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

Okay. Great. Well, good afternoon, everyone. Thanks for joining us for another fireside chat discussion. Here to my left are Arcturus’ CEO, Joe Payne. And to his left is CFO, Andy Sassine. I'm Seamus Fernandez, one of the biopharma analysts here at Guggenheim Securities. And this is our annual rare disease and genetic medicines conference. So in that context, of course, as an mRNA company, we sort of have to start with vaccines, and then we'll jump right into the rare disease side of things.

So Joe, maybe just to start us off, I will start with a couple of vaccines questions. So on the cusp of data, from Meiji in the head-to-head trial, maybe you can just recap the design of the study for investors. And then maybe just help us understand what success might look like from an approval standpoint and then commercially.

Sure. Sure. So the Phase III study that's being funded by Meiji in Japan is designed to be a non-inferior immunogenicity study. We already have approximately 20,000 subjects of data, but the government of Japan wants to see a direct heads-up comparison in an immunogenicity study with approximately 800 subjects. We've completed enrollment there, and we're just going to be looking -- the prerequisite data, the important data for the Japanese NDA filing, is the 1-month immunogenicity data. So we've completed enrollment. We've completed the 1-month follow-up and the 1-month blood draw. So that data is going to be key for us. And it's just to directly compare, apples-to-apples, monovalent to monovalent, antigen-to-antigen for a self-amplifying mRNA to conventional mRNA, the Arcturus vaccine to the -- to Comirnaty.

And just to clarify, as a booster specifically?

As a booster specifically, yes, absolutely.

Great. And then the baseline treatment for the patients in that study from a background vaccination perspective would be the Pfizer vaccine as well?

Correct.

So both are -- all of those, they’ve received...

Yeah, they've received doses of an mRNA vaccine.

Okay. Excellent. And then maybe you can just talk a little bit about what the implications of success would potentially be from the Meiji study, where can you sort of -- where can Arcturus take those data or perhaps where can your partner, CSL, take those data?

Well, I think it's more important to reference our partners' perspective on this. They're the ones that are going to be on the front lines commercializing this if it's successful. And they're going to be very, very happy if we establish equivalents in this Phase III study. If we have equivalent or noninferior immunogenicity, then the platform is superior because the dose level is dramatically less. Whether it's sixfold or tenfold less dose, that brings with it all of the potential safety benefits, cost of goods benefits, speed of manufacturing or clock speed benefits associated with that. And then the lyophilization or the lyophilized design or nature of the vaccine is also a potential benefit. So even if we establish equivalents there, our partners are going to be very excited because they think, and of course we do as well, that we'll have a superior platform.

Okay. And that's -- and those data are something that CSL can access. But you and the team actually executed, I think, a really important milestone in the context of that collaboration. Can you talk about the milestone and what was baked into the milestones, specifically?

Sure. We invoiced $90 million of milestones in Q1.

And that's in addition to the $200 million that you'd already received?

Yes. Thank you for highlighting, yes. We're very happy to have a productive and meaningful collaboration with CSL. But the $90 million number that's associated with milestones being achieved to the bivalent COVID vaccine and the seasonal flu vaccine. We selected candidates for each of those. And so while Meiji in Japan is progressing the monovalent vaccine, in U.S. and Europe and our direction and strategy there is to also implement and advance the bivalent COVID vaccine, and of course, the seasonal flu shot. And so that's very meaningful to -- whether the monovalent is the ultimate winner for the franchise or if we need to update it with the bivalent, we're in a good position to advance either asset.

And then, Seamus, just to add on top of the partner, obviously, being very keen on approval in Japan so is the Japanese government. So the Japanese government has stated multiple times that they want to be independent of future pandemics or even during an endemic phase of this COVID virus to be able to be independent manufacturing-wise and to have their own product. And as you may or may not remember, we have a manufacturing partner called ARCALIS in Japan that we established a little over 1.5 years ago, and we own 40% of them in the JV. So they're going to be coming online next year. So the timing of the manufacturing partner in Japan, the Japanese government wanting to be independent and vertically integrated and prepared for the endemic phase and future pandemic bodes really well for our vaccine and our partners.

