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

Day 1 of the Back to School Biopharma Conference, Citi is hosting here in New York. I'm Yigal Nochomovitz, biotech analyst. We're on our third session of the morning, which is my great pleasure to introduce Arcturus Therapeutics. We have both the CEO, Joe Payne; and Alan is the CMO, new CMO, relatively new CMO. So welcome, both of you. Appreciate it.

Thank you. It's good to be with you.

So Joe, lots happened in the last couple of years with the company, both on the OCT (sic) [ OTC ] front and then also on the CF front. So it would be great if we could just start with the high level, kind of introduce the company, what are the key programs? And we'll have a plenty to talk about on both of those programs.

Sure. So Arcturus is a messenger RNA medicines company that we have next-generation technologies that differentiate us from the field and within the mRNA community. We do have a self-amplifying mRNA technology to support the vaccines division. But we utilize the self-amplifying mRNA platform, which includes infectious disease vaccines and potential cancer applications. We utilize that division to fund -- non-dilutively fund the value-creating portion of the organization, and that's our therapeutics pipeline. We have a pair of messenger RNA therapeutics that are deep in Phase II with some meaningful milestones and readouts this year. So our liver platform has a flagship asset that's for an indication called ornithine transcarbamylase deficiency or OTC deficiency. It's the #1 urea cycle disorder. And we have a Phase II readout for that later this month. So it's a very near-term milestone for us, along with some regulatory clarity associated with that program, that flagship program for the liver platform. And then we also have an inhaled messenger RNA platform that's led by our CF product or cystic fibrosis indication. And we have a key decision for that program in Q4, a go/no-go decision to whether we proceed into Phase III. So that's where we are. So again, just to reiterate, we have an advanced vaccine platform, self-amplifying mRNA that's approved in 32 countries. And we're looking to that to help generate cash or fuel for the value-creating therapeutics pipeline franchise.

Okay. So let's start with OTC. So you mentioned that there's going to be some data coming up. Maybe kind of help us understand what we're going to learn at that data readout. I believe that's later this year?

This month.

This month. Okay. Very good. So what are we going to learn? What will you learn in terms of feedback from the FDA in terms of the path forward? And given you're studying both the pediatrics and the adults, are there differences in terms of what you need to see there?

Yes. So we've had a pair or 2 Type C meetings this year that we -- so we've engaged the regulatory agency to discuss the path forward for this program. And you're right, there's 2 general populations that we've segregated the OTC deficiency community into. You have stable adults and then you have pediatrics where there's a larger commercial opportunity and higher unmet need with respect to pediatrics. So, as we've talked to them, we've already indicated that both of these Type C meetings were positive and productive. But the details around those meetings will be provided in more granularity at our communication later this month. So it's not just data that we'll be providing, but it's also the regulatory path forward and more granular feedback from those 2 Type C meetings. In terms of what data to expect, you mentioned this is a Phase II dataset that includes Europe and the U.S. We have completed all our dosing and enrollment. We've already communicated that. So it's just about compiling the data and presenting it. But why it's a unique dataset is not only because it's additional data from our interim communications, but it's in a format and additional data that was recommended through advice from the regulatory agency, so -- from these Type C meetings. So we'll be able to communicate not just biomarker data, but additional data that we had to go back retroactively and dig up and provide that for Wall Street as well.

So it sounds like some of those details in terms of what biomarkers you're going to show are not ready for prime time today. Is that something you're later or illuminate a little bit?

Well, we can discuss this a little bit. The biomarkers for OTC deficiency are well established. Ammonia is a bad actor. And that's always been a surrogate biomarker or it's something that you don't want ammonia, systemic ammonia. It crosses the blood-brain barrier and does bad things. So we don't -- we need to control that and show the regulatory agency that we can control ammonia. So ammonia is a key biomarker, but so is glutamine and something that's helpful for people listening to the call today is that a lot of the patients that we're treating are already on ammonia scavengers, and they're doing their best to control ammonia because that's what's very problematic. So what they do is they take all these pills and they drink a lot of water. And these pills are ammonia scavengers that sequester the ammonia and then they drink a lot of water and they urinate all the ammonia out. And it's an exhaustive process, but that's how they're trying to manage ammonia. But what people don't realize is that these OTC patients, these subjects still do not feel well. Now why is that, if they're controlling their ammonia and doing their best. It's because of glutamine. So ammonia gets converted to glutamine in the body before it is scavenged. And so what we found and what the community well understands is that you have high levels of glutamine. Now why is this a problem? Because glutamine crosses the blood-brain barrier as well, and it converts back to ammonia. So even if you're doing everything right, you can still have foghead, headaches and just complications associated with the glutamine biomarker. So in addition to ammonia, which is a well understood and surrogate biomarker, there's glutamine. And we're just finding that these biomarkers are both of interest to not only the community, but the regulatory agency. We -- and the other comment that I can provide is in stable adults, there's an increased emphasis on glutamine because they've been managing at least to the best of their ability, the ammonia levels already. So they're more interested in getting that ammonia down so they feel better or the glutamine down so they can feel better. But in the pediatric population, there's elevated interest in ammonia because that's the population that is having severe disease and fatality occurs in severe hospitalization and hyperammonemic attacks and stuff like that in the children. So there's more of an emphasis on ammonia in the kids and an increased emphasis on glutamine in the adults.

