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

Good morning, everyone, and welcome to the Aclaris Therapeutics conference call. My name is Shannon, and I will be your conference operator today. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Robert Doody. You may begin.

Thank you. I am Robert Doody, Head of Investor Relations for Aclaris. Earlier today, we issued a press release discussing the results of the Phase IIb trial of ATI-450 in rheumatoid arthritis and other corporate updates. For those of you who have not yet seen it, you will find the press release posted under the Press Releases page of the Investors section of our website, www.aclaristx.com. In addition, we will be referring to a slide deck entitled zunsemetinib Phase IIb Rheumatoid Arthritis Trial Results, which can be found under the Events page of the Investors section of our website and furnished as an exhibit to our Form 8-K filed with the SEC earlier this morning. Joining me today for the call are Doug Manion, our Chief Executive Officer; Gail Cawkwell, our Chief Medical Officer; and Joe Monahan, our Chief Scientific Officer. Before we begin our prepared remarks, I would like to remind you that various statements we make during this call about the company's future results of operations and financial position, business strategy and plans and objectives for Aclaris' future operations are considered forward-looking statements within the meaning of federal securities laws. Our forward-looking statements are based upon current expectations that involve risks, changes in circumstances, assumptions and uncertainties that could cause actual results to differ materially from those reflected in such statements. These risks are described in the Risk Factors section of Aclaris' Form 10-K for the year ended December 31, 2022, and other filings Aclaris makes with the SEC from time to time. These documents are available under the SEC Filings page of the Investors section of Aclaris' website at www.aclaristx.com. All the information we provide on this conference call is provided as of today, and we undertake no obligation to update any forward-looking statements we may make on this call on account of new information, future events or otherwise. Please be advised that today's call is being recorded and webcast. A link to the webcast can be accessed under the Events page of the Investors section of our website. With that, I'll now turn the call over to Doug.

Thanks, Bob. Good morning, everyone, and thank you for joining us for this call. As you may have seen from the press release we issued this morning, ATI-450 in our Phase IIb RA study did not perform as we had hoped, and unfortunately failed to meet any of the measures of efficacy at the week 12 time point. Speaking on behalf of all my colleagues, we are both surprised and disheartened by this outcome. We're disappointed that we're unable to deliver to patients a new option for rheumatoid arthritis, which still has significant unmet need for highly efficacious and safer treatment alternatives. We're also disappointed for our investors who shared our hopes for ATI-450. For the call today, I'll be handling the prepared portion of the discussion and will review key aspects of the trial. We will then open up the discussion with Joe and Gail, also on the call, to help address your questions. Let's now move into study results. Directing your attention to Slide 3. RA-202 was the largest study to date with an MK2 inhibitor in any disease. This followed our successful Phase IIa RA trial, which read out in 2021. RA-202 enrolled 251 patients across 3 arms: ATI-450 at 50 milligrams BID, ATI-450 at 20 milligrams BID and a BID placebo arm. The primary endpoint was ACR20 at week 12. Secondary endpoints included ACR50, ACR70, DAS28-CRP and other relevant RA measures. Slide 4 shows the patient disposition. And as you can see, the arms were nearly equal. We did see a higher discontinuation rate in the active arms of the study. Slide 5 lays out the patient demographics. In this case as well, the arms were relatively well balanced. Comparing these against other well-known RA trials, we enrolled a very typical RA patient population. The next slide shows the baseline disease characteristics from this trial, which also were in line with other pertinent RA trials. If we now move to Slide 7, you can see the discontinuation rate for the trial. You will note that the rate of discontinuations is higher in the active arms than placebo. So for the majority of the trial, as we have noted in previous commentary, the overall discontinuation rate was lower than what we had anticipated when we designed the trial. Towards the end, however, there began to be an uptick. The final overall discontinuation rate of the trial remained within the margins of our expectations. Moving now to the efficacy results from the study on Slide 8. Across all of the relevant time points, there is little to no difference between active and placebo arms at the end of the treatment period, week 12. This is clearly disappointing. However, it does make it abundantly clear that ATI-450 is not active in RA. Moving on to the safety from the trial. You can see on Slides 9 and 10, there were no meaningful safety findings that would have precluded further development had the efficacy warranted as moving forward. We do note that while there was a fair amount of mild to moderate CK elevations measured by labs, they were generally short-lived and not associated with other signs of muscle pathology consistent with our prior findings. Lastly, I want to spend a moment on PK and PD. As you can see on Slide 11, the overall plasma concentrations for both doses of ATI-450 were as expected throughout the duration of the study. On Slide 12, we show the pharmacodynamic analysis across several of the key cytokines, except for IL-6, the PD was consistent with what we've seen in our prior studies. So the question is, why did this not work? There is no obvious answer to this question based on a review of the top line data. We will, in the coming days and weeks be performing a thorough review of the totality of the data. Based on all of the available evidence, we have decided to discontinue further development of ATI-450. Our team is already at work determining how to best conclude the psoriatic arthritis trial in a manner that is in the best interest of the ongoing patients. As for ATI-2231, at this time, we believe there's still merit to proceed in oncology indications because the mechanisms of action of MK2 inhibitors are different than in immuno-inflammatory diseases. As a company, we now continue our focus on the progression of the rest of our development pipeline, which is led by ATI-1777, our soft JAK inhibitor for atopic dermatitis. We anticipate sharing the Phase IIb results around the end of the year. We're also excited about the prospects for ATI-2138 in T cell-mediated diseases with Phase II clinical development expected to begin in early 2024. There is no doubt today's readout is a clear disappointment to us. However, I joined this company with eyes wide open and with the understanding that drug discovery and drug development is not for the faint of heart. I'm proud of our team at Aclaris for the effort they put in each and every day with the sole focus of delivering novel therapeutic options for patients with unmet medical needs. Despite the setback, we are highly focused on the final execution of the ATI-1777 Phase IIb trial in atopic dermatitis. On Slide 14, we share the trial design of the study. As a reminder, we expect these results around year-end. On Slide 15, we want to remind you of our existing drug development pipeline, which continues to be fueled by the KINect Platform discovery engine. Over the coming weeks and months, our team will spend time refining our overall strategy, but we do have strong foundations upon which we can continue to build. Importantly, we have a cash position that allows us to continue moving our existing programs forward. We sincerely appreciate your support through the development of ATI-450 and hope that you'll continue to join us as we endeavor forward. With that, operator, I think we can now open up the [ call to questions ] from the audience.