Great. And the one other aspect that you mentioned was the progress that you made on the flu vaccine. I think there may be something unique about your construct design. Maybe you can talk a little bit about that. I know there's some specifics, but how are you looking at the hemagglutinin versus the HA plus the NA combination?

It's a great question. Obviously, we've just come off a successful milestone getting achieved for the seasonal flu shot with our partner, CSL. But with respect to the specifics of the design, we've just been kindly asked to not share any more details on that. As you can understand, it's a competitive environment, especially for mRNA and flu. So we can't disclose the specific details, but you can assume that with the resources that CSL has and us as a tool within their toolbox that they're exploring options in parallel.

So we'll chase CSL for those questions.

Yes. That's absolutely.

All right. So let's move to sort of what the core of Arcturus is really moving towards now, which is more in the rare disease side, which is sort of back to the future dynamic. Maybe we can talk a little bit about just the OTC opportunity. And maybe just start with your protein design capabilities and how that has really kind of oriented you towards different development candidates.

Yes. Sometimes investors ask us, why did you pursue OTC deficiency first? The other mRNA companies with huge amounts of resources didn't pursue that program first. It was something that was meaningful to us because it's the #1 urea cycle disorder. However, this protein, this enzyme, ornithine transcarbamylase, is found inside the mitochondria of cells, not the cytosol. So when a nanoparticle enters a cell, it releases the messenger RNA into the cytosol and gets expressed, right? Or you can have it get shuttled into the mitochondria to get expressed. That's an additional learning curve that we put a lot of muscle behind and focus. We didn't have the luxury of screening a gazillion targets in parallel. We didn't raise a lot of money when we're early founders of the company. So -- but we worked on that. And that leads into your question, including optimizing the protein. So we optimize the construct so that it can improve its uptake into the mitochondria more efficiently. But also the -- once it's expressed and the mRNA makes the protein, the actual enzyme, that we designed the protein to have -- to be longer lasting than the actual natural ornithine transcarbamylase. And there's a few tricks that we've done. We haven't given those details, but those are a trade secret and may be patentable. But yes, we have implemented that into the design.

Great. And then maybe you can talk to us a little bit about what's been accomplished so far. I know that you've made a lot of progress in the last 3 to 4 months, in particular, recruiting patients and I believe dosing patients as well. So that’s an important milestone. What would we -- as we kind of go and move forward into the second half of this year, what are you hoping to see in those data? I think Pad made some comments on the call as well. But I just love to hear what you're hoping to see out of there.

Okay. So the objective of this Phase II trial that we're enrolling for in Europe is to establish biological proof of concept for systemic messenger RNA, systemically dosed messenger RNA. And biological proof of concept means that we're tracking biomarkers that change. There's ammonia in the blood that can be measured. This is a urea cycle disorder or OTC deficiency. So when that urea cycle is impacted several biomarkers change in the blood. So ammonia in the blood can be measured. There's other amino acids that are implemented -- or impacted by the urea cycle at glutamate, and we can easily measure that. There's a carbon 13 acetate assay that's validated that we can use to track urea or ureagenesis, a ureagenesis assay. In the urine, there's a biomarker called orotic acid that can be easily measured that has direct correlation with urea cycle function. And then finally, OTC itself. The enzyme, even though it's made in the liver, we remind folks that delivers a living, breathing, sluffing organ and some of those cells sluff off and can be measured. So the ornithine transcarbamylase that's made in the hepatocytes is then sluffed off and can be measured with a mass spec assay in the blood too. And we -- and there's a publication on that, that shows the correlation between plasma levels of OTC versus the actual levels of OTC in the liver. So that's just 5, and there's some others. There's multiple amino acids, like I mentioned, that are impacted by urea cycle disorder. It's a long way of saying there's no shortage of biomarkers in this disease, and we'll be collecting all that data, and we hope that the comprehensive collective data set will be very meaningful to regulatory agencies.

