Arecor Therapeutics plc (AREC) Earnings Call Transcript & Summary

Good afternoon, everybody. It's a pleasure to be here. Thank you for everybody who's taken the time to come today, particularly after a long bank holiday weekend. So as you know, my name is Dr. Sarah Howell, and I'm the CEO of Arecor Therapeutics. And delighted to be joined today by David Ellam. So many of you will know that David joined us as Interim CFO back in November of last year and very pleased to be able to confirm that he's now joined us permanently. And of course, David will be talking us through the financials later in the presentation today. So we'll be talking through the results for Arecor Therapeutics for the year ending 31st of December 2024. So our customary legal notice, of course. So just to give a very high level, I know certainly, everybody in the room today knows the company very well by now. But Arecor very much focused on transforming patient care by bringing enhanced therapeutics to market that reduce patient burden whilst improving outcomes. We do this by leveraging our innovative and proprietary formulation technology platform, Arestat, to develop novel formulations of existing therapeutics with these enhanced properties. And we're very much targeting areas of significant unmet patient needs in high-value markets, either ourselves through our clinical stage proprietary pipeline within diabetes and obesity space that you can see here across our insulins and oral GLP-1 or via our partnerships with major pharmaceutical and biotech companies, which are under revenue-generating licensing model. So we have existing growing revenues and high potential across our proprietary products here to generate significant value and value return, of course, to our shareholders. So very briefly on our portfolio and pipeline. Here, we have a very broad and derisked portfolio of both those in-house proprietary products and our partner programs. Across our partner programs, we have three products under license now at various stages of development, most advanced, as you know, being AT220, which is on the market, and globally now. And also to note here, I would note, Sanofi as well, they're in their pivotal registrational study for that product, and they're giving guidance now of targeting submission within 2026. And if they're successful there, we'd expect that to come to market within the 2027 time frame. So moving on to the operational highlights, and this includes post-period events also. So if we look first at our proprietary portfolio across the diabetes and obesity space. We're able to report in 2024 fantastic Phase I clinical results for AT278. So this is our highly concentrated ultra-rapid-acting insulin. This was a study in type 2 diabetics with high BMI. So these were overweight to obese patient population. We demonstrated superiority here against 2 of the best insulins that are available to this patient population. And I will do a very quick summary of that data shortly. We are also making significant progress towards striking a strategic partnership for the further development and commercialization of AT278. And here, we see the most value to patients and commercially in the use of AT278 in an insulin pump setting. And I'll talk a little bit more later on about the patient need here and then the commercial opportunity that this can bring to Arecor. Now AT247 is the other insulin, clinical stage insulin in our development portfolio. This is a standard concentration, so 100 units per ml, ultra-rapid-acting insulin here. Again, we've demonstrated superiority across 2 clinical studies in type 1 diabetic patients. And now a number of device insulin pump companies are using this data and modeling this data in vitro with their algorithms to understand the improvement in time and range. So this is time and good blood glucose range that can be delivered with the faster kinetics of AT247. And then we have an oral GLP-1 and this is part of our broader strategy to develop an oral delivery platform for peptides here. We made significant progress here. Initially in this in vitro stage, we're looking to stabilize the peptide within the oral delivery matrix, and we've been successful here. And we have a series of nonclinical pharmacokinetic studies, so PK studies are ongoing at the moment where we're looking at enhancing that bioavailability. And we'll have data from these studies through the course of the second half of this year, which will inform our next development steps. Then across our partner portfolio, which continues to grow. AT220, of course, is on the market. We're really pleased with the progress our partner is making here, and we're seeing, as that's rolled out globally, and we're seeing growing revenue streams from the royalty-bearing worldwide license agreement that we have in place with that partner. And we're also seeing a growing portfolio of both our pre-licensed technology partnerships. You might note we've entered into 2 further technology partnerships so far this year, and we'd certainly expect more of those. And also at the end