[Operator Instructions] Our first question comes from the line of Louise Chen with Cantor.

This is Carvey on for Louise Chen at Cantor. My question is on the catalyst for the rest of the year. What can we expect to see from the data for 1777 and what's your level of excitement heading into the data release?

Well, thanks very much for the question. So as you know, the Phase IIb study in atopic dermatitis for 1777 follows on the heel of a highly successful Phase IIa study that was previously reported. And our expectation is that we should see a continuation of the very good activity in that study. A reminder, that was a Phase IIa study that compared a 2% topical formulation given twice a day to placebo. As shown in the slide deck, there are several other active arms that are being tested in the Phase IIb, including 1% and 0.5% BID and 2% once a day. And we're hoping to have emerged from this one or more doses that are highly efficacious to be taken into Phase III.

Our next question comes from the line of Alex Thompson with Stifel.

I guess one on the study and maybe one on 1777. Can you provide a little bit of color on the discontinuation? What kind of -- were there any [indiscernible] there across the arms? And then for 1777, could you talk a little bit about potential for differentiation there? What does the commercial landscape look like within the topical JAK space? Like how are you thinking about the competitive landscape? And what would the bar for success be for the Phase IIb?

Gail, why don't you answer the questions on discontinuation, and I'll take the second one.

Sure. Happy to do so. Yes, the discontinuation rate, as was noted, was somewhat higher with the active treatment. But the reasons for discontinuations, very similar to what we saw in the HS study, were highly variable. The only discontinuation reason that had more than one subject in it were again similar to what we saw in HS, 2 subjects with diarrhea. But otherwise, there was nothing pointing to a pattern or any consistent finding that might cause concern or preclude future development.

And regarding the question regarding our expectations for 1777 and the competitive landscape for atopic dermatitis, we've been pleasantly surprised to see how well Incyte has been doing with their topical JAK, Opzelura. I think that they have shown that, in fact, you can be quite commercially viable by taking that approach. Our thesis is that we could have all of the benefits of Opzelura without the risk that is -- that occurs with systemic exposure of JAK. So in our Phase IIa study, we're able to show that with very high levels of disease -- [ suppress the level ] of the diseased skin, we had hardly any exposure systemically. And with the doses being tested in the Phase IIb study, we anticipate finding one or more doses that will be equally effective at the level of skin with basically 0 systemic exposure that's obviating concerns regarding systemic toxicity of JAKs.

Our next question comes from the line of Gavin Clark-Gartner with Evercore ISI.

