Arecor Therapeutics plc (AREC) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Arecor Therapeutics Interim Results for the 6 months ended, 30th June 2021. [Operator Instructions] We'd like to advise all participants the conference is recorded. I will now hand over to Chief Executive Officer, Sarah Howell, to open the presentation. Please go ahead.

Thank you. Good morning, everybody, and thank you for joining us today for Arecor Therapeutics Interim Results. We're delighted to be taking you through the company's performance over the first half of 2021. And joining me here today is Susan Lowther, our Chief Financial Officer. So moving on to today's presentation before we begin proceedings I will quickly bring your attention to the standard disclaimer slide, which is included in the presentation for completeness. So our presentation team, myself -- CEO; and Susan Lowther, CFO. So just to give you a little bit of background on Arecor? At Arecor, we've developed an innovative and proprietary formulation technology platform, Arestat that we used to enhance the properties of existing therapeutic products. So these are existing medicines. We're very much focused on improving performance of these products and ultimately, patient outcomes. And as a technology platform company, intellectual property is absolutely critical to us, and we have a very broad and robust IP protection of both the Arestat technology platform itself, but also the enhanced versions of products that we develop using this platform. We are a clinical stage company with our first area of therapeutic focus in the diabetes space, and we have 2 products within clinical development within this franchise, AT247 ultra-rapid acting insulin and AT278 ultra-concentrated -- ultra-rapid acting insulin, and I'll talk about those in more detail shortly. And more recently, we've entered into a second franchise area within the specialty hospital space. And these, again are products that are already on the market is that the powders that require a complex mixing procedure prior to use, and we're able to use the Arestat technology to develop stable liquid, ready-to-use and ready-to-administer versions of these products. So essentially ready to go vergence of these products that can bring benefits to both health care providers and safety benefits to patients. And to a certain extent, we validated the commercial potential within the specialty hospital space as we entered into 2 co-development and licensing deals with Hikma Pharmaceuticals and 2 of our pipeline products in 2020. And our strategy here across our internal development pipeline is very much to develop these 2 closer to market to a higher value inflection point prior to partnering for late-phase development commercialization under a pretty standard technology licensing model, so we'd expect these to be milestone and royalty bearing. So alongside our own internal development portfolio of products across diabetes and specialty hospital care, we also partner with leading pharmaceutical and biotech companies to develop enhanced versions of their therapeutic products as a proprietary to them. Now this is a revenue-generating model. It generates revenues from day 1 as our partners pay our core to apply the Arestat technology and develop novel formulations of their products. And also at the end of these studies, once we've developed -- enhanced version of their products, they have the option to take these forward further into development and through its commercialization under a technology licensing model. So there's significant upside potential from licensing as these products move through development and we'll talk about some of those collaborations in a little bit more detail. So overall, we're very much a commercially focused business. We have existing revenue-generating partnerships, best-in-class proprietary products that we plan to develop to a higher value inflection point prior to partnering. And as you know, we recently entered into a very successful AIM IPO back in June this year, raising GBP 20 million, and this is really to take those proprietary products to that partnering value inflection points and ultimately, to build a significant and sustainable business. So moving on to our operational highlights and later in the presentation, Susan will talk us through the financial highlights as well. So starting with our proprietary pipeline. As you may have seen, we were delighted to be able to report very positive results from our first Phase I clinical study for AT278. So this is our ultra-concentrated, ultra-rapid acting insulin. And again, I'll talk about those in more detail. We also earlier this month, received clearance from the FDA for our next clinical study to be performed in the U.S. for AT247. This will be a 3-day insulin pump study, and it's important to run the study in the U.S. as a very important patient population of diabetic insulin users. Earlier in the year, we were also awarded a GBP 2.8 million Innovate UK grants for the Phase II clinical development of AT247. Now as I spoke about previously, we also enter into technology partnerships with pharmaceutical companies, applying Arestat technology to their products to enhance those. And we entered into 3 additional collaborations so far in 2021 with Eli Lilly, Par Pharmaceuticals and Intas. We also continue to strengthen the team. We appointed Dr. Lindsey Foulkes, as Chief Operating Officer, shortly after the IPO and of course, continue to extend and strengthen our intellectual property portfolio, and we're able to report U.S. grant of key patent again earlier this year. So moving on to our portfolio here. I'll take a few moments to talk through some of the key areas here. So what you're seeing on this slide is a combination of the Arecor’ development, internal proprietary pipeline in the dark blue across our diabetes and specialty hospital care and our partner programs in the orange. So starting with our internal development programs here. What's important to note here is that we're taking existing products that are already on the market, such as insulin for our diabetes products, and we're using the Arestat technology platform to enhance these. And this is important because it means that the safety and efficacy, so the effectiveness of these products is already known, which means we can follow abbreviated regulatory and development pathways to market. So we're able to develop these at lower cost, faster to market and a lower risk compared to new drugs development here where limited or no clinical data is required. So for our 2 lead products within our diabetes franchise, AT247 and AT278, we have best-in-class Phase I clinical data, which I'll talk through