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

Before we do get started today with the fireside chat, I do have to point you to important disclosures that are available at williamblair.com. And if you do have any questions through the chat, I will try and work them into the best of my ability. You can actually put them in the chat box available at the bottom of the Zoom screen or alternatively you can email them to me at [email protected]. So with that preamble out of the way, my pleasure to introduce Joe Payne, the Chief Executive Officer; Andy Sassine, Chief Financial Officer; and Juergen Froehlich, the Chief Medical Officer of Arcturus Therapeutics. So thanks very much for taking the time out to have a chat with me today. Joe, I just really wanted to start the conversation. Obviously, I know the Arcturus story well. But for any investors that are listening in right now that are maybe new to the story, maybe you can just provide a really quick overview of the company, talk a little bit about the STARR and LUNAR platforms that you have that have been commercialized as KOSTAIVE, but also some key therapeutic assets in clinical development that we'll talk about today.

Great. And thanks, Myles. It's good to be with you. To begin, Arcturus is a messenger RNA therapeutics and vaccines company. We have very unique proprietary and differentiating technologies that enable these platforms. On the vaccine side, we utilize a next-generation mRNA technology called self-amplifying mRNA. The trademark name or the registered trademark name for this technology is STARR or S-T-A-R-R. Self-amplifying mRNA is different from a conventional mRNA in that it expresses protein for an extended period of time. So that means in the vaccine arena, that means you have elevated neutralizing antibodies that are generated with this technology for an extended period of time. A longer-lasting vaccine, and we do so at a much lower dose level. So it's a differentiating next-generation mRNA technology. On the therapeutic side, it's key to focus in on our delivery technology that's different from others. Our lipid nanoparticle is called LUNAR or L-U-N-A-R as the registered trademark for that technology. And again, it's different. It's chemically different. It's known to be and proven to be biodegradable. In multiple clinical trials, we've shown that these lipid components, these lipid ingredients of the nanoparticle technology degrade and clear from the body within 48 hours after systemic administration, for example. And we've also spent a lot of money and a lot of time investing and optimizing this LUNAR technology for specific cell types, whether that's myocytes in the arm after an intramuscular injection or accessing bronchial epithelial cells after inhaled mRNA delivery. And likewise, after systemically administered administration through an IV administration, we can access the periportal hepatocytes, which is important for urea cycle disorders. We have flagship assets in each of these areas. We have an approved vaccine for a COVID vaccine called KOSTAIVE. It's approved in 31 countries and continues to expand. We'll be able to maybe touch on that a little bit on this call. And we have a flagship asset in our lung franchise for inhaled mRNA for cystic fibrosis. And we have a flagship asset in the liver franchise after a systemic administration of mRNA for ornithine transcarbamylase deficiency. And each of these flagships are very exciting assets, but they represent the first of its kind within the platform. So if they work and as they work and as they succeed, it means that there's other opportunities behind them. So I'll turn the time back over to you, Myles.

Thanks, Joe. I did want to keep the conversation today pretty CF focused, but we will get some time later to ask about the rest of the franchise. But we did host the head of the Northwell Health CF Center in New York there, Dr. Joan DeCelie-Germana for an investor lunch last week. Part of the takeaways was like where is the unmet need in CF and where are these inhaled mRNA lipid nanoparticle therapies going to be used. And one of the things that she said in her center's experience was up to 1/3 of her patients might not even be CFTR modulator amenable, and it's about 40% that combine into that nonresponder category. So that seems -- that's one site, seem pretty high to me. I think the common number thrown around is 10%. But -- maybe just in your terms, can you sort of describe where you would potentially use ARCT-032 or LUNAR-CF? What is the target population here? And how prevalent is that?

Well, the number that we utilize is 18% of the CF community does not respond or benefit from modulators, and that's a significant percentage. Juergen, anything to add to that?