Sorry to see the results. For 1777, what was the split between the mild, moderate and severe atopic derm patients in the trial? Or any other comments you can provide on the baseline characteristics?

Gail, why don't you take that, please?

Sure. So the -- of course, the study is still blinded. So we don't entirely know even baseline characteristics yet at this point, even in an unblinded manner. That said, based on operational aspects as we were running the study, I believe that the study will be probably close to 40-40 on the mild and moderate population with a smaller severe subset, but that's an approximation based on earlier data.

Got it. And then just high level, how are you thinking about partnership opportunities across the portfolio? Kind of wondering if you would consider partnering specific indication for 1777 or look for a partner for 2138 now or maybe wait until you see Phase II data from that program?

So we've always said that we don't intend to become a commercial stage company again. I guess the one caveat would be for a niche indication, but atopic dermatitis is not a niche indication. So we're absolutely looking for a commercial partner downstream for it. We are completely enabled in terms of capabilities and capacity to be able to prosecute Phase III for 1777. We will need to raise the funds to be able to do so. But we're looking for a commercial partner downstream. And the same is true for 2138. So again, if someone is interested in that, I think it's an extremely attractive mechanism for a variety of reasons. We are public on saying that the initial indication for proof of concept will be ulcerative colitis, but there are myriad T cell diseases in the rheumatologic and even the pulmonary space that we could also contemplate.

Our next question comes from the line of Roger Song with Jefferies.

Maybe two from us. So one is what are the other additional analyses you plan to perform for 450? And [indiscernible] oncology space, and is there any additional evidential information you will be able to find before you [ move into oncology ]? And the second question is related to the cash runway. With the updated operational plan, what is your guidance on the runway?

I have a little bit of a hard time hearing you, Roger, but I think the -- the first question was around additional analyses that we have performed. I wasn't clear if it was only in the context of the oncology indications or something else. Can you just specify?

[indiscernible]. Yes, any indication on analyses you plan to perform [indiscernible].

Yes. I'm sorry, I cannot -- I'm not sure if the operator or anybody else from our team can understand, Roger, but I just cannot hear.

Hello. [indiscernible].

Hello, Roger.

Yes. I'm just curious about the additional analyses for the oncology plan.

So if the question is about oncologic indications for 2231 or other MK2, maybe, Joe, you can handle that.

Yes. I think that for oncology indications, the mechanisms that we'd be looking at would be distinct from what we looked at for the autoimmune inflammatory disease indication. So our plan is to continue to work with Washington University and move 2231 forward in the both metastatic breast cancer and the PDAC indication.

Thank you. And then regarding our cash runway, we're not modifying our guidance. We're still -- we still have cash on hand to take us through to the end of 2025.

Our next question comes from the line of Julian Harrison with BTIG.

Sorry to hear this news. I'm wondering if you could tell us more about maybe the average and range of methotrexate doses across study arms, and if there were any notable differences there?

Gail, do you want to take that?

Yes, happy to do so. So the inclusion criteria were fairly typical methotrexate doses that were allowed. And in fact, the use of methotrexate was very much in the range that you would expect it to be, with most patients being on 12.5 to 15 milligrams a week, although we allowed higher doses as well.

Our next question comes from the line of Thomas Smith with Leerink Partners.

Can I just ask you to comment on the initial review of the PD data and the cytokine reductions and how -- at least on an initial top line basis, how does this compare relative to your expectations?

Yes. Joe, why don't you cover that?

Yes. So in the IIb study, the PD analysis was restricted to endogenous cytokines. And looking across the set of both pro-inflammatory and anti-inflammatory cytokines, the general results were similar to what we saw in the RA IIa study, where we did see a reduction towards healthy donors for both TNF alpha, IL-8 and MIP-1 beta. With IL-6 in the IIb study, there was a lot of scatter there and with -- coupled with the low levels of cytokine observed, and we didn't see the same trend that we saw with the IIa study. And then finally, with the IL-1 receptor antagonist, which is the anti-inflammatory cytokine, similar to the IIa study and actually the HS study, we didn't see any impact on the anti-inflammatory cytokine.

Okay. Got it. That's helpful. And then if I could just come back to the potential path forward for 1777, I understand you're looking for a commercial partner there. But with the [ idea be ] that you could advance that into a Phase III program yourself, I guess [indiscernible] partner potentially after the Phase IIb data? Or would you need a partner to advance that into the Phase III program?