shortly. But that both of those products and our strategy here is to further demonstrate the superiority of these products in the clinic and the benefits to patients through to Phase II clinical development prior to partnering for late phase development commercialization. We're very much here targeting superior insulins in an existing $6.4 billion market segment and with our partners would be looking to gain market share within that segment under a technology licensing model. To give you some sense of value here and we look at benchmarking in the area, we'd expect these licenses to be royalty bearing in the range of mid- to single-digits to low double-digit royalty-bearing licenses here. So perhaps moving on to our specialty hospital franchise, and I'll talk about the Hikma partnerships here. So the first co-development and licensing agreement that we entered into with Hikma was for AT282. So this is for an existing product again that's on the market, huge within the hospital setting that it's a powder that requires this complex mixing procedure prior to use. And we've been able to use the Arestat technology to develop a stable liquid ready-to-use version of this product. And with Hikma as our partner, we have the real potential here to bring the first differentiated ready-to-go liquid version of this product to market, and it's an existing around $600 million market segment. And we're working on assumption here shared by Hikma that limited or no clinical data will be required for approval. And if this is the case, which needs to be validated, of course, with the regulators, this could be on market from 2023, 2024. And again, to give you some sense of the value here, Arecor’ estimate on market share, et cetera, here with the differentiated products come to market, this could peak in the region of low double digits in millions of recurring royalty to Arecor’. And then perhaps moving on to one of our technology partnerships to talk through as an example here, if we move to AT220, this is a partnership where we worked with a partner in one of their proprietary products in development. Applied the Arestat technology to further differentiate this. Unfortunately, I can't tell you at this stage of the company or the product, but I can tell you it's a biosimilar product. So this means it's a copy of a complex and biological product that's on the market currently generating multibillion dollar sales, and we've been able to further differentiate this. This product is in late-stage development. So Arecor’ estimate that this could be on market from 2023 onwards and royalty bearing to Arecor’. And again, to give you some sense of potential value here, we would estimate that this could bring in the region of low single-digit millions in recurring royalty to Arecor’. So that gives you a sense here of the step-up in value as well as we move to the Arecor’ development programs that we plan to develop, to that high value inflection point prior to partnering. And as I mentioned, we entered into 3 new development collaborations with pharma partners through 2021, and these also off the future for license potential as we move through and develop these enhanced versions of these products. And really here, it's demonstrating that we are a very much commercially focused business. We build relationships with pharma companies, and we do, do deals. And these deals also validate the strength and the need for the technology. So I'm now going to move on to talk a little bit more about our proprietary development pipeline and also our clinical data that we have for our lead diabetes products. So starting with our diabetes franchise here. For both of our products, we're taking existing insulins that's already on the market and enhancing them. And our goal here is very much to improve treatment outcomes for patients requiring insulin. And we are very much focused in a segment of the insulin market, which is Prandial insulins or meal-time insulins. And this is currently approximately $6.4 billion market. There are around 56 million insulin users globally. And despite significant advancement in treatment options and care for people living with diabetes, it's still considered that only 6%, that's a single-digit 6% of people living with diabetes are under good control. And when we talk about controlled here, we're talking about good blood glucose control. So our first product, AT247 is taking existing insulin and we applied the Arestat technology to develop an ultra-rapid acting version of this. So essentially, we're accelerating the absorption of insulin post injection. And the reason this is important is that the daily challenge for a person living with diabetes is to try and control their blood glucose inside a healthy target range. And this is shown by the light purple here on the schemata. And they can do this mostly through most of the day and night, but that challenge becomes around meal times. Because when we eat meal, our blood glucose rises very rapidly and to be with diabetes needs them to take insulin to bring that blood glucose back inside this healthy range. And the fact is that the current gold standard insulin that are on the market today, there's still room for improvement. There is still a requirement for faster-acting insulins that can help people with diabetes, bring their blood glucose back into that healthy target range at much more quickly. And we can see this from the fact that on average a person with diabetes spends around 25% of their time with blood glucose too high, so in hyperglycemia and about 5% of their time with their blood glucose to low in hypoglycemia. And it's this time spent out of range that needs the very serious disease complications associated with diabetes. So for example, there's a 200% increase in glucose morbidity and 70% of people with diabetes die from cardiovascular disease. So with AT247, we're very much targeting a best-in-class, fastest-acting insulin that can help people with diabetes, better control their blood glucose, particularly around meal times. And what we're really excited about with AT247 with its superior profile is the potential for it to enable a fully automated artificial pancreas system, which could be life-changing for people with diabetes. So moving on to our clinical data. So we've performed a Phase I clinical study in type 1 diabetic patients, male patients comparing AT247 against 2 of the gold standard treatments from Novo Nordisk that are available on the market today is being NovoRapid. They're rapid acting insulin and Fiasp, they're ultra-rapid acting insulin. And what we're seeing here is the pharmacokinetic data. So essentially, this is levels of insulin in the blood post a single injection