Yes. Let me add that. Any of the currently available CFTR modulator combinations will not provide a complete CFTR function. They are not restoring it completely. And there are patients who have a genetic makeup that doesn't allow them to produce CFTR and then CFTR modulators by definition, do not work. But there's also a significant number of patients who either did not benefit from CFTR although they were eligible or they do not tolerate CFTR modulators. And the total of these in the CF according to the US CF registry is about 18% with the two -- with the last update. I understand that Dr. DeCelie-Germana may have a more severe patient population, so it's more on the severe side of the spectrum. But there are plenty of patients who do need a different therapy in addition or outside of CFTR modulators.

And I'd like to interject here that modulators are in the business of modulating or fixing a broken transporter. That's not what we do. We're in the business of replacing, building a brand-new CFTR. So in this initial push, we're initially focused on the 18% of the community that doesn't respond to modulators. But of course, after we establish some proof of concept there, ours is a topical administration that can be complementary to the modulators. So we're not in the business of replacing them, where we could ultimately complement that therapy and expand beyond there. So there's extraordinary growth opportunity in the TAM.

Yes. Makes sense. Let's start with that 18% of patients that are either not amenable or not well responding or not tolerating CFTR modulators and there's clear unmet need. What is the prognosis for those patients? We obviously hear about the responders to TRIKAFTA that are having great responses and it's life changing. But for those patients that can't actually get that or don't get a response there, I'd love to hear your version of what the outlook is for those patients. Again, Dr. DeCelie-Germana was talking about that sort of patient population showing a 2% FEV1 decline per year, and they're talking about twice daily sort of lung clearance mechanisms. Maybe you can kind of explain what the current outlook is for those patients.

Hey, Juergen [indiscernible].

I'm happy to start, Joe. You could -- you expect the -- those patients to be in a state of lung function roughly before TRIKAFTA was approved. TRIKAFTA was approved in 2018, ivacaftor approved in 2012. And in the 10 years after approvement from -- of ivacaftor plus adding on TRIKAFTA, the mortality in patients, the yearly mortality decreased from 1.5% to 0.7% in 10 years. And the currently expected survival of a newborn with CF changed from 39 years to 61 years. So this gives you an idea. Those patients who cannot take TRIKAFTA or ivacaftor, they still have worse lung function. They have a more rapid decline of lung function, but they also have an increased number of these pulmonary exacerbations and make them worse several times a year. And they further contribute to decreases in lung function.

Okay. And then maybe you can talk a little bit about the persistency or how frequent these patients are using lung clearance techniques like CPAP mask, breathing in Pulmozyme, salbutamol, like massaging, basically trying to clear that mucus. Are they doing that on a daily basis, or twice daily basis? I'm asking this from a perspective of when we think about inhaled mRNA therapeutics, which we'll talk about and the frequency at which they dose that is that sort of treatment paradigm compatible with the current standard of care that they're currently managing their CF with?

Yes. I can take this. The typical patients have their morning routine of different clearance techniques. They also use a vibrating rest that shakes them up and shakes the mucus loose, and they do this regularly first thing in the morning and then start with the other therapies, including Pulmozyme or inhaled antibiotics. And our drug perfectly fits into this routine. This is just another 5 minutes of administration with another inhalator. And then this is not an extra -- it's not an additional treatment burden, I would say.

Okay. Makes sense. Let's talk a little bit about safety and then want to go on to sort of efficacy expectations and what we're trying to aim for here. A lot of the safety, obviously, components here. One is the lipid nanoparticle, the other is the mRNA cargo that you're delivering. Maybe on the lipid nanoparticle side, can you talk about differentiation that you may have with your LUNAR platform here versus peers that are also in the space like Vertex and Moderna and ReCode also has a program there. And historically, companies like Translate Bio now at Sanofi that have tried this before. Maybe you can talk a little bit about that LNP differentiation you have.

