Arcturus Therapeutics Holdings Inc. (ARCT) Earnings Call Transcript & Summary

Good morning, everyone. Thanks for joining us for another session at the 41st JPMorgan Healthcare Conference. I'm Brian Cheng. I'm the senior biotech analyst here at the firm. Presenting next is Arcturus Therapeutics. We have their CEO, Joe Payne; and also CFO, Andy. I'm going to turn the floor to the Arcturus team and then the presentation will be followed by a Q&A session. Joe, the floor is yours.

Okay. Thanks, Brian. It's good to be with you. It feels good to come out of a great year and to be able to present and provide an update on what we're doing at Arcturus. Arcturus is a messenger RNA medicines and therapeutics company. We are based in San Diego, headquartered there. We have over 170 employees now. And we're approaching our 10-year anniversary. So 10 years ago, Pad and I started the company with $15,000. So it's an entrepreneurial story. It's just -- it's been fantastic to see the progress of the company, and it's good to be with you today. We now have a pipeline of messenger RNA medicines. We've got great strategic partners, some are here and support in attendance today with CSL and Ultragenyx. The CF Foundation supports our CF program, and we're assisting the government in pandemic flu preparation. And so hopefully, God forbid, we have to do that again. But a proprietary mRNA technologies drive our therapeutic programs. Our Arcturus excels at designing these mRNA molecules, but also self-amplifying mRNA technology is something we're known for. This is a lower dose vaccine technology. We have a delivery system, a lipid nanoparticle delivery system called LUNAR, and this allows us to deliver to hepatocytes and myocytes and bronchial epithelial cells through different routes of administration, intravenous, intramuscular and inhaled applications of messenger RNA, and we'll speak to that later in the presentation. And we've also built a significant amount of manufacturing Know-How for these complex therapeutics, not only on the mRNA drug substance but also in the purification of these messenger RNA molecules. Purification of mRNA is becoming more and more important, especially as we're now administering these molecules systemically and through inhalation. And then also formulating these into drug products and lyophilizing these sorts of therapeutics is also an area of expertise. Our pipeline of Arcturus owned mRNA therapeutics is summarized here. We have a liver program, rare liver disease. We're pursuing ornithine transcarbamylase deficiency with the prevalence of over 10,000 people worldwide, and the upcoming milestone for that is some interim data of our Phase II data set out of Europe expected this year. Our CF program, which I've mentioned, is primarily funded by the CF Foundation, has a much higher prevalence and we're initiating a Phase I trial this quarter. With respect to our pipeline, of partnered mRNA therapeutics and vaccines. We have a GSD3 program, glycogen storage disease type 3, partnered program, with Ultragenyx that's in early clinical trials. We've recently partnered our COVID vaccine and our flu vaccine to CSL, that's in Phase III and preclinical, respectively. And our BARDA collaboration is focused on pandemic influenza. This is not seasonal flu, but pandemic flu, and that's in the preclinical stage. I want to take some time to summarize our recent partnership that came out last quarter. We're very happy to announce that we've partnered our vaccine enterprise with CSL. This is a global vaccine company that are very good at what they do. They have exceptional capabilities in manufacturing and distribution and commercialization of vaccines worldwide. And Arcturus had an accelerated data set for self-amplifying mRNA because of the pandemic in South America and Singapore and U.S. and Vietnam. We collected almost 20,000 subjects of data in an accelerated window, and we had fantastic data set, and we needed to find an appropriate partner that can help us maximize and capitalize on it. And we found that in CSL. And so we're very happy to be working with them. On the -- on my right, you're right. You can see the terms of the partnership. It's a $4.5 billion deal, $200 million upfront, which is well timed given that we're entering a recession. And we are -- it extends our runway to at least 3 years, and so we're very happy with that. But there's also $1.3 billion in potential milestones spread across 5 programs that are listed on the bullet point on the left including COVID, influenza and 3 other respiratory infectious disease vaccines. The most near-term or more significant portion of that development milestones will be on the COVID program as that's the most advanced. We also have $3 billion in potential commercial milestones, with 40% profit sharing on the COVID vaccine enterprise and then also double-digit royalties or up to double-digit royalties for influenza and 3 additional respiratory infectious disease vaccines. CSL will be taking care of all guidance pertaining to the U.S. and Europe progress of the bivalent vaccine or any sort of progress in the -- of the vaccine in U.S. and Europe. We also entered into a contracted relationship recently with Meiji. And this was kind of in stealth. We were fairly quiet about it, but we're happy to provide an update today. As a background, Japan, just so people are aware, they have a very high COVID vaccination and booster vaccination rate. Almost 3 doses per person have been vaccinated and/or boosted with COVID vaccines. So it's an attractive market in the vaccine area. Meiji Pharma received the rights to conduct a 154 clinical study in Japan. The Meiji Group received a significant subsidy from the Japanese government last quarter. The Japanese government is maintaining their message that they want to establish independence in mRNA vaccines. And we're