of either AT247, NovoRapid or Fiasp to the type 1 diabetic patients here. And now I'm going to talk about AT247 in relation to Fiasp because this is the fastest acting comparator within this study. And what we saw here was a faster exposure and a faster initial onset of insulin. And then we also saw then a 2-fold increase in exposure in the first 30 minutes. So that's 2x more insulin on board in the first 30 minutes and a 1.5x increase in that first 60 minutes. I'm talking about this first hour here because it's the critical period when with eating food, our blood glucose has risen very rapidly, and we need to get this insulin on board, so it can start bringing down blood glucose as fast as possible. And as you can probably see here when we're comparing the green curve of AT247 against Fiasp in the blue, we see a left shift of this curve. So we also see an earlier offset of exposure of insulin as well. So it's being cleared faster. And it's this profile that we see as being ideal for use in an insulin pump setting and potentially be able to enable an artificial pancreas system. Now if we move on to the pharmacodynamic data that you're seeing here. So essentially, this is the glucose lowering effect of the insulin. So what we saw here when it's -- again, comparing AT247 in the green versus Fiasp in the blue is we saw a 9-minute faster onset of action. So that's the start of the glucose lowering 247 against Fiasp. And then we saw a 3-fold increase in glucose lowering action in the first 30 minutes and a 2-fold increase in the first 60 minutes. So from the PK data, we've seen that we've accelerated the absorption of insulin. We have more insulin onboard much more quickly. And importantly, then from the pharmacodynamic data, we're seeing that this translates into a superior glucose lowering action. And it's really this profile, remembering this is comparing against Fiasp and ultra-rapid acting insulin NovoRapid here that we're showing that superior best-in-class fastest-acting incident profile for AT247. And we really see the most benefit here for the use of type 1 diabetic patients, particularly in the insulin pump setting. Now moving on to AT278. So for AT278, we're also taking existing insulin applying the Arestat technology platform. But in this case, we've developed very highly concentrated to its 500 units per ml, very rapid-acting insulin. And I'll talk a little bit here around the challenge that we've had to overcome and the need for a concentrated rapid-acting insulin and also our headline clinical results. So in terms of the challenge here, it's well known and demonstrated that as you increase the concentration of insulin, it slows down its time action profile. So you see a delayed peak and a longer duration of action. And as I've just spoken about in relation to AT247, we need faster-acting insulins to help people with diabetes better control their blood glucose and control their outcomes. But I guess the question is then, why is there a need for a concentrated rapid acting insulin? The need really is 2-fold. There are a growing number of patients who require high daily doses of insulin. So these are generally type 2 based -- type 2 diabetic patients, particularly those co-presenting with obesity and insulin resistant patients who are categorized as patients that need greater than 200 units per day. And they have 2 options currently, this patient population. They can either use the only concentrated insulin that's on the market today. This is a 500 unit per ml insulin which is [indiscernible] from Eli Lilly. So with this insulin, they get the benefits of lower injection volume and fewer injections per day, but it isn't rapid-acting. So there's a compromise here in terms of blood glucose control or they can use the currently available rapid-acting insulin NovoRapid, which is available at 100 units per ml or Humalog, which is available at 100 and 200 units per ml. So here they get the benefits of a faster insulin, so improved blood glucose control. However, they need to inject higher injection volumes and potentially more injections per day here. So with AT278 being a highly concentrated 500 units per ml, but very rapid acting insulin to get the best of both worlds here. The convenience and compliance of lower injection volume and potentially fewer injections a day, but the speed and the blood glucose control and ultimately, improved outcomes associated with the rapid action. We also see very much the potential for AT278 to disrupt the insulin market. We see insulin delivery, very much moving towards the next generation of miniaturized insulin pumps. And of course, to enable these, you need a very concentrated but very rapid-acting insulin. So there's a real opportunity here to disrupt the market and particularly the underserved type 2 diabetic market move more of this patient population on to insulin pump therapy. And AT278 has the potential to be first and maybe only ultra-rapid -- ultra-concentrated ultra-rapid acting insulin available to patients. So moving on to our clinical data that we reported earlier this week. So we've performed a Phase I clinical study. It was a first in [ man ] study comparing AT278 of 500 units per ml with NovoRapid, which is Novo's rapid-acting insulin, which is a 100 units per ml. So we have a 5-fold increase in concentration for AT278. This study was in type 1 diabetic. Patients here, 38 male patients. And what we were very pleased to be able to report on this study is that the trial met all primary and secondary endpoints here. So we show non-inferiority of glucose lowering action compared with NovoRapid, but importantly, it really did exceed our expectations here and demonstrated a significantly accelerated early PK/PD profile compared to the same lower dose of NovoRapid. So we have been able to demonstrate in this Phase I clinical study, the real potential here for AT278 to be a highly concentrated and very rapid-acting insulin with superiority, in fact, against the current rapid-acting insulins which are available on the market. So in terms of next steps of broad diabetes franchise, as I mentioned earlier, we've received clearance from the FDA for our IND for next clinical study for AT247, which will be an insulin pump study that we're planning to initiate in the U.S. later this year. And on the back of our excellent results and results that exceeded our expectations for AT278, we're now looking at and planning what's the next best clinical study to do here to further demonstrate the superiority of AT278, and we look forward to providing more details on that once they're available. So I'm now going to hand over to Susan, who will take us through the financial highlights and outlook.