I'll address this one, Juergen. But our LUNAR delivery technology isn't just a different trademark name. It is a different chemistry. I want to -- the importance of this. And we've showcased the differences here in preclinical animal models, and we hope that, that replicates in the human clinical trials that are ongoing right now. But the key difference is the chemistry of the lipids is different, meaning the cores of our lipid ingredients are thiocarbamates cores, which means there's oxygen, nitrogen and sulfur that provide handles for the body to hydrolyze, break up these lipids and so prevent them from accumulating. And that's -- you do not want accumulating lipids in your liver after systemic administration in your arm after a vaccine administration or, of course, in your lungs after frequent administrations -- inhaled administration. So that element of biodegradability is important. But we've also optimized our delivery technology to survive the nebulization process, that was a multiyear optimization process. And then after it's nebulized and enters the lung, it needs to survive and endure -- and deal with the sputum and the phlegm in the lungs. And we went through a 10,000-fold optimization process to improve the stability of these particles in actual CF patient sputum that was provided and donated by the CF Foundation to us to do these studies. So we went through that process. But that's just half the battle. You now need to design these nanoparticles in these lipids to stick to and transfect and enter bronchial epithelial cells. These are a completely different cell type. This is not hepatocytes in the liver. This isn't like myocytes in the arm. They're completely different on the surface. So we had to go through a considerable multiyear process to optimize the transfection getting into these cells. And then breaking out of the endosome, again, once it's inside the cell of a bronchial epithelial cell, you need to optimize these lipid nanoparticles to break out of the endosome. And that biochemical process of an aging endosome and activating the particle to break out of that endosome is different in a bronchial epithelial cell. It's not the same as hepatocytes or myocytes. So we had to go through a multiyear process there. It's been over a decade and that's brought us to this point today. We've done -- our team has done extraordinary work addressing these challenges along the way. So when we say it's different, it's not just chemically different, but it's been highly optimized for each of these challenges that can encumber other technologies.

Makes sense. Maybe you can talk a little bit about that biodegradability and the time lines at which you expect that to occur. Obviously, I think there's a decent hypothesis out there that Translate Bio may have accumulated LNP in the lungs, and that's what led to febrile reactions. Like what is the preclinical data that you point to, to say, hey, we're clearing out this lipid nanoparticle completely from systemic circulation in a given point of time.

Well, we've got plenty of preclinical data, but we also have human clinical data, not after a systemic administration, that's even more invasive. Imagine injecting lipid nanoparticles throughout your whole body. And we've shown in that setting multiple times in multiple clinical trials that the lipids clear within 48 hours. They're no longer measurable. So this is -- it used to be a very clear differentiator for us. I think the field has caught up and is trying to develop biodegradable technologies now. But that's something we established years ago with our platform in terms of biodegradability and clearance.

Okay. We have seen some Phase I data of this product, both in healthy volunteers and then two administrations in CF patients as well, and that was presented at the [ ECFS ], and there's been some oncall presentations as well. A couple of questions we get is pretty interesting efficacy signal originally here in those CF patients. But there were some questions over safety signals that have popped up in the Phase I healthy volunteer portion. I think there were some transient mild respiratory symptoms. And then there was a cohort that added some salbutamol in the administration, and it appeared to alleviate those. So I just wanted to get your thoughts on are those transient respiratory symptoms something of concern as you're moving through development here? Are you worried about headache chills, myalgia and potential febri reactions there? Or you think you've got a suitable safety profile?

I'll pass this over to Juergen shortly. But we have -- just to summarize the data set, we have 32 subjects that participated in a Phase I trial, an additional 7 CF patients that went through a two administration Phase Ib trial, and that collective data was more than sufficient. We're very happy with it to allow us to transition to Phase II. But to deal with the nuance in the particulars, I think that's helpful for investors to hear. And so Juergen, I'll turn it over to you to comment on some of these questions.

