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

Great. Welcome, everyone, to the last morning session on Tuesday of Goldman Sachs Global Healthcare Conference. We're thrilled to have with us today the team from Aclaris. And maybe first, we could have you guys all introduce yourself and provide a bit of an overview of the company, maybe Neal, I will turn it to you for that one.

Kevin Balthaser, CFO.

Joe Monahan, CSO.

And I'm Neal Walker. I'm the CEO. So just a little bit about the company, we're a biotech company focused on immuno-inflammatory disorders, and we have a pipeline that spans across a few Phase II assets, ATI-1777, which is a topical soft JAK where we reported out positive Phase II data at the onset of this year. We have ATI-2138, which is an oral small molecule ITK/JAK3 inhibitor. And we recently announced that we will be studying atopic dermatitis in a small POC study that will start imminently. And then, of course, we have a preclinical pipeline and an early discovery pipeline in addition to a platform.

Okay. So I know you recently restructured the company and priority set. So maybe talk to us about some of the key decisions that you had to make there? And how did like -- or what do you view as the core competencies of Aclaris and how does that then inform these decisions?

Yes, sure. So the -- I think mainly we are focused on cost control. So when you have your lead asset, not turn out the way you expect, you just have to reduce the headcount, control costs and then take a look at the rest of the portfolio, which we have a pretty expansive portfolio and decide where you want to allocate your capital over the short term and kind of rebuild the catalyst calendar. So that's where the main focus was and I mentioned the pipeline already. That's kind of what we're moving forward with, with an emphasis on the ITK/JAK3 oral small molecule.

And in terms of kind of like core competencies of the business or the underlying pipeline?

Yes. I think it's the people and the platform. So those things still exist. We all know that drug development can be a binary event. But at the end of the day, we have a world-class team, which is multidisciplinary across biology, chemistry, translational into the clinic. And these folks have decades of experience out of companies like Pfizer, et cetera. And so that, combined with our proprietary drug discovery platform means that we still have the ability to do what we've done in the last 3, 4 years, which is be very productive in terms of pumping out different assets. I think people often forget that we drove 3 assets into the clinic within the span of 2 to 3 years, which is quite productive.

The program that kind of came into focus with your most recent quarterly update was the ITK/JAK3 inhibitor. Maybe you can provide for some background on the mechanism of action there?

Sure. Yes. So the compound used is ATI-2138. It's a dual covalent inhibitor of ITK and JAK3. ITK is a kinase that's downstream of the T cell receptor and regulates T cell differentiation and activation and function. ITK particularly is involved uniquely in the regulation of Th2 activation and so it could be utilized in atopic diseases. JAK3 is the only JAK isoform that has a cysteine residue that allows this covalency to occur. So inhibiting JAK3 gives you potency on that target while giving you several thousand fold of activity for all the other JAK isoforms. JAK3 regulates cytokines that signal through the gamma common chain. That includes the Th2-driven IL-4 as well as the T cell cytokines or T cell function around IL-7, IL-2 and IL-15. And by inhibiting both JAK3 and ITK, you have some complementary, you have some overlapping function that should have a major impact on T cell-driven diseases, and in particular, Th2-driven disease.

Okay. And how do you think about the target product profile for a product inhibiting these 2 molecules? And how did that inform some of the key design decisions around creating this drug?

Yes. I think when we were involved in the discovery of this a number of years ago, we were trying to think about a way to get more specific within the JAK inhibition realm. A lot of the molecules that are out there currently even RINVOQ, baricitinib, et cetera, they hit multiple isoforms. And so we want to target JAK3 so we could get the benefit of JAK inhibition, but be a little bit more targeted, a little bit more specific. And we understood from Joe and his team's previous work that ITK was a very interesting target. The problem with ITK was that it was very difficult to drug over 20 years. Numerous pharmaceutical companies tried to drug it, they just couldn't do it. And what the guys came up with was a way to covalently bind ITK. And so by having, as Joe mentioned, something that's exquisitely potent on the Th2 side of the house, married up with a known mechanism, but more specific in JAK3. And remember, there's only 1 product out there that's approved hitting JAK3 and that's ritlecitinib for alopecia areata. So it's a very -- this is a very different drug that works through a very novel mechanism by hitting these 2 targets specifically. And so we think that that opens up an array of potential indications for us as we move forward. So that's kind of how we're thinking about it in the early days.

You mentioned there's been a history on ITK drug development. It hasn't really panned out. So I guess, what were some of the key technical hurdles that pharma companies started to face as they were targeting that molecule? And then how far along did the most advanced get?