Thank you, Sarah. Our financial highlights reflect the substantive progress we have made in H1. A key highlight was our successful AIM IPO on the 3rd of June, where we raised GBP 20 million investment from new and existing shareholders. Our H1 revenue of GBP 0.5 million was in line with expectations and included revenue recognized from new agreements with Lilly and Par from quarter 2 onwards. Our increase in R&D of GBP 1.9 million over the prior period of GBP 1.6 million includes investment in our AT278-102 clinical study. Our closing cash of GBP 22.1 million at 30th June reflects our successful placing plus existing cash resources. Moving on to our key financials. Our H1 revenue of GBP 0.5 million was recognized from formulation development project. This is in line with H1 2020 and note that H1 revenue included a GBP 0.3 million milestone from a license agreement. In the first half of 2020, we generated granting from 2 Innovate grant project which were in their final stages. The new GBP 2.8 million grant awarded in March was in the start-up phase in quarter 2. So we recognized relatively modest income of GBP 51,000. We expect an increased level of granting in the second half of this year moving forward. Our investment in R&D reflects a modest increase over H1 '20, and we expect further increased investment from H2 onwards. We ended the period with a significantly improved balance sheet with cash of GBP 22.1 million, and we are debt-free following the conversion of GBP 4.4 million of shareholder loan notes, which were converted into new ordinary shares prior to the IPO.