Thank you, Joe. In our healthy volunteer study, that was the first part of our Phase I study. We enrolled four dose groups from 3 milligrams up to 27 milligrams. So 27 is a very high dose group. And healthy volunteers who never had any inhalation therapies before usually are more are sensitive to irritabilities. And any inhaled drug is an irritant one way or the other. And so what we did see, we saw with increasing doses, slight increase in those airway irritative events. This could be a little bit of chest pain or a little bit of shortness of breath. But they were only mild of nature. And in our second highest dose group of 18 milligram after half of them were enrolled, our safety committee discussed it with us and suggested that for the subsequent participants in this healthy volunteer study, we administered salbutamol -- albuterol in 2 low dose just 30 minutes before the administration. And we did this, and that's mitigated all these events. We did not see any lung function decreases anymore. They did not report any symptoms anymore. And in our CF patients and CF patients are used to take inhaled drugs. So we expected and we did see that they did not have many of these events. If there were a few, they were only mild and they were completely mitigated by albuterol. What is albuterol? Albuterol is basically just treating against potential spasm in the airways. And it is an inhaled or short-acting drug that is given very frequently, and we administer in about 30 minutes before and the maximum effect is 30, 60 minutes, but then quickly weans off. And when we do our lung function measurements as an effect of our trials, we usually do it before albuterol. So this doesn't affect at all our lung function assessments in the trials.

That's helpful. And then just to clarify, the CF patients had 2 administrations as well. So you've treated them twice. And so if you're going to see potential increased reactogenicity, you probably would have seen it with the second dose.

We would have seen this. On purpose, we took the highest dose regimen and split it in a smaller dose at the beginning and 2 days later, the higher dose.

Yes. Yes. Okay. Final one on safety, then I want to move on to efficacy and the time we have left. It's inhaled mRNA LNPs. Any quantifiable systemic exposure? Like did you take blood draws from those patients? And can you find drug in the systemic compartment?

Go ahead, Juergen.

Yes, I can address this. As we inhale our mRNA product, and we don't expect any systemic concentrations. We did not see any systemic mRNA concentration. They were all below level of detection. And on the lipid side, at the higher doses very sporadically, we saw very, very low concentrations that were just above the lower level of detection. So I think we confidently can say we don't see any systemic absorption of it.

Okay. Cool. And then maybe just on the efficacy considerations, an open-ended question to start with. You've got interim data from the Phase II trial coming up sometime here in the second quarter. Maybe you can just talk about the types of patients you've enrolled, what sort of data that you intend on disclosing/anything you can tell us about the number of patients and characteristics you'll be reporting on?

Yes. There's 12 subjects that are involved in this trial, and we -- that was negotiated and agreed upon by the FDA. So if we establish POC with respect to FEV and if safe and well tolerated and lung function improvements, then that will be sufficient to advance this into -- further into development. So that was very clear. When we say interim, that means it's going to be a subset of that 12. And other than that, Juergen, anything else to add?

Yes. We are measuring lung function. FEV percent -- predicted FEV1 is a surrogate endpoint for these type of trials, and we will measure this several times during the study. We are also measuring the CFQ-R, which is a Cystic Fibrosis Questionnaire Revised, particularly for the pulmonary domain. This is an established validated patient-oriented outcome instrument and CFTR modulators have shown that you see an improvement within 4 weeks of treatment. So we are measuring this as a secondary endpoint. We are also doing high-resolution CT scans at baseline, and we are offering this on an optional basis to the patients as a repeat test after 4 weeks of treatment. And we will doing functional assessments with special technologies to look at the thickness of the airways, any airway trapping or any mucus closure of airways.

And we also negotiated with the FDA that many of these treatments can be done at home. And so that was viewed positively, like why would the FDA allow us to do this simply because we had 39 subjects of data in Phase I and Phase Ib that gave them comfort on the safety profile of ARCT-032 that gave -- so a larger percentage of our treatments are done at home. There's fewer study visits, for example, that make this a more convenient trial to participate in.

Makes sense. You have commented that if you saw something in the realm of a 3% point improvement or potentially greater in absolute FEV1, that would be an efficacy signal. If the safety look good, we'll take that forward. Maybe you can just explain like where that assumption came from?

Sure, sure. So there's strong historical precedent in the Vertex modulator community and all the other modulator trials out there that if you establish 3% FEV or improvement in lung function that, that will be sufficient to advance a program into a pivotal study or a Phase III study. So there's a lot of historical precedent, and that's driven -- so that number 3% is really driven by mathematics and statistics. If you want to power the Phase III study sufficiently to be successful, you need to have 3% FEV. Now the higher that number, of course, it means the smaller the numbers in Phase III. So a more efficient, less expensive trial. So of course, we view that 3% as a low bar, but that is the bar, and that's driven by just historical precedents. And we're not the only folks communicating that. But of course, we'd like to get higher, and we view it as a relatively low bar.