Yes. So drug companies have been interested in ITK for the past 20 or so years, and the first focus in ITK drug development was on reversible ATP competitive compounds. Because of the poor biochemical efficiency, it was difficult to generate a drug-like compound that had enough potency to be able to translate from biochemistry to in vivo. So a lot of those compounds fell out preclinically. More recently, with the advent of the cysteinome and identification of a cysteine residue in the active site of ITK, it allows one to then target that cysteine with compounds that have both reversible affinity as well as reactivity with that cysteine. Having a covalent compound overcomes the problems with biochemical efficiency and allows one to move further. And so I think we're on the leading edge of ITK inhibitors, but Corvus has a compound CPI-18 which is in Phase II. It's an ITK inhibitor. And as Neal mentioned, ritlecitinib, which is mainly a JAK3 covalent inhibitor, but also sort of tweaks ITK as well.

Right. And then maybe you could kind of expand upon it, you talked at a high level about this, but expand upon the profile of 2138 around selectivity and potency, the half-life of the drug and any other data that you think is important as you look to the clinical effect of this agent?

Yes, sure. So 2138 inhibits in biochemical systems ITK and JAK3 and potencies in the 100 to 500 picomolar range. It's over 2,000 select fold selective over other JAK isoforms. It's about 25 fold selective against BTK. It does hit another Tec kinase that's a T cell kinase called TXK and the combined inhibition of TXK and ITK would have an impact on Th1 cells. In cellular systems and PBMCs and whole blood driven by activation of JAK3 and activation of ITK, you see low nanomolar potency against both. And when you get into in vivo systems, we have good potency and good efficacy in mouse collagen-induced arthritis and rat adjuvant-induced arthritis, in mouse T cell colitis models. So we have good efficacy in the rodent. The PK of this compound in various species gives a half-life of about 2 to 3 hours, and that includes based on our Phase I studies in humans. And overall, the important concept is that we have very similar potency in ITK inhibition and JAK3 inhibition. So I think it's the first molecule that's going to be able to test the concept that dual inhibition of these 2 pharmacologies will have efficacy in these various diseases.

You mentioned that there's like a few people that are also pursuing the space and maybe ahead of you. I guess what have we learned from their program that will inform both kind of how you think about the clinical development path and also where there's room for differentiation?

I think with ritlecitinib, as Neal said, is marketed for alopecia areata. That's the one that's ahead of us. I think the Corvus compound is a little bit different pharmacology and is at about the same stage. I think when you differentiate ATI-2138 from ritlecitinib, it's around the potency against the target. So we're about 5x more potent against JAK3 than ritlecitinib, and we're somewhere in the 30 to 80x more potent against ITK. So at a given dose and exposure, we'll be hitting both JAK3 and ITK equivalently, whereas ritlecitinib will focus mainly on inhibiting JAK3 and just be tweaking ITK. I think the other thing we learn from ritlecitinib is that with this mechanism, the pharmacology that you're looking at is mainly C average driven. It's not driven by Cmax. It's not driven by Ctrough. And so based on our preclinical animal models as well as preclinical data, we'll be targeting a certain C average as far as going into [Technical Difficulty].

Last year for this asset. Maybe walk us through the data there?

Yes. So we did [Technical Difficulty] looked at PK, we look at safety, we look at [Technical Difficulty] standpoint. We saw a dose-dependent exposure that was linear from the SAD study from up to 80-milligram dose and in the MAD study up to 40 milligrams b.i.d. So the PK looks really good. From a safety standpoint, it was generally safe and well tolerated. There was nothing that we saw that would indicate off-target pharmacology as far as finding go, which is good. And then we did a significant amount of PD work. And so we did ex vivo stimulation of whole blood from these volunteers and we looked at ITK dependent cytokine readouts. We looked at JAK3-dependent cytokine readouts, and we looked at a combination of stimulating with both JAK3 and ITK. And we saw a dose and exposure and time inhibition. And at doses between 5 and 40 milligrams, we saw between 50% and 90% inhibition of both of these readouts over a reasonable duration of dosing interval. And when we looked at exposure responses and we plotted that, the potency of ATI-2138 against JAK3 against ITK. Again, as we saw preclinically was very similar. So with this molecule, we will be able to be testing dual pharmacology.

And remind us which of the cytokines were relevant here that you tested and what you saw on each of them?

Yes. So what we looked at is we looked at -- for the ITK, we looked at anti-CD3 stimulated interferon gamma and IL-2. We also in vitro systems, we looked at IL-17 and saw blockade of that and we looked at IL-4 and IL-13, and we saw blockade of that. But in this clinical setting, we looked at interferon gamma and IL-2 and with the JAK3, we looked at IL-15 or IL-2 stimulated interferon gamma production. And then we looked at the combination of IL-15 plus anti-CD3 and looked at interferon gamma production.