What also gives us an encouragement, Seamus, is that we've injected over 30 people intravenously to date in multiple countries. So this is pretty exciting because if there were any adverse events, we would have had to report them. So we're encouraged so far by the safety profile. And we're, I think, one of the few companies that have been able to intravenously inject mRNA in that many people in that wide of a population. So hopefully, we'll be able to share some exciting data with you later this year.

And I think that's -- it's interesting. You mentioned the dosing of patients. I mean, I know one of the characteristics of some of the LNPs is to have an issue of sort of accumulation in the liver. Would you mind talking a little bit about that and also kind of the flexibility to redose intravenously with the LUNAR technology?

Not to be melodramatic here, but delivery is everything. And this nonaccumulating delivery system is very, very important for systemically administered applications. If you're regularly dosing these lipid nanoparticles, the last thing you want is man-made lipids accumulating in your liver that causes idiosyncratic liver tox, very bad. So you have to show the regulatory agencies that you clear these lipids and we have done that in our Phase I study. We showed the lipids are cleared from the system in 48 hours. And that data was prerequisite to allowing us to go into a multiple dose study in Phase II. So it's very meaningful. The reason that is, though, is the LUNAR technology, the lipids are not glycerol-based lipids. They're not lipids that are used in older technologies. We've added sulfur and oxygen and nitrogen to the cores of these lipids called thiocarbamates that can be clipped and cleared rapidly, and it's a key differentiator for us and extremely important or crucially important for liver applications and inhaled applications. You don't want accumulating lipids in your liver or your lung.

And just in terms of the second half of this year, the number of patients that you would hope to -- we all want to know what's going to be in the press release in terms of the number of patients, realistically, or at least a minimum number of patients, that you would hope to reveal as part of that data set. What would be the number in the OTC study that you would be looking to kind of target?

We'll let the data dictate that. I'll remind people that 24 subjects are being recruited in this study. There's 2 dose levels being evaluated, and there are 6 administrations per treatment course that are separated by 2 weeks. So through this process, we aim, the objective here, is to observe biomarker changes in these patients. It is placebo-controlled 3:1. So if you look at 12 in 1 cohort, you have 9 receiving drug, 3 receiving placebo. So if there was like 3 subjects, we can't say anything because they may all 3 be placebo, for example, right? But once we have a suitable number, because this is a 6 administration study, I think that's the objective is just to see, at some point. It won't be when we accumulate all 24 subjects. It will be somewhere in the middle. That's why we guided interim data, but it's somewhere between a small number and 24, somewhere in the middle there probably.

Okay. Got it. Great. That's super helpful. And then for CF, maybe we're going to switch to lung a little bit. Just talk about the product profile that you're looking for as it relates to 032? And just how the program is differentiated versus -- obviously, there's been a number of efforts here that have kind of missed the mark. So great to hear how this is differentiated.

Yes. I think it's helpful to remind -- to kind of go through a brief history summary, 20 years of inhaled RNA therapeutics and why they failed.

Maybe not here to all of that.

But in 30 seconds, there's 3 reasons. If the RNA is not properly modified, there's undesired immune responses, undesired inflammation to the unmodified mRNA, so it's not good. You need to properly modify it. Purification is extremely important. We used to think modification was most important. It's really purification. The impurities in the manufacturing process that are generated, those little guys there cause the most problems. They wreak havoc and they cause undesired inflammatory responses, undesired immune response. So you need the proper purification procedure. And then finally, a nonaccumulating biodegradable delivery technology that's been optimized for bronchial epithelial cells is very important. The previous attempts were just using things that worked in the liver, and go like this and inhale this, hope it works, and it just doesn't work. You have to optimize it for bronchial epithelial cells and optimize it for biodegradability. And our approach addresses all of those issues that others have experienced. We properly modify the messenger RNA, we apply a proprietary purification process to it that other people do not have our technique of purifying the molecule. And then also no 1 has access to the LUNAR technology for CF or inhaled applications except Arcturus. And we are -- we'll hopefully continue to brag about this technology and start beating our chest a little bit more as this technology matures.