very pleased to be part of the team that's helping Meiji Pharma do that for the country of Japan. The study design here, the Phase III study that's fully funded by Meiji is a non-inferiority immunogenicity trial. It's all conducted in Japan and the trial is expected to support PMDA approval. You'll see that half the participants will be receiving ARCT-154 and the other half will be receiving an approved comparator messenger RNA vaccine, Comirnaty. And the study was approved to proceed last quarter, and we initiated that on December 13 and already 2 sites have vaccinated 65 subjects with no serious adverse events or cardiac-related events reported. And I'm happy to report that we've already opened up 11 sites, and we've expanded that to 11 sites presently. And we've scheduled over 700 additional vaccinations. So this trial is well on track. And I just want to commend all those involved with boots on the ground in Japan and our friends at Meiji that have done an exceptional job with executing on this trial. This is going to provide an opportunity, everybody to compare directly self-amplifying mRNA with conventional mRNA. It will put to bed all questions and concerns on how does this technology fit into this space. And so we look forward to collecting that data. And I want to highlight that we have a successful working a contracted relationship with a manufacturer in Japan called ARCALIS and Axcelead and folks here are present in support of that effort. But ARCALIS is a subsidiary of Hitachi. So Arcturus has a presence with respect to manufacturing and a pharma presence with -- that have excellent relationships with the Japanese government. And we just have excellent support of CSL as a partner in this process. Now on to ARCT-810. This is a systemically administered messenger RNA for ornithine transcarbamylase deficiency. One of the unique advantages to the LUNAR delivery technology is that it's biodegradable. It is non-accumulating. So if you're injecting larger amounts of messenger RNA, intravenously, it's very important that these lipids not only do their job, but they degrade and they clear the body. And we have shown that these lipids are no longer measurable in human beings after 48 hours, and this is a significant advantage or differentiator of this type of technology. So it can be applied to intravenous therapeutics and the applications they're in. But these particles, after they enter the bloodstream, there's a protein in the blood called ApoE that sticks to the surface. And that facilitates receptor-mediated uptake in these hepatocytes. But after they enter the cell, we've designed this nanoparticle technology. We've engineered it to break out of the endosome. The endosome ages, becomes more cytic, and that activates the particle, releases the payload, the messenger RNA into the cytosol, and that messenger RNA expresses very important therapeutic and pharmaceutically relevant proteins. So this technology is being utilized for OTC deficiency. This is an excellent market opportunity. It's the #1 or most common urea cycle disorder. When the urea cycle takes place in the periportal portion of the liver, and this is how we control ammonia levels in our blood. And if the urea cycle is dysfunctional, ammonia levels rise and ammonia crosses the blood brain barrier, and that is very bad. And so we need to control ammonia, and you and I have normal urea cycles. But if you have a dysfunctional ornithine transcarbamylase enzyme, then elevated ammonia is of significant concern. And the present standard of care is to sequester that ammonia with ammonia scavengers and you drink lots of water to try to urinate out the ammonia, but it presents challenges because if you eat the wrong food, there's a spike of ammonia and the spikes of ammonia is where you have hospitalization events, extraordinary pain is associated with this. You have to be rushed to the hospital. Sometimes they have to induce coma, and they have to clear the blood of the ammonia. And it's just a -- it's a very challenging disease. So rather than sequester the ammonia, we think the ideal approach here is a messenger RNA molecule that expresses the ornithine transcarbamylase right in the cell and restoring normal activity. There is a significant diet associated with this disease too. This patient population has a very strict non-protein diet. So if you're heavy on carbohydrates, you can imagine how taxing that is on you. And so there's a significant desire to just remove this need for ammonia scavengers and remove this need of this aggressive diet and not have any of these scary hyperammonemic episodes. How much OTC do you need? This used to be speculated in 1 of opinion. It's now been clarified this past year, with the publications at the bottom. The field now understands that with just 5% functional OTC, we may be able to save lives. This is an X-linked disorder. A lot of the young males die at a very young age, and we may be able to prevent that with this technology at some point with just 5% restoration. And we've looked at the periportal expression of OTC after administration of our therapeutic and models of this preclinically in genetically engineered OTC deficient mice. And you can see in the periportal region of the liver that we've established well over this threshold and we hope that we can replicate obviously, this in human beings. So where are we in humans, in human clinical trials. Our Phase I study was completed in New Zealand. We dosed it up to 0.4 mg per kilogram, and that's relative to the messenger RNA molecule in 24 subjects. It was generally safe and well tolerated. There was no steroid cotreatment or pretreatment or post treatment associated with this therapeutic. This is a differentiator to have no steroids associated with this therapeutic. The Phase Ib trial in the U.S. was a single ascending dose study in adults. We