of last year, we entered into a new exclusive milestone and royalty-bearing license agreement for a ready-to-use medicine. That partner is not disclosed at this stage, but that's called AT351 for now. And then across our intellectual property portfolio, we've made great progress. Again, this is obviously the lifeblood of the company. It protects both our Arestat technology platform, but those enhanced versions of products that we develop using the technology. We've had 17 key patents granted over the period in major territories, including increased grants and protection of AT247 and AT278. So I'm going to talk a little bit more around our insulin proprietary portfolio now. So just as a quick reminder, AT247, as I've stated, that's our standard concentration, so 100 unit per ml ultra-rapid-acting insulin. We've shown that superiority across both a single injection, and a 3-day insulin pump study in type 1 diabetic patients, and we showed superiority here. And this gives us confidence that AT247 can be the insulin with its fast kinetics to enable a fully closed loop automated insulin delivery system, sometimes referred to as an artificial pancreas. So here, the focus is very much around reducing burden. This is a 24/7 disease, of course, whilst improving time and range for people with type 1 diabetes. And then for AT278, we're really excited about AT278. It's a really unique insulin. It's the only highly concentrated. It's a 5x concentrated 500 unit per ml insulin with ultra-rapid-acting characteristics here. This is particularly difficult to achieve as you concentrate up insulin. Physiologically, it should slow down its time action profile and become much slower acting, and this is what we've counteractive with the Arestat technology. And this is really around enabling that next real leap in insulin pump innovation here. So this is this drive towards longer wear and miniaturized insulin pumps, and I'll talk around why this is important for patients and why this is not possible to achieve without a highly concentrated, very rapid-acting insulin. And we're looking here particularly people with diabetes with high daily insulin needs, who are unable to transition to these aid systems currently, in particular, type 2 diabetics, where in the U.S. and in particular, the average daily dose here is around 100 units a day for a person with diabetes that's using meal-time insulin, and less than 10% of this patient population currently use insulin pump therapy. So just to very briefly recap on the data. So this was a double-blind, fully randomized crossover study comparing AT278 to NovoRapid. And then we had an open-label arm for Humulin R U-500 here. And this is the pharmacokinetic data that you're looking at. So this is in type 2 diabetic patients with this high BMI. So what you can see here is AT278 in the yellow versus NovoRapid. So this is Novo's 100 unit per ml rapid acting insulin in the blue, and you can see the shift to the left. So this is demonstrating that post injection, we see a faster appearance of AT278 in the blood compared to NovoRapid and a greater insulin exposure over that first 60 minutes post injection. So we're getting more insulin on board much faster. And then if you look at this in comparison to Humulin R U-500, so that's the only highly concentrated insulin available to patients. And this is a product from Eli Lilly. You can see this has this very flat profile. So we see significant shift to let much more insulin on board much faster with a AT278 compared to that only highly concentrated insulin. And then we saw this data translate directly into the pharmacodynamic profile. So this is essentially the group glucose lowering profile. And again, we saw the AT278 compared to NovoRapid. We saw an earlier onset of action of insulin action. So that's starting to lower the bill of glucose very quickly and a greater glucose lowering profile in that first 60 minutes. And this is a really important time period where you've eaten food, your blood glucose has risen really rapidly and you need insulin on board as fast as possible, bringing down that blood glucose to help you maintain a healthy time in range here. And again, significant improvements compared to Humulin R U-500. So across this study in our earlier study in type 1 diabetic patients, where we also demonstrated superiority, this confirms that AT278 despite its fivefold increase in concentration has a superior PK/PD profile. So faster-acting insulin, better blood glucose lowering profile than those best insulins available today, regardless of whether you're a type 1 or a type 2 diabetic or with high BMI also. So I'm now going to talk a little bit and show you some data to talk a little bit about why this is important. It's that kind of so what question really. So what we're looking at here, this is data from the U.S. So we're looking at type 2 diabetics in the U.S. that are using a mealtime insulin. And what this heat map is showing you is what is able to be achieved with current insulins that are on the market today and current insulin pumps. So those