Okay. In terms of safety and tolerability, I guess, what kind of came out of that data? And can you contextualize these versus some of the other JAK programs around?

Yes. I think it was very well tolerated. We didn't see any severe AEs, no SAEs in the study. It's a small data set, obviously, still [Technical Difficulty] MAD work. And I think [Technical Difficulty] Joe was saying before, JAK3 is very specific too in its expression to the myeloid and lymphoid compartments. And so you don't have the same kind of ubiquitous nature of JAK1, JAK2 expression where you would see a broader array of potential AEs. So we're happy [Technical Difficulty] so far, and that's why we're progressing.

You mentioned earlier that you try to foresee average. I guess, what did you see on that particular -- was that something you were able to see out of this data?

Yes. So when we looked at the doses and exposures with the SAD and the MAD study and the targeted C average that would give us what we feel is the necessary inhibition of JAK3 and ITK, the dosing interval and the dose -- and the dose levels that we looked at were appropriate. And so I think in the neighborhood of 5 to 15 milligrams b.i.d. will give us the coverage that we're looking for. That will give us coverage that would surpass as far as JAK3 what ritlecitinib has. And then as far as ITK, it will dramatically surpass what ritlecitinib has on ITK.

Okay. You plan to take this forward. First, you were looking at inflammatory bowel disease, but you've shifted to atopic dermatitis. Can you talk to us about the basis for that decision?

Yes. I think all these I guess, indications are competitive and the landscape is always kind of evolving. And I think towards the end of last year, the IBD landscape evolves once again. And so from our standpoint, just given where we're at as a company, we didn't necessarily want to take the risk of the spend and the time that it would take to do a longer study in IBD, and atopic dermatitis was a very good match from a mechanistic standpoint. You can get that study completed in 12 weeks and generate good POC data in patients. And so we thought that was a better route to go in terms of just proving out the concept. And once that study is completed, I think then we'll have -- if the data comes out, how we expect from a safety and efficacy standpoint, we'll have the optionality of continuing with AD, but also Joe mentioned ritlecitinib is approved in alopecia areata, fast following into that indication. Vitiligo is another area that might be of interest. And I think those studies are just more cost efficient than perhaps embarking on IBD. Maybe we'll go back there at some point. But I think right now, and where we're at -- with the company is a better spot to be.

Okay. As you think about unmet need in atopic dermatitis, I guess, where do you think there's kind of main unmet need that this product could serve?

Well, I think when you look at the pathophysiology of AD, it is heterogeneous. And I think this product by hitting JAK3 and ITK, specifically, we're really taking out the Th2 side of the house, which we know is a key driver. And then also, we know that some patients with chronic AD have a little bit more of a Th1 component. And so we hit that as well with this product. So when I kind of look at the landscape and obviously, we have oral JAK inhibitors and we have biologics, certainly, the biologics can perhaps put up a little bit stronger safety profile than the potential around the black box, although sales of drugs like RINVOQ would say otherwise, right? At the end of the day, patients want to get better. But we think there's a tremendous amount of unmet need. I mean if you think about mirroring psoriasis, psoriasis has gotten to PASI 100, 100% clearance. We're nowhere close to that in atopic dermatitis. And I think that's why you're seeing a lot of people pile into this space.

Yes. This is a bit of an aside, but given it's JAK3 exclusively. Do you anticipate that there would be like a black box warning for this kind of product?

Well, it's always hard to judge that. I think when you look at the history, TOFA obviously got maybe 1 of the more draconian black boxes. But then as time went on, they kept watering it down a little bit. It's a data-driven sort of thing. And we saw TYK2. TYK2 didn't get any black box. And so I think if they take a data-driven approach, there's a possibility that if you're really targeting just JAK3 and you don't have that broad-based effect, that perhaps you wouldn't. But that you would never be able to predict that until NDA. It's not something you would learn in the near term. But I think there's a better-than-average shot.

Okay. You mentioned a 12-week study, but maybe you could talk a little bit more about the trial design that you would take forward for proof-of-concept in AD, things like number of patients, what are the right endpoints, things like that?