And can you talk about the Phase I, which obviously just kicked off? Maybe that we've got a single ascending dose study in healthy volunteers. Maybe just describe what you're hoping to learn in a healthy volunteer study and just give us a general sense of it.

Yes. We've successfully launched the Phase I study. We've completed 2 cohorts already. There's 4 doses being evaluated. What we want to understand is the safety and tolerability of this technology. I just said that no 1 else has access to LUNAR. And we're the only ones to evaluate this. So we're going to learn a lot about the safety and tolerability profile of this technology. We were very happy that the regulatory agency allowed us to go straight into healthy volunteers for this purpose. They looked at the safety data from the pre-IND toxicology package, right? And they said, yes, this is okay to go into healthy, which is great. We can quickly evaluate which dose is going to be more ideal as we pivot to patients. Whether we amend the study after we complete 4 cohorts, whether we amend the study to add patients to the Phase I or whether we quickly pivot to a Phase II is yet to be communicated. But it's going to be very valuable for us, for this technology and this platform, to understand the safety and tolerability of inhaled messenger RNA platform.

Great. Andy, maybe you can talk a little bit about just sort of the size of the market opportunities that you see for these 2 programs, in particular, and maybe how you could see them potentially expanding.

Well, I think when you're looking at the CF program, you're looking at the Class 1 population, which is roughly 10,000 people. But if we can prove that we can transfect the bronchial epithelial cell and create the CFTR transporter in these people, the opportunity to eventually view that for all the other patients certainly has given us the encouragement. So it's a very lucrative market for us to go after this first group because they don't really have an alternative right now, and they're certainly desperately looking for hope here, and we hope we can bring them that opportunity. With respect to the OTC program, there's about 10,000 people globally, roughly 2,000 in Europe, 3,000 in the U.S. And we're kind of fortunate that one of our competitors, Horizon Pharma, has kind of established a market for us. They have a product called RAVICTI, and that's an ammonia scavenger drug, which reduces the ammonia in these people. And the encouraging thing about that opportunity is they're generating around $250 million annually in revenues on 500 patients. So that's a low-hanging fruit that we can go after because why would you want to take tons tablet to reduce your ammonia when you can cure the opportunity and give these people hopefully a normal diet and a normal life because they have a very restrictive diet in which they have to follow even under RAVICTI. So it's pretty encouraging. Both programs, obviously, are very meaningful to a small company like ours and hopefully, we can help these people out in the long term.

And just to add to that, I think there's -- after we go after type 1 CF and establish some sort of proof of concept there, there is a significant number of patients that do not respond to the present standard of care, and there's another significant percentage of CF that would like to reduce the present standard of the dosing of the present standard of care due to the side effects that are undesired. So whether you want to reduce the present standard of care, the dosing or -- and address those that don't respond. If you take that as a whole, it's an extraordinary opportunity for us.

Great. Maybe let's talk a little bit about the earlier stage candidates. You've got a liver therapeutics showcase that you're planning a little bit later this year. You've highlighted some development candidates. Maybe you can talk a little bit about those as well as, I guess, the burgeoning gene editing efforts that you're moving forward as well.

Yes. Well, let me start with the gene editing on because we do have a presentation in Paris at the hepatitis -- the Global Hepatitis Conference there. We're presenting for the first time our LUNAR HBV data. And this has been going on behind the scenes. It's been funded by partners. But we've had the extraordinary opportunity at Arcturus over the last 10 years to evaluate pretty much every gene editing technology. Imagine all these pre partnering discussions, all these business development discussions funded on their dime, we've got to evaluate every gene editing technology under the sun. And we were able to bring forward, optimize and mature one specific approach for hepatitis B that we think is very exciting, and we're going to be sharing that preclinical data set of gene editing data at that hepatitis conference in Paris. This is for HBV. So that's going to be an interesting data to get feedback from the scientific community because they've never seen our data there. We've never shared it. So it will be interesting to get that feedback and see if they like it or not. And then with respect to the other programs, definitely if OTC proves out, there's an enormous commercial white space behind it, either urea cycle disorders and glycogen storage diseases, lysosomal storage diseases, organic acidemias, hemophilias, large patient population diseases, I run out of breath whenever I say these sentences. That's how much opportunity there is behind it. So which targets we're specifically going to go after, we've kept those cards close to our chest. We've put out some teasers and filings and stuff like that. But we're not going to be able to share the specific targets. Just for competitive purposes, we don't want to tell people what we're doing. There's other players in the field that have a lot of money, right? And so we want to be careful there from a competitive perspective. But there will be an opportunity later this year if OTC -- if and when OTC proves out, then we'll be in a position to mature some programs behind it, for sure.