Yes. Maybe going back to the Phase I data in the CF patients that we did see at [ ECFS ]. I think it was 4 patients that was originally presented on 4% predicted FEV1 increase there. I guess just your comments on how reproducible you think that result is from the 4 patients? Is that -- we're looking to replicate that in this Phase II? Is that the goal here?

Well, the numbers you're referring to came out of the safety study, and we were looking at FEV simply to look for deficits in toxicology. So we were surprised that after only two administrations, we saw elevations already. So we view that positively. But it was a small data set. It wasn't statistically significant, although it is promising and, of course, positive. So do we anticipate that Phase II repeats that? That's what the data suggests, but we'll be able to update the market with the specific Phase II data later.

Yes. Okay. And then have you disclosed the doses that you're investigating in the Phase II study? I think in the Phase I healthy volunteers, we saw 3, 9, 18, 27 mgs, but yes, just anything on the predicted dose ranges that you're evaluating?

We made it clear, it's not the low dose or the high dose. We are looking at intermediate dosing. We did in Phase Ib already, and we're evaluating a multiple ascending dose in our Phase II trial right now. None of the doses we're evaluating in Phase II are wasted doses in our view based upon our historical preclinical data and, of course, our clinical data. So they're not wasted doses, and we feel very comfortable about the safety profile. Obviously, so does the regulatory agency to allow us to dose patients at home. And then any other comments, Juergen, with respect to how frequently we meet with safety review committees to...

Yes. We are using a DMC of the Cystic Fibrosis Therapeutics Development Network. So we have regular safety reviews included. And we will organize this that it doesn't really affect enrollment too much, but we have to have the safety done at certain periods of time.

Okay. I did actually get a question on the chat, and I kind of had the same one myself. It's referring to kind of what cell types and the distribution that you need for the transfection of this product to actually work. So the question is, do you actually need to transfect like pulmonary ionocytes? Or is it all bronchial epithelial cells? And maybe you can talk about any sort of preclinical and/or clinical studies that you can talk to the distribution of transfection that you get with ARCT-032?

The short answer is bronchial epithelial cells are sufficient. [indiscernible] sites would be potentially helpful. But what we saw in our preclinical animal models in multiple -- in mice and rats and primates and ferrets that if you transfect the bronchial epithelial cells that you get a desired result. So we expect that to be similar in human beings. I don't know if there's anything to add, Juergen, go ahead, but that's our view.

Yes. Let me add. We have done one study with transduction of -- with our LUNAR technology, and we looked at different epithelial cell types. In principle, all cell types, including ionocytes are similarly transducted with our LUNAR delivery technology. So we do not -- ionocytes are included, but we believe that if we actually hit most of the other epithelial cells, it's a better way to actually see the efficacy of CFTR.

Makes sense. I know we're kind of pushing up on time here, but there are also another question. It's an interesting one. Just in terms of the CFTR modulators, you can look at surrogate endpoints like sweat chloride and things because they're systemically administered, right? Maybe not so much with this product. Is there anything outside of FEV1, maybe some of those other endpoints that you talked about that you're capturing in the study that you can look at to kind of corroborate any potential efficacy that you've seen on FEV1 to make sure that it is a real signal?

Yes. Juergen has got a great response to this. But just to set the stage, the FDA, all they would like to see is an FEV improvement. So that's the bar to advance this. However, of course, we're collecting additional data to support and strengthen our data package. And Juergen, maybe you can comment on some of the things we're doing in Phase II.

Sure. As I mentioned already, we are using the CFQ-R as a secondary endpoint. This is an endpoint tested in all the CFTR modulator studies and ended up in the label as secondary endpoints. And that shows improvement of benefit, quality of life benefits, for instance. And this will be -- is a secondary endpoint in our current Phase II study, but will also be an important key secondary endpoint in our Phase III.