insulin pumps can take between 180 to 300 units of insulin. And if we map this against total daily insulin need for this patient population, what it shows that nearly all type 2 diabetics cannot make it to a 7-day wear system. They run out of insulin before they get to 7-day wear. And actually, more than 60% of this patient population can't even make it to the standard 3-day wear today. So this is making those insulin pump systems and those aid systems impractical and inaccessible for a large proportion of the type 2 patient population. So there's a real opportunity here with AT278, as you can see on the bottom row here, if we have a 500 unit per ml insulin, only 10% of the type 2 patient population cannot make it to 7 days, and they can all make it to the current standard of 3-day wear. So there's a real opportunity here to bring more of those type 2 patients over to insulin pump therapy. And there's a huge wealth of real-world data out there demonstrating that people with diabetes do better on pumps. So really accessing this pump therapy and improving the outcomes for the type 2 patient population. But this isn't just a type 2 issue here. So again, now we're looking again, this is U.S.-based data, but this is for type 1 diabetic patients here. And as you can see that to move towards a 7-day wear insulin pump, which is very much where the device companies are moving, 60% plus of type 1 diabetics currently can't get to 7-day wear in these systems. And again, if you move to a highly concentrated insulin such as AT278, then all of the patient population can get to that 7-day wear system. So AT278 here has the real potential to catalyze that next development in longer wear insulin pumps. If you further miniaturize those, that exacerbates this issue, of course, you've got even lower volume to get that insulin on board. So you most certainly need a highly concentrated rapid-acting insulin. And this will be a real step change towards simplifying care, reducing burden and broadening the access for insulin pump therapy. And then if we look at how many of these patients are there and what's the potential addressable market for insulin pump therapy. Again, to note, this is the initial addressable market. This is U.S.-based only, and I'll talk a little bit around some of the opportunities and upside potential here. So what we've looked at is two patient segments here. So essentially, segment A is people with diabetes that are on intensive insulin therapy regime. So they're using meal-time insulin, but they require more than 100 units of insulin a day. So this means they can't get to 3-day [ where ] insulin pump therapy is not accessible to them. So they're using multiple daily injections. And there's around 1.1 million out of the 4 million intensive insulin therapy patients in the U.S. today fit this category. And then if we take the next category B, which we've modeled as people with diabetes that are currently using an insulin pump in the U.S., there's around 1 million people using an insulin pump in the U.S. today and the opportunity for them to move across to an AT278 device combination driven really by that longer wear time there, there's around 1 million of these. And then if we take the net price of insulin in the U.S., it's $0.05 per unit. This is incorporating all discounts, rebates, IRA, et cetera. So it's a direct parity pricing model here. That gives you a total addressable initial market in the U.S. of just under $3 billion. Of course, this doesn't incorporate any miniaturization of the pump. If you further miniaturize that obviously opens and broadens up the addressable patient population and then the insulin revenue opportunity. Commercializing outside of the U.S., obviously offers an upside potential here. And we've not modeled and incorporated any share of device revenues here, so insulin pump revenues, of course, switching over and building out and penetrating that type 2 diabetic market would also increase insulin pump sales as well. And how those are shared will very much depend ultimately on deal structure moving forward. So there's significant upside potential here also. So if we look at next steps for AT278 in development, we've been working really closely with a group of ex-FDA reviewers from the Diabetes division, really looking at what's the most accelerated and efficient pathway to market here whilst demonstrating and developing the data set that we're going to need for our differentiated labels for AT278. So we've mapped out an accelerated pathway to Phase II clinical development. This would be a pivotal study and most certainly a value accretion point for Arecor, where we'd be comparing AT278 to NovoRapid over a 6-week crossover period here. So this is continuous infusion. We gain a wealth of data from this study would confirm the time and range. And this is an important metric of keeping that tight control of blood glucose, pump precision, accuracy, really important, obviously, for a 5x concentrated insulin and safety for the delivery of an ultra-concentrated insulin in the pump setting. We will