Yes. Ideally, we'd like to have the partner identified. But depending on the strength of the Phase IIb data, we would be prepared to go at risk, I say that kind of loosely. It really kind of depends on how strong the data look and how much we believe that this is going to compete with other drugs in that space. Just to add, so atopic dermatitis would be a much more compact Phase III program and a much less expensive and shorter duration Phase III program than, for instance, if we have been progressing 450 in RA. And so it would not be anywhere near as heavy a lift in terms of getting the financing to be able to move that forward.

[Operator Instructions] Our next question comes from the line of Tim Lugo with William Blair.

For 2138, can you give us some idea about what the planned Phase II looks like in UC? And how long it will take to enroll and when we may see some proof of concept from the program?

Yes. So we have not public yet on the final design. We're still tweaking it. But the expectation would be that the readout would be in 2025. And Gail, anything you want to add on 2138 POC design?

No, I think that's probably a good place to stay for now. I guess I would add perhaps that we focused on a study that is one that we believe can readily enroll in that time, and also provide good results that will help us make decisions on the product at that point.

And we are considering additional indications in parallel.

Our next question comes from the line of Chris Raymond with Piper Sandler.

Sorry about the results from us as well. This is a question, I'm not sure you guys can answer it, but I guess I'm just kind of struck by -- I don't think I've seen really such a disconnect between IIa and a IIb result. And just kind of eyeballing the pro-inflammatory marker inhibition that you guys had, they were kind of in the same ballpark. And I guess the question I have is when you guys foresaw this data from the IIb, was there something about the design of the IIa that made you think if you could have gone back in time and sort of redesigned it, that you think you should have seen the signal earlier had you had the opportunity to [ design obviously more end ] would be important. But I know you said you don't know why you saw these results, but I'm just kind of curious if you saw -- again, if you could Monday morning quarterback, if you will, the IIa design, what you would have done other than just [ more end ]?

Yes, it's a great question. So there really isn't anything. So we -- I mean, of course, I joined this company in part because of the strength of the KINect discovery engine and the Phase IIa results in RA. And I have looked at every patient's data point in that Phase IIa study, and it was just so consistent. There just was so much evidence of a high level of activity. And we based the Phase IIb very much on the Phase IIa with the exception of skewing the patient population more towards the naive versus TNF and JAK experienced population. And if anything, that should have increased the point estimates in terms of efficacy measures like ACR20. So we were, like you shocked to see the results. If we had looked at PK and PD data during the study, we still would have felt the same way. The pharmacokinetics were in line with what we had anticipated. The trough levels were above the targets that we had set, in terms of what we needed to achieve to be able to have adequate cytokine reduction and those cytokine reductions in the Phase IIa resulted in very high levels of activity against the disease. So Monday morning quarterbacking is always a dangerous thing. But even if you do it, we're just squinting to see anything that we could have done differently here.

Our next question comes from the line of Corinne Jenkins with Goldman Sachs.

Really sorry about the outcome this morning. I guess one question from us. Based on this study, what can you learn from here that you can apply towards the execution of future studies and other developmental programs?

It's a great question. Thank you. So the -- both the HS study and this study I feel were executed to the highest standards. There has been a migration of placebo effect rates in RA. And this [indiscernible] was high, it was in line with recent studies, I don't think it was disproportionately high. No, I think the team did an exemplary job in terms of executing the study. It's just unfortunately, the drug did not have the level of activity that we would have liked to have seen. And that we saw in HS and now we're seeing with RA, that does lead to a higher level of discontinuations that are difficult to prevent. We did take the learnings from the HS study and applied it for both the psoriatic and the RA studies for 450. We informed physicians about what we have seen and what -- and how they could kind of optimize management of their patients that didn't have much of effect in terms of having a relatively high discontinuation rate. So you always want to get better at this stuff, but I struggle to see how we could have done better on the executional front. At the end of the day, the drug just didn't have the level of activity that we would have liked to have seen.

Got it. Got it. Maybe just one more for us then. So you highlighted that you have cash runway through 2025. What sort of clinical milestones can we expect that to take you through?

It will take us through to POC for 2138 in at least the UC study and possibly another indication. Obviously, we're in the process of reviewing our cash burn. We may have a modification to the guidance at some point. Clearly, there's going to be some decreased expenditures for ongoing activities for [ studies ] that would have been ongoing for 450 that we can apply to extend the runway and we'll look at other ways to do so.

I'm currently showing no further questions at this time. I'd like to hand the call back over to Douglas Manion for closing remarks.

Just to say a tough day. Thank you all for your questions and have a good rest of your day. Thanks, all.

This concludes today's conference call. Thank you for participating. You may now disconnect.