Thank you, Susan. And so -- just really now to close the presentation, really looking at some of our milestones that we've achieved and slightly looking forward here. So -- as you can see, we haven't really talked about 2020, of course, but we met all of our key goals in 2020 and entered into our new licensing agreements to with Hikma pharmaceuticals and Inhibrx, and we very much carried that momentum forward through into 2021. So we received the GBP 2.8 million Innovate UK grant, successful IPO that Susan has just spoken about, our fantastic AT278 Phase I clinical results and also the FDA IND allowance to allow us to go into our next clinical study to further demonstrate the superiority of AT247. We expect to see further progress under our Hikma co-development licenses and also continued technology partnering growth. We have 3 partnerships that we've entered into additional partnerships this year, and we expect to see that continued growth there. So really, if we talk about what's happening next, we'll be looking forward to reporting clinical results from AT247. The 103 study, that's the insulin pumps study within 2020. As I said, that further advancement of both Hikma collaborations. And we'd also expect to be entering into new collaborations Hikma co-development and licensing, deals with our early -- currently early stage specialty hospital franchise as we take those products to partnering from the second half of 2022 onwards. So that brings me to the end of the presentation today, and I'll now hand back to the operator for any questions.

[Operator Instructions] We have a first question and it comes from the line of Julie Simmons.

Lovely set of results and good for that data last week. I'm just wondering on that with the -- firstly, on the sort of next trial is likely to be done. I mean do you have any idea of the size of the number of patients that you might be looking at? And has that thinking changed since you've got the data at the weekend?

Yes. Julie, thank you. So in terms of the patient populations, as you've probably seen from the results from so far from AT247 and AT278. The first AT247 study was 19 Type 1 diabetic patients and for AT278, it was 38 type 1 diabetic patients. So the key here is that these clinical studies themselves are quite contained because we know the profile now and the PK/PD profile of these products, and we obviously know the PK/PD profiles of the gold standard products on the market that we're comparing against, we would expect to be in the same range for our next clinical studies here. It's all down the course of the study design and statistically how many patients we require to demonstrate superiority, but I think we'll find our stuffs in that kind of bracket of patients.

Perfect. That sounds encouraging because it doesn't sound too expensive. And just on the other side of the business. As far as the pharma development contracts are concerned, I mean, how many do you think you can take on? I mean, clearly, you've been announcing them since you've been a public company. I'm assuming there are a couple that you're doing, which predate that. But I mean, is there a limit on the number that you can sign?

Yes. I mean there's not really a limit here because the Arestat technology platform itself is very transferable and scalable. So it's a question of scaling that within our core. We are very much focused and target on entering into collaborations where there is a good strategic fit with Arecor’ and where we see that there's motivation on both sides to take the products further forward in development because really the upside potential here is around technology licensing and that's where we can really build the value within the business. So there's no limit, but we do carefully select our collaborations and partnerships.

There's no further questions. I will now hand over the presentation to Chief Executive Officer, Sarah Howell for closing remarks.

Perfect. Thank you. So if there are no further questions I'd like...

Sorry, we just have another question.

Okay.

Okay. It comes from the line of Frank Gregorio.

I'm sorry, Sarah, I stopped you mid flow. It's a simple question. I think I've understood this. Let me get this right. So you are developing compounds which are easier to develop, should we say, because they're already proven. So the development risk is less. Does it also mean that your studies are going to be shorter -- and the reason I ask is because that would mean that your patent life is longer, and that means that your royalties, et cetera, would be longer. Have I got it right?

Yes, you have actually. So as you said, because of the safety and efficacy of these products is already known, we don't need to re-demonstrate that. So in the case of our insulins or clinical studies, or design there to demonstrate the superiority because we're looking at improving, of course, patient outcomes here. And for our insulin products, we expect to have patent protection out to at least 2037. And as you may have seen from the pipeline slide, we'd estimate that these could be on market from as early as 2025. So yes, they have a good commercial in-life IP protection around those. And we look -- we continue to look for and expand our avenues for protecting our products as we move through development.

Sarah, I'll hand it back to you.

So yes, so if there's no further questions, I'd like to thank you all for your time today, and thanks, Susan, for joining me. Of course, if you do have any further questions, then please don't hesitate to get in touch with us directly. And we very much look forward to updating you on our progress again soon. Thank you.

Thank you.