Yes. So we're going to -- we're looking to enroll approximately 15 patients. It will be a small study, all [Technical Difficulty]. We're going to do an open-label design. It's going to be over 12 weeks, 10 milligrams b.i.d., and we're going to look at all the traditional endpoints, EASI scores, IGA, all of the kind of tried-and-true primary and secondary endpoints in addition to a heavy PD component. And we're excited about it. We think it's going to enroll quickly because it's open label, and we're able to comp against historic kind of placebo rates in that moderate to severe population. And so we're excited about it. We -- this mechanism, I think, it's interesting. When you look at the literature, ITK is all over the literature for affecting Th2 and allergic based diseases, mast cells, et cetera. And I think just because it wasn't able to be drugged in the past, it was kind of pushed aside as a target versus maybe it's close first cousin BTK, right? So we're pretty excited about it.

It sounds like a pretty efficient development strategy there. I guess, when will you be able to enter the clinic with the study?

We will be starting imminently, and we haven't given any guidance on an exact kind of topline data readout since we haven't started the study yet, but that will be shortly and we'll be providing updates in the coming months.

I know kind of downstream. But as you think about like the bar for a new oral, you mentioned to see a few questions with the JAKs, obviously, biologics or a more complicated delivery. Like what do you think the [Technical Difficulty] safer oral in that phase?

I mean I think you'd like to be on par at a minimum with the JAK inhibitor products out there, but have perhaps the safety profile of the biologics. It's kind of threading the needle. But at the end of the day, there's always room in these evolving markets for new approaches to what is definitely a heterogeneous disease. I mean you see failure rates on the best drug out there from a biologic standpoint, DUPI that are pretty high. So I don't really think that the market is saturated in the least just -- in fact, it's interesting because we see a lot of companies that are innovating around extending the dosing interval around perhaps suboptimal targets, which really didn't happen if you look historically back at indications like psoriasis until you optimize the efficacy. So from our standpoint, there's still a void there on the efficacy side, and that's why we came up with this approach.

Okay. And sorry, remind me which doses you're taking into the early study and how many doses you expect to study over time?

10-milligrams b.i.d. to start with, and then we'll probably study 3 doses over time.

Yes. Okay. And then, I guess, how do you think about like pending that you have this product portfolio we've described, where do you think this drug -- you kind of alluded to it already, but like where do you think it fits in the AD market relative to the biologics JAKs, et cetera?

Well, I think, again, like highlighting the ITK part of the mechanism and JAK3, those are 2 novel approaches for this particular indication. So I think we can make a lot of arguments pending what the data looks like in the clinic that hoping to argue that you're getting better efficacy without some of the safety baggage.

Yes. You mentioned alopecia areata, you mentioned vitiligo, there's a lot of different directions you can go with something modulating Th2. So like what do you think about in terms of long-term development of an asset like this like in the pipeline and the product potential?

Yes, I kind of look at it even broader, like we -- I alluded to this earlier. We have -- within this franchise, we have the 2138, which is ITK/JAK3, it's kind of half and half. And then within our preclinical pipeline, we have an ITK selective, which would probably be most relevant for something like atopic dermatitis. And then you even have to have the black box discussion with JAKs, right? And then we have another asset within that portfolio, ITK/TXK which might address a different set of diseases. So we actually think that this franchise, if you will, can address a whole variety of different diseases and we can mix and match. And I do think 2138 would be a great drug for something like alopecia areata. Just right now, we wouldn't be able to do a 6-month study. So that's, again, why we're starting with AD.

Yes. You obviously just mentioned the -- stealing my next question, but a selective ITK inhibitor in development. I guess, how do you think about the product profile that you'd like for that asset, particularly if you're thinking about it as an atopic dermatitis program?

Yes. And I think it's brand new -- it would be a brand-new target, something that would be, hopefully, from our standpoint, best-in-class and maybe second in class to the Corvus compound. But when you have a mechanism like that, that's just targeting the root pathophysiology of AD, it's -- that gets us pretty excited, particularly if you're hitting some of the same targets that an oral biologic would hit, but it's in a pill. So we're pretty excited about it.

And what have you shared with respect to that program at this stage?

We haven't shared much just for competitive reasons, but we expect that compound to be an IND-enabling tox in the near term.

To what extent does like the healthy volunteer data is potentially positive proof-of-concept data coming with the lead asset in this context. How much does that derisk your ability to go after ITK? Is there a...

Yes, I think -- I think when you look at the SAD and MAD data and you look at exposures and dosing and you look back at the preclinical studies that we did with exposures and dose, and I think we have a good idea as to where we need to be there. I think importantly, in this AD study, we're going to have a heavy component of pharmacodynamic analysis that will specifically look at ITK effects as well as JAK3 effects. And so we'll be able to compare efficacy with inhibition of both of those, we'll be looking in the skin and in the periphery of that. So I think having the preclinical models, having the SAD and MAD data, looking at exposure and dose responses and the pharmacodynamics associated with that, coupled with the PD studies that we'll be doing in this AD study, I think we'll have a good idea as to what inhibition of ITK and what inhibition of JAK3 gets you in atopic dermatitis.