Okay. Okay. So focus on CFQ-R as well.

Yes. The questionnaire.

Yes. Okay. Yes. Last one on CF is just pretty much how this product sits in the competitive landscape. So obviously, you have the modulators, you have your inhaled mRNA, lipid nanoparticle therapeutics here. You've been have some gene therapies and some that are talking about going into gene editing. Maybe just your view of the emerging landscape as you see it now.

No. You've already touched on the lipid nanoparticle mRNA competitors out there. But you're right, there's DNA therapeutics, these gene therapeutics that are in development. However, they're all using viral vectors as delivery systems. So whether that's AAVs or HSVs or lentivirus or next-generation AAV technologies. And our approach is just different. We strongly believe that a transient mRNA therapeutic is ideal for a more transient regenerating organ like the lung. So there's many, many, many different types and mutations of CF. So it's very important that you have a transient, flexible, attenuateable, multi-doseable therapeutic to treat the spectrum of the CF community and to do it in a controlled and safe manner. That's, I think, the ideal approach. So we have very strong views that the transient mRNA lipid nanoparticle system is the way to do this. Having said that, we're well aware that there's gene therapy mechanisms that are being investigated in the clinic, but we feel that strong that our approach is the ideal one.

Great. And then before we wrap up on just what the key catalysts are for the company and what investors should be focused on, Andy, I did want to ask you just a question on the cash runway for the company and maybe your view that if you do see interesting data here, what sort of capital is it going to take to follow through on a clinical development and a regulatory path here for ARCT-032?

Yes. We've actually forecasted that our cash runway is substantial enough to get through the first quarter of '27. And we've taken into account a successful progression into Phase III for both OTC and CF. So I think those factors have been incorporated. From a unique standpoint, we haven't included any revenues from our KOSTAIVE opportunity, especially from Japan and Europe. We anticipate that CSL and Meiji are working hard to develop the 2-dose vial format for Japan and certainly for other countries, but that would be kind of a wild card, which would certainly enhance and increase the runway.

Makes sense. And then, Joe, maybe just wrap up with you. We talked a lot about CF and data is definitely coming in the second quarter here. So lots of eyes on that, but maybe just outline the key events for the company in the near term.

Yes, there's a lot going on. We have not only advancing additional approvals for the KOSTAIVE franchise, we're going to be looking at increasing sales like Andy mentioned in Japan. So we have -- our KOSTAIVE, our COVID vaccine is approved in 31 countries. The next country on the list is the United Kingdom. We'd like to get that over the finish line. That's a big market. And then, of course, file a BLA for the United States of America. And I know that the vaccine industry is under watchful eye right now with this new administration. But we'd like to just mention casually that we recently got a Fast Track designation for our bird flu vaccine with the FDA right here in the United States. They're accelerating this program for us. And we've got a great relationship with BARDA that's funding our bird flu vaccine that's in 200 human beings right now and collecting data, and we'll be able to share that in the second half of this year. Moving on to the therapeutic franchise. We've touched -- we've talked in depth with CF today. It's a very exciting program for us, no doubt, inhaled mRNA is a big deal. But on the injectable or systemically administered mRNA platform, our flagship is ornithine transcarbamylase deficiency, that's the indication that we're addressing there. And that's presently in Phase II. And we fully intend to share some interim data there as well later this year. And so we're -- there's a lot going on in the next 2, 3 quarters. And as we look beyond that, of course, we're excited to learn from Meiji and CSL with respect to sales of KOSTAIVE that will help us fund our now late-stage programs and on the therapeutic side.

Certainly, a lot going on and far too much that can fit into a 30-minute chat that has now turned into 41 minutes. So I appreciate you spending some additional time with me and running through the CF program. And I think we're incredibly excited and anticipating the data coming up in the second quarter. So thanks again for spending the time with us, and we'll chat soon.

Thank you. Thanks, Myles. Good to be with you, everybody. We'll see you soon.