Okay. That makes sense. So it sounds like there may be different metrics for the different populations for larger -- for the next set of studies. So we're going to get more longer duration of data, those endpoints for those populations. And then you're going to move into a Phase III basically after you disclose this? What's the game plan there? How much...

In terms of the regulatory path forward, we're intentionally going to be communicating that with clarity concurrent with the data readout later this month. So people don't have to wait very long. But that's one of the potential value inflections for this program is not just the data, but providing what our proposed path forward is for pediatrics and adults.

Okay. By the way, I remember in our -- long time ago, there was another biomarker that was it orotic acid or something like that. Did that one not feature heavily anymore?

It's still there, but yes, that's right. There's orotic acid in the urine. There's -- the urea cycle impacts a lot of biology. There's a lot of amino acids that are indirectly and directly impacted by this cycle that occurs in the liver in the periportal portion of the liver. So yes, orotic acid is a byproduct that can be measured. However, it's quite variable. So I don't know how helpful it can be supportive in nature. But we're also looking at the 15N-ureagenesis...

Yes, I wanted to ask about that, too. Okay. Let's skip over there. So tell us about that. This is this, I guess, a radio-labeled nitrogen, heavy nitrogen.

Yes. We talked about multiple biomarkers already, ammonia, which is the bad actor, glutamine, which is also complicating and annoying. People want to control and normalize that. But this is a urea cycle disorder. So you can track urea itself. And there's different ways to do so. But there's a relatively new assay, this N15 assay that's very clever. It's an academic status right now. But yes, we have been collecting that data. We consider that data to be supportive in nature. It's still an early technology. So it's unlikely that it will be a validated primary endpoint or something like that. But is it cool technology? Is it potentially supportive? Absolutely. So we'll be collecting that data as well.

Is that something the FDA has heard of or understands or that's there in a sort of a learning mode there as far as since it's so new.

Combination of both. Do you want to comment on that?

Yes, this is. So this is Alan Cohen. So, yes, a ureagenesis cycle is really an exploratory endpoint. It's another way of validating, as Joe said, the fact that we're normalizing the urea cycle function. I think the things that the agency is going to be continuing to be interested in wanting to see are all the things that he just highlighted. The challenge is that when we only dosed -- we only gave 5 doses in these patients over what is a relatively short period of time, 12 weeks. So being able to liberalize patients urea-binding medications, getting that dose down so that we can show that we've either stabilized it or normalized it is not something that's easy and feasible to do in such a short period of time. But what you would like to see is that it's stable. Patients are feeling better. They're reporting that they're not foggy, perhaps they're gaining weight, perhaps they're acting and they're liberalizing their protein intake. Even though we told these patients to remain on a stable diet, some of the things that we look forward to sharing in the near future are going to be those kinds of measures and those kinds of important observations.

Okay. All right. So we're looking forward to a lot. It sounds like there's going to be a very significant update then with a lot more detail on that...

And not just ARCT-810, but also the -- and the regulatory feedback. But the platform in general, we're also going to use this as an opportunity to update folks on our intravenously dosed mRNA therapeutics platform for the liver. So it will be a comprehensive update. It's not going to be an average update. So stay tuned, and I hope people.

So there's something beyond the OTC in terms of another indication potentially...

You have to...

We'll wait. Okay. All right. So maybe we could switch over talking about CF for a little bit, another very important program. So maybe just, first of all, just give us a snapshot of what you've shown. You've done some dosing work. You had several updates last year. Just kind of summarize where we are.