completed enrollment of these cohorts up to 0.4 mg per kg again. We completed that in November of last year. There is no serious or severe adverse events. And we have now initiated a fourth cohort, so this is new information at 0.5 mg per kilogram and additional 4 subjects, 3 on drug, 1 on placebo. And total number of subjects is therefore expanded to 16 in that Phase Ib trial here in the U.S. With respect to Phase II, this is now a single and multiple ascending dose now that we've established that the lipids clear and that this appears to be a non-accumulating delivery technology. The regulatory agencies have allowed us to proceed into a multiple ascending dose and expand the patient population to include adolescents, not just adults. We're enrolling 24 subjects across 2 cohorts. And we've been approved to proceed in 5 countries in Europe. And so that's continued to get good progress with our regulatory discussions. 8 of our 14 planned sites are onboarded, and we have very motivated PIs that are excited to recruit some patients for us. We have interim data that we're expecting this year. And when I mean data, what type of data is being collected, you may have already read ahead, but the primary endpoints are safety and tolerability. But the secondary endpoints are PK or pharmacokinetic and pharmacodynamic. And measures -- ureagenesis can be readily measured and a validated assay. It's a carbon 13 acetate assay. And then 24-hour ammonia profile can be easily measured in the blood. And so -- and these are very relevant biomarkers. In the past, ammonia has been known to be a surrogate biomarker. So if we show regulatory agencies that we can control ammonia, this could be very meaningful in accelerating our discussions there. We have exploratory endpoints. There's other amino acids that are impacted by the urea cycle, so we can measure those. And OTC enzyme itself, we can measure that. it's not a validated assay yet, but we're working on that internally. And then we can measure orotic acid in the urine too. So there's no shortage of biomarkers with this disease, which makes it -- so it helps us with respect to understanding the biological proof of concept. And we'll be having some of that interim data this year, and we're excited about that. Moving on to ARCT-032. This is inhaled messenger RNA. Again, it's a different LUNAR technology that's been optimized for bronchial epithelial cell delivery after inhalation. And our first flagship asset in the lung franchise is going after cystic fibrosis. This is a well-understood disease, where, in this case, the dysfunctional or missing protein is a transporter called CFTR. When this transporter is missing, chloride ion transport is dysfunctional, that leads to fluid and undesired inflammation in cirrhotic and fibrotic disease, and the patients can no longer breathe properly and it becomes very serious and fatal. And so we're -- in this case, we're inhaling a messenger RNA, getting that messenger RNA to where it needs to be so that it can express and make a healthy new functional CFTR transporter and be very impactful to this patient population. We have shown functional delivery of messenger RNA in 4 different species. These are all healthy animals in mice, rats, ferrets and primates. And these imaging studies are very conclusive that we can successfully deliver to the epithelium. And we've got recent data that we're very excited about. And we shared this data on the slide right here at the NACFC, the most significant CF conference of the year in the plenary session, and there was an applause associated with this data. That's how meaningful it is. If you genetically engineer animals with cystic fibrosis, there's one problem. Several of them do not develop sputum or phlegm or mucus in the lungs. But with ferrets, it's different, they do. So this is the most challenging model to establish proof of concept in. And what we show here and the green coloration is bronchi epithelial cells that successful transduction into these cells even in the presence of CF mucus in the trachea and the bronchus so in different areas of the lung. So very nice proof of concept of the technology, the ability to functionally deliver even in the presence of a CF -- in the presence of mucus. The final data slide here is we've also shown that we can restore CFTR expression and function. So on the left, you can see in the control arm, what would be a normal response. And then with the treated arm, you see a larger response. So clearly, we're restoring CFTR expression and then with -- we collected donor samples from healthy individuals and from cystic fibrosis patients or individuals and the red bar on the right denotes the control. And then when you treat them with -- or when you treat these cells with a messenger RNA that encodes for CFTR, you see a nice response and restoration of chloride ion activity. So in the same range as the non-CF or the normal samples. So restoring CFTR expression and function is also -- you combine that with the data that we saw on the ferrets. We're now getting very excited about this therapeutic. This has the potential to be very impactful, and we're excited to watch it. Just -- usually, you don't see a Board of Directors slide in a conference like this, but I wanted to highlight that John Markels joined our Board last month and he was previously the President of Merck Vaccines, and we're happy to have him on boarded. He's going to definitely provide some strategic oversight to our CSL relationship. We take that very seriously, and we look forward to executing on that and glad to strengthen the talent and capability of our Board. And also just a quick thanks to the incredible team that we have at Arcturus, very proud of the group of competent and likable scientists and employees at Arcturus. So that is within 30 seconds, Brian, pretty good, right?