And then in terms of just the editing technologies themselves, there's -- I guess your team has highlighted, CRISPR and TALENs. Any thoughts with regard to the editing technologies or will we learn a lot more about that when the HBV data are presented?

So here's something that the gene editing companies do not talk about very much that I'm just going to keep hammering this. It's all about delivery. And if they're not talking about that, they should. And why is delivery so, so, so, so very important for gene editing, because it's a single administration. And that delivery needs to get everywhere in that particular cell type or in -- or whatever. So you need a delivery system that gets to the highest percentage of cells with one injection. The science for the RNA molecule is already there. So these RNA molecules make a pair of scissors that cut DNA. But if you don't get that technology to as many -- the highest percentage of cells as possible with one injection, then you miss the opportunity. And I think that's where we fit. I think it will be very interesting to see how the scientific community perceives this hepatitis B data. They may not like it, they may love it. We're going to find out and then we'll go from there.

Great. And then maybe just to wrap up in terms of business development, opportunities or the sort of optionality that you see going forward for Arcturus, is -- are you kind of bringing the editing technology, some of the new technologies in that direction? Are any of these programs partnered already? Where are we headed from here with Arcturus? You guys did a pretty good job with the vaccine program, monetizing that well to continue funding the company and to have real economic opportunity. What do you see going ahead?

We're kind of fortunate that we're funded for at least 3 years as we announced in our previous earnings call. So we do have some flexibility. Having said that, we're certainly encouraged about the opportunity to present this gene editing data. The size of the market is pretty significant. So for us to go after it would probably not be responsible for our shareholders. And so it may not be a bad opportunity to partner that program, and you can probably assume that we will make an effort to do that with respect to that specific program. With respect to OTC and CF, right now, we have enough funding for those programs, and we're pretty excited about hopefully presenting proof-of-concept data later this year. And then we'll kind of share our strategic option shortly thereafter.

Great. And then maybe just to wrap up, the -- without being overly specific on the timing of the Meiji data, I don't think we necessarily covered this at the beginning, but that all of the patients, all the blood draws have occurred. You're on the cusp of the data, but how should we think about the processing of those data before we get too excited saying it's any day?

Well, the next milestone for that program is an NDA filing. Once you have the prerequisite 1-month immunogenicity data in hand, then that data just needs to be slotted into a filing. So that's going to be the next objective for us. The sooner we can get that done, the better. And then you can look to several examples that have gone through the Japanese regulatory process and you can look there to get an idea of how long this is going to take. We have alluded to the opportunity that we have the potential to get an approval for ARCT154 in Japan this year. And for us to do that, it means we have to get our NDA out there sooner than later.

Okay. Great. And then just to clarify, for the actual top line data, we likely should be watching Meiji for a public release of that information. Is that correct?

That's potentially -- you could see it in one of 2 fashions just because of the nature of how things are moving rapidly there. You could see it in the fashion of, okay, here are the data or you may see it in the form of an NDA filing, right? So those are 2 things to look for. They're really driving the bus here. They want to move very quickly to -- obviously, you can see how aggressive they were in getting the trial done as rapidly as possible. So you can have seen that they're highly motivated to move as quickly as possible. So whatever process for them is expeditious, would certainly be welcomed by us.

Great. Well, looking forward to all the busy days ahead. Lots of data coming, lots of catalysts, definitely a time for investors to be paying attention to Arcturus.

Thank you.

Thanks so much for joining us here.

Thanks, Seamus.