Yes. So a lot has happened in the CF program for Arcturus, but also within the CF community. Inhaled RNA therapeutics in general has been extraordinarily difficult for the field, whether it's antisense or siRNA, circular RNA, gene editing RNA and mRNA, and everything in between. Humans just don't like to inhale lipids and RNA. That's just -- it's been a challenge for decades. But we've now overcome that challenge through a lot of work over this past decade and a lot of investment from the CF Foundation and other strategic partners. But we're now in a place where we feel very good about the safety and tolerability profile -- we've completed 5, 10 milligrams and 15 milligrams of daily dosing over 28 days. And just to put a frame of reference on that, that is much, much, much higher and much more consistent than any other program that's out there for. So it's a very differentiated profile. And those differentiations of much more generous dosing of mRNA for a consistent period of time. The reason we're able to do this is because of our next-generation technology is differentiated. So we have a chemically different lipid nanoparticle that differentiates us from the field. We have a purification process for the RNA molecule itself that helps with safety and tolerability by removing these problematic impurities. These small RNA impurities can be very problematic for immune responses. And finally, our nebulization process. We took an off-the-shelf nebulizer and converted it and customized it to something that's more efficient at aerosolizing these types of therapeutics to prevent aggregates and macro particles and discombobulated particles, right? We need to retain the integrity of the particle, prevent aggregation, forming these macro particles that can be toxic as well. So if you combine that all together, a chemically different lipid nanoparticle that's biodegradable and non-accumulating, and then you have this more pure construct and optimized nebulizer, you pull that all together, you have a logarithmically different technology platform. And that's what we're seeing so far with respect to safety and tolerability. And the reason I'm emphasizing that is that is what has plagued the entire field of inhaled RNA therapeutics has been safety and tolerability. And thankfully, we're -- we believe that we've addressed that challenge. We're presently in a 3-month study that started back in March. And so we're deep into this open-label study. We're not just evaluating this technology over 28 days, but now 3 months or 12 weeks of consecutive daily dosing. And we're in a position to share or provide a decision for this program in Phase III. And now if it's okay, I'd like to discuss why we've guided a decision. I'll just take a moment to do that. So normally, a CEO guides data or guides for completion of enrollment, but we're guiding a decision to proceed. Now why is that? It's because we signed a Thermo Fisher agreement in July. And this is a very meaningful agreement for Arcturus because if we -- if Arcturus makes the decision to proceed into a Phase III study, then this triggers up to a $40 million contribution from Thermo Fisher to support our Phase III budget. That's a lot of money for a company of our size. So the decision to proceed is what triggers it. So that's the guidance. We're guiding this decision to proceed because it's associated with up to $40 million commitment or contribution from Thermo Fisher to support our Phase III budget for the CF program. That's why we have that unique guidance in place.

Maybe -- go ahead, Alan.

Yes. So for some of your listeners and people in the room here that may not be as familiar with our program, let me just give you some nuts and bolts, so you'll at least know what's coming. Joe mentioned that we did dose ranging over 4 weeks at 5, 10 and 15 milligrams. When we did that early safety tolerability study, it's certainly not long enough to give us a clinical signal of any meaning. We did make an observation which we took forward selecting the 10-milligram, the middle dose because we saw changes, improvements in radiographic findings in the lung. So that was the dose we took forward for the 12-week study. What we're dosing right now is upwards to 20 patients over a 3-month period of time at 10 milligrams. We've gone outside of the United States to go into places like Turkey and Israel, which have a very high preponderance of people with null mutations or the kinds of patients that have the highest unmet medical need. And we're looking at not 1, not 2, but 5 potential endpoints that have clinical meaning, 2 pulmonary function measures, including spirometry, looking at percent predicted FEV1, which is the most traditional endpoint that's been used for approvals for pulmonary diseases, including cystic fibrosis. Lung clearance index, which, by the way, the CF Foundation will be reporting out their natural history study, the REACH study next month in October. And they're doing that study to help sponsors like us have a normative database for this adult population, 2 quality of life measures and the radiographic high-resolution CT scanning data that we use to help select our dose for this Phase II study. So at the end of this fourth quarter or sometime during this fourth quarter, what Joe was mentioning is we're going to be reporting out based on this open-label study, what our intentions are with respect to moving the program forward. And then we hope to share substantive data sometime in the early part of next year.

Okay. All right. So a lot of kind of follow-ups on this important stuff. So I guess, first of all, can we just -- on the Thermo arrangement, can you just clarify? So that's -- what's the way -- what's the structure there? Because it's not -- it doesn't sound like -- it sounds like they're going to help fund this study, but is there a royalty or it's not like.