Yes. you did really well. So it's about 30 seconds.

So I'm going to switch over to a Q&A session. For those of you who are in the audience, we have floor runners to take your questions. And for those who are participating online, we also have the question portal on the conference site. So thanks for joining us, Joe and Andy. Maybe just one question that I have is, I think a lot of us in the audience have gotten the mRNA vaccine and mRNA had been such a topic in the last couple of years since the pandemic started. So how do you think about just your technology compared to what BioNTech or Moderna had? And you have COVID vaccine data and what do you see in terms of differentiation compared to other technologies. I think your technology is slightly different in terms of it's a self-amplified RNA. So how does that differ? And does that translate to efficacy or safety that you've seen so far?

Sure. Sure. So I can speak to, first of all, the differentiation of the platform. Arcturus has historically been focused on intravenous and inhaled delivery of messenger RNA. So there's been an increased emphasis on purification. So we have a purification IP that we've combined and built internally and licensed in that gives us a really strong position with respect to the purification of messenger RNA, high levels of purity for intravenous grade applications and inhaled grade applications. So that's a differentiator on the platform. The delivery technology is different. No one has access or something similar to or identical to the LUNAR technology. This is -- the lipids included in our delivery technology are different. They're not glycerol based. We have thiocarbamate-based lipids. That means we have sulfur and oxygen and nitrogen that's easily and readily hydrolizable. And therefore, it's biodegradable and non-accumulating, and that's different, and that differentiates us. And then with respect to our manufacturing Know-How, we have experience with not only conventional mRNA, but self-amplifying mRNA, which is 3x larger. So very large mRNA and gone through that learning curve on how to make -- not only make but purify on scale, the messenger RNA and also the lyophilization element, our vaccine is the only lyophilized vaccine. All the other approved vaccines are liquids, they're frozen. And now they're -- you've read about the challenges to keep the stable at on the shelf and for supply chain issues associated with that. So having a lyophilization Know-How, that's another differentiation on the platform. Now pivoting to your second question, how do we different -- how does self-amplifying mRNA differentiate from conventional mRNA. Well, I've highlighted that it's a larger molecule because it's expressing not only an antigen but it's an expressing an RNA-dependent RNA polymerase, a replicase that helps to extend the duration of expression of the antigen. So that's a big difference. It means that our dose is considerably lower, like 6 to tenfold lower dose and all the benefits that brings. The most expensive component in a messenger RNA drug product is the messenger RNA molecule. If you can reduce that by 600% or 1,000%, that's going to have some benefits associated with cost of goods. In the vaccine space, speed is everything, clock speed. And if each manufacturing run makes 10x the amount of doses, you can cut off time lines to getting your vaccine distributed. And so that could be important just from a time perspective. And then with respect to tolerability, most people in here have already been injected with vaccines. It's nice to be injected with 6 to tenfold less lipids and lipid excipients and mRNA and any sort of dose-related toxicology. You can imagine there's considerable potential benefits there by reducing the dose. So that's just on the dose-related aspects. With respect to efficacy, the self-amplifying mRNA molecules are more immunogenic. That's why the dose is much lower. They [ zing ] the immune system a little bit more. So that's a differentiator. With respect to the business case for self-amplifying mRNA besides, the efficacy and the tolerability, if you could dose people less often with this technology, that has potential benefits as well with respect to time between dosing.