And then as you think about the ITK/TXK molecule, I guess, what's the role TXK gets?

So ITK and TXK are both kinase downstream of the T cell receptor. They're not right at the initiation. That's more of the ZAP-70. So what you have with ITK is, ITK is expressed in all T cell subsets and it drives the differentiation and activation. TXK is more of a helper kinase that's expressed in a subset of T cells. So TXK, for example, is expressed in Th1 cells, but not Th2 or Th17 cells. So when you drive the T cell receptor activation, blockade of ITK by itself should be sufficient to block Th2 and Th17. If you bring in TXK along with ITK, in addition to that, you should have blockade of Th1 cells.

And what do these context, does it make sense to have more complete blockade across T cells [indiscernible]?

I think when you -- outside of looking at atopic diseases, more broad T cell-driven diseases, both autoimmune disease, inflammatory disease as well as transplant graft-versus-host disease, you want to have a broader impact on T cells. And I think that's what TXK combination with ITK will give you.

Are there any like prior precedent development strategies or approaches that go after TXK, either alone or in combination with other molecules?

I'm not aware of looking at TXK by itself. In that TXK, even in the cells that it is expressed sort of as a helper function, I'm not sure what kind of effect you'll see in the mouse -- knock out mouse, for example, when you knock out TXK by itself, it doesn't have much of a phenotype. And it's not a phenotype similar to, say, ITK where you have a change in both CD8 positive and CD4 positive cells. So hitting TXK by itself, I don't think is a great approach. There have been other compounds that have targeted TXK and ITK that either have not made it too far or are still in discovery.

A lot of these programs would be going after a large indications. I guess, how do you think about partnership in terms of pushing development forward when you can go after such large groups of patients?

Yes. And we always think about that. It just has to be the right deal at the right time. And certainly, even things that are earlier stage could be of interest to partners, and we're right in the middle of having those discussions along the lines of our topical soft JAK.

In the past, I think the goal was to monetize post proof of concept data, I guess, is that -- how do you think about like at what stage of development you can kind of optimize the value versus your own spend outlay?

Yes. I mean it's a hard question. It's just value driven, right? You just have to look at the context of the whole deal and what you get upfront versus along the way and where the derisk points are, and what else we have within the portfolio that we're excited about. And step 1 is to -- was to kind of craft a capital-efficient story to get our feet under us again and then kind of move from there.

Given that you kind of described this as a bit of a franchise, like would it be your view that the 3 assets should come together in some way, whether it was staged or not. Or do you think about them each individually?

I think about -- I mean, I think for us, it's an interesting franchise where we can get leverage out of that. But certainly, somebody might be interested in one versus the other. So I don't see them as inextricably linked.

Okay. You've also talked about monetizing the topical JAK inhibitor that's in more mid-stage development. I guess talk to us about the progress on that front?

So we're making good progress there. The data was really strong. The topline readout, the responder analysis was right in line with some of the competition with the value prop of having the soft aspect. So we're looking forward to kind of wrapping that up, hopefully. But it's a good asset that can marry up nicely with biologics or any other systemic to just drive incremental effect. We know that from the literature with drugs like DUPI, where the peak effect at week 16 on an IGA responder analysis can be bumped by 15, 20 percentage points, but just by adding in a strong topical, which is just part of the normal treatment cycle for patients.

And in terms of -- as you look at your discovery pipeline, any sort of [Technical Difficulty] targets of high interest that you'd want to highlight here?

Other than the ITK side, nothing that we're particularly -- nothing that we're disclosing at the moment, just earlier assets.

And in terms of the -- I mean, you talked about this earlier, but like a pretty productive discovery engine, what's the right cadence around the INDs for your business?

Well, we -- again, maybe back to the -- where we started with some cost control. We decided to ratchet some of that back. I think, again, as we continue to make progress, we'll turn that on again. But as you know, you're not going to get much in the way of credit for the early-stage asset side of things at this point.

Okay. And then in terms of cash runway, I guess, provide post cost controls, et cetera. What's the status there?

We're at a really manageable burn at the moment. You're not going to see much difference from our last cash reported number through the end of the year, quite frankly. And we're able to do that in spite of having adding in a clinical study for AD as well as moving a couple of the earlier stage assets along.

And so the guidance on cash [indiscernible]?

So we have formally got...

Okay. Okay. I think that's the bulk of all of my questions. It was lovely to see you guys. Thank you so much for joining us here today, and thanks everyone who joined us both here and online. Thanks.

Thank you.