Yes, yes. So this is a very unique agreement. It's one of a kind. There's never been a deal like this ever in the pharmaceutical industry. That's how unique this is. So there's more legal costs associated with putting this agreement because there was no template for it. But usually, a CEO like myself wants to get money in the bank. That's what we're paid to do, and we do it by either selling stock or diluting the company or we sell a royalty, dilute the asset. This was neither. So the reason they're supporting this program is in exchange for a few years of commercial manufacturing exclusivity. So that's a unique deal. So no royalty, no equity, just a commercial manufacturing exclusivity. So why are they doing that for the CF program? Well, Arcturus, we haven't touched on it today, but we do have a product in 32 countries that's dosed 5 micrograms once a year. It's a COVID vaccine called Kostaive. That's 5 micrograms once a year. The CF program is 10,000 micrograms every day. So this is a significant commercial manufacturing contract. So large commercial manufacturers were approaching myself personally, the company and building a relationship in order to close and get this commercial manufacturing exclusivity. And what we ended up doing is this unique situation where a company of our size entering Phase III, we said, hey, how about if you support us with some contributions in Phase III in exchange for commercial manufacturing exclusivity and it worked. So it's a great relationship with Thermo Fisher. We're very pleased to be working with them with respect to our manufacturing strategy going forward, which is significant for the CF program.

Okay. So then sort of the intersecting question, Alan, you mentioned all the different, the HRCT, high-resolution CT, and then the lung clearance index, and then, of course, FEV1, which is the classic endpoint. So like how do all these things intersect in terms of determining what's a good enough profile to trigger the decision to go into Phase III. What do you need to see there? What do you want to see there? Everyone is very familiar with FEV1, but perhaps the others are not obvious.

Yes. So I'd say 2 years ago, there was several competitors with us in the inhaled therapeutic space for Class I CF. And now and to a large extent, it feels like it's just us, especially with respect to transient mRNA inhaled therapeutics. So and the outlook is different. There is not a threshold like Wall Street, and I -- trust me, I get it, Wall Street likes to see a number or a threshold that needs to be achieved in order to define success. But because we are first movers in this space, we are creating that threshold. That is the objective. What is success, and that's what we're defining. And we're not the first person to do this in CF. Vertex was heroic a couple of decades ago with ORKAMBI. It was the first modulator, and they had to create the threshold. And back then, they only had the FEV lung function. That is it. It was 2-point-something percent. They did not have lung clearance index. They did not have quality of life measures. They did not have high-res CT scan and AI tech and all this stuff. And they didn't have a REACH study, a normative natural history-like study from the CF Foundation to support it. They did it with just FEV. And so what they did was truly heroic. We don't need to do that, thankfully. We don't need to be heroic. We have FEV, we have LCI, multiple quality of life measures that are understood and validated to a large extent with the regulatory agencies. And then also, we have a normative study to compare to and the high-res CT scan pictures before and after treatment that can all support this. So what we are in the business of doing is establishing what success looks like. So the follow-up question is like, well, what does success look like because you got to make a decision on something, right? And I don't want to mislead people that we're in the business of pushing some therapeutic forward if it isn't working. I know that Thermo Fisher may be supporting approximately half of the Phase III budget, but Arcturus has to pay the other half. And we're not going to do this if it's not -- if we don't deem it feasible or reasonable. But I want people here to understand the, I would say, the immense and good pressure to get this over the finish line. The CF community, the Class I CF community, they need a drug. They need to address this huge unmet need, very similar to what Vertex was experiencing a couple of decades ago with ORKAMBI. And so it's kind of like resetting it, but this time, we have a set of tools to help us establish what success looks like. And as a scientist, Yigal, you know what success looks like. If the collective data is generally positive, I think it will be easy to negotiate, convince, share and get alignment with not just the CF community, the regulatory agency, the PIs involved, our partners and of course, the senior management team and our Board to know what success looks like. But that's the long answer to your question.

Let me just add one additional piece of color. I think over 4 weeks, simply safety and tolerability was really what we were looking for in dose selection. Twelve weeks, what we would like to see is some measure and indication that patients aren't just stable, but there's a modicum of improvement across at least one or more of the measures. So spirometry or lung clearance index or both. A Phase III study would certainly need to be longer. And in many ways, these patients remind me of the idiopathic pulmonary fibrosis patient population, a different disease, of course, it's a restrictive lung disease. But when I was involved with getting pirfenidone and nintedanib, both approved therapies through to the finish line and launch. What we were able to do there was show that we could stabilize and reduce the slope of the curve of reduction in lung function over time. And eventually, that had implications on survival. I think in many ways, this is a population given that they really only get supportive care that if we can just flatten the curve of decline and they're averaging about 1% to 2.5% of lung function loss annually. If we could stabilize those patients, I think that would be a huge step forward. And I think that's what Joe is referring to. So for purposes of the current study, we would certainly like to see across the 5 measures that we're looking at indications that we're not just stabilizing a subset of patients, but also that there are measures of improvement. And then for the longer-term study for a Phase III, I think stability as well as some measures of improvement would be what would be necessary to get a therapy like this approved for particularly the null population.

Which ones would be more likely to be in the gaining function versus stability amongst these endpoints? Is there...