Great. Maybe just focusing on your first, the lead indication because for OTC. You have a couple competitors also in this space. So and I think everyone seems to have a bit of a tweak in terms of how they think about the indication, how they approach it? As we move into your update later this year, where do you think you would fit? How do you kind of stand out from the crowd?

Sure, sure. So well, our approach to OTC deficiency is one where it's a transient messenger RNA protein replacement concept. It's not a gene therapy. So we have an attenuatable, adjustable dosing technology. And it's applicable to potentially for neonates, children, adolescents under 18. And because OTC deficiency is a pediatric disease where usually it's diagnosed in a younger age, having a technology that's applicable to the younger population as a key differentiator versus the gene therapy or DNA. Clearly, there's differences between a biodegradable delivery technology versus a viral vector and potential benefits of that. In terms of others in the space that are looking at messenger RNA approaches to OTC, none of them have access to our LUNAR delivery technology. That's proprietary. It's ours. And our purification technology is where we have strong IP as well. And we also have orphan drug designation in the U.S. and Europe that perhaps some exclusion provisions in there that makes it more challenging for competitors. So if you take that all together, I think we're in really good shape.

So I think earlier today, you talked about how the -- that the bar for OTC, I think you said 5% enzymatic OTC activity on the slide. How should we think about just what you want to see at the next interim read. Will it be deemed as a success? And let's say you hit that bar, what could be the next step for?

Well, if we establish biological proof of concept for protein replacement, that's enormous. That will be -- that will trigger the addition of new programs for Arcturus and encourage the field to add more programs in this space. So biological proof of concept for me and for our team means that if we can see ureagenesis impacted and ammonia reduction in human beings. That's a big deal. But there's other biomarkers that we're looking at to like orotic acid in the urine. So I think that's what we define as something meaningful and measurable. If the regulatory agencies are not accepting as ammonia as a surrogate biomarker to accelerate approval, then we can start to look at other meaningful endpoints like transitioning these patients off of their aggressive diet, transitioning them off of the ammonia scavengers, reducing hospitalization events. They also have challenges in exercising for extended periods of time that elevates ammonia and causes problems, so we can look at the ability to extend exercise times. But I want to go back to -- at first, we want to do our best to negotiate with regulatory agencies on the benefits of approving based on a surrogate biomarker. There are children dying of this disease. The majority of males under 2 are just are dying. So we can't get too cute in this process. This is serious. We need to get there as soon as possible. So we'll try our best to negotiate a surrogate biomarker. But there's other approaches to do if that -- if we're unsuccessful in those negotiations.

Got it. Maybe switching gear to your vaccine partnerships that you have you. You got the key one, CSL now as your keystone partnership for COVID vaccine. What are the key near-term catalysts that we should look out for? And how does the Japanese study also fits in as well?

Well, the Japanese study is something I can definitely speak to today. That's going to be very important to since that's a direct comparison trial. People just want to see how the self-amplifying mRNA technology compares to the conventional mRNA constructs. So that's going to be very important, and that's a near-term catalyst. With respect to guidance in U.S. and Europe and the bivalent vaccine and the flu shot and the flu progress, we're respectfully leaving that to CSL to provide that guidance. We're definitely excited about those end points. And I mean those milestones this year as well, but we'll allow CSL to provide that.

And so when the Phase III hits, I think the primary endpoint is focused on noninferiority against Comirnaty, right? So who is going to take a charge of applying to the Japanese approval?

Meiji is the primary driver of those efforts. They've done an exceptional job with getting the sites onboarded and with the regulatory application process. And the relationship with the government is strong and they received a very large substantive subsidy the Meiji Group did from the Japanese government. So we're glad that we're aligned with them on this, but -- because they're going to be driving it. They have the relationships in place.

Okay. Maybe just off topic, you're not working on cancer vaccines yet. But recently, we saw the data from the Moderna and Merck trial. Any thoughts on your potential to tap into the cancer markets. What could be a path for you? Since now you have your focus on OTC and CF. Is that something that you would like to do?