anything at all. Preclinically, we have completed 4-, 12-week studies as well as 6- and 9-month studies. We're waiting to get the final histo readout on the chronic preclinical tox. But in every study to date, we have not hit an effect level. So the highest dose exposed was, in fact, the no-effect level. So all of this augurs well. You don't declare victory until you see the data, but we think it's -- the drug is actually looking pretty good, and we are very confident that we don't have any of the liabilities to the p38.

Amazing. Amazing. So I know we've talked a lot about ATI-450, but one more question on competition in the MK2 space. So can you share your thoughts about Bristol's MK2 inhibitor and how it is different than ATI-450?

And I'm going to Joe to answer that, please?

Yes. So the only 2 compounds that are in clinical development that target MK2 are ATI-450 and the Bristol compound CC-99677. Mechanistically, they're distinct. Our compound, as Doug said, targets the p38 MK2 complex selectively and locks MK2 into inactive confirmation. The Bristol compound is a covalent inhibitor of MK2 taking advantage of the cysteine residue with the active site. So mechanistically, they're distinct. When you look at the potency, and BMS has published a couple of manuscripts last summer that described their preclinical and early clinical work with their compound, potency was looking at cytokine regulation. ATI-450 is 10 to 30 times more potent in cellular assays than as the BMS compound. When you look at kinome selectivity, ATI-450 is very selective against the human kinome, one of the more selective inhibitors that have been published on. The BMS compound has about 9 kinases that it hits harder than it hits MK2. Some of these kinases, it hits reversibly, so you got to take that into account when you look at the selectivity profile. Thirdly, looking at the doses that are being used in clinical studies, as Doug said, we're looking at 50-milligram is our anchor dose for ATI-450 in our Phase II studies. And with that dose, we're knocking down, for example, TNF alpha level somewhere between 85% and 93%. The BMS compound, at their highest dose in their ankylosing spondylitis Phase II study, which is the single Phase II study that you're looking -- that they're compound in, at that high 150-milligram dose, they're modulating TNF maximally at 70%. So we're able to, with ATI-450, interrogate a broader range of pharmacodynamic modulation and try to correlate that disease efficacy. So that's sort of a comparison, both from functionally and structurally between the 2 compounds.

Thanks, Joe.