be submitting a request to the FDA for a Type C scientific advice meeting this quarter, and we'd anticipate having full feedback within the second half of the year. So just moving on to talk a little bit more about our oral delivery of platform -- peptides even research and development here. So just taking a step back, first of all, I mean, the oral delivery of peptides is extremely challenging. It's due to their molecular characteristics leading to very low oral bioavailability. But having said this, is a really important class of therapeutics, and we're seeing a huge swath of peptide therapeutics now in development. There's over 800 peptides in development and over 100 of those alone are in the diabetes and obesity area. So this is a significant challenge, but we see a real drive towards oral delivery, improving convenience and compliance for patients, which also then improves outcomes there. Now we selected GLP-1 as our first peptide, model peptide to develop the platform with. We're using semaglutide, which is the GLP-1 behind Rybelsus. And this is because Rybelsus is available in an oral form. It's one of only two peptides actually on the market today that are orally delivered. So we've got a direct comparison here that we can directly compare our technology platform and importantly, bioavailability. So our target here is to enhance bioavailability and also through targeted delivery to circumvent the strict dosing criteria with Rybelsus where it has to be dosed on an empty stomach. And Rybelsus itself offers or oral GLP-1 offers a significant commercial opportunity in its own right. Despite that less than 1% bioavailability for Rybelsus, it still reported sales of $3.4 billion in 2024. And obviously, for the treatment of diabetes and obesity, this class of therapeutics is really significant today. In terms of status, we've had initial positive results from the formulation development phase. The first really significant challenge was around stabilizing the peptide, stabilizing semaglutide within the oral delivery lipid matrix that we're using without something special here. It was simply too unstable to be a viable product. We've overcome that. And now we're conducting a series of dog pharmacokinetic studies really looking at optimizing that lipid matrix, those formulations to enhance bioavailability here. And this data that we're generating from these studies will define our next development steps. And what's really important to note here, this isn't just around oral GLP-1. This is around developing an oral delivery -- peptide delivery platform that we can expand across this class of therapeutics, which is a huge area and obviously offers a huge commercial opportunity for Arecor if we can be successful here. And I mean, I think I don't probably need to go through this, and I'm sure the people in the room have got a really good handle on this as well. But there's been a huge amount of interest and explosion of dealmaking in the oral delivery space as well, and this is a combination of in-licensing of product assets of technologies, M&A, et cetera. This is really just a snapshot of recent and relevant deals, starting with Novo Nordisk, the actual technology, an oral delivery technology around Rybelsus was not homegrown. It came via a technology company called Emisphere, who they acquired for $1.8 billion back -- in the back end of 2020 for access to that technology for Rybelsus. Right through to last week, actually, there was a deal announced by Cyprumed and Merck here, and that's Merck accessing on a nonexclusive basis, an oral peptide delivery platform approach from Cyprumed. And what was quite interesting around that is that's based on preclinical data and nonclinical data. There's no clinical data for the Cyprumed technology at this time. But as you can see, the significant deal values here. And there's also significant investment flowing into this area, which gives you a sense of the excitement and commercial opportunity here. And what I would say before handing over to David to talk through the financials on this, these are formulation and drug delivery challenges, and that's what Arecor has proven that we're able to deliver innovation in this space and develop technology platforms that our large pharma counterparts have not been able to achieve. And that's why we see this as a key area for us to focus our R&D efforts. I'm just going to hand over to David to talk through the financials.

Thank you, Sarah. Good afternoon, everybody. Extracted 2024 key financials. So revenues rose 11% to GBP 5.1 million. The 2 areas of increase were the Tetris products and also in the AT220 royalty income. R&D expenses dropped GBP 2.4 million to GBP 3 million. That was savings in clinical study costs and also a GBP 0.4 million saving in payroll costs. SG&A expenses remained flat at GBP 6.2 million, but worth remembering that almost half of that is Tetris expenses. In 2025, those themselves will more than half. And obviously, in 2026, those will be 0. The exceptional items are the -- is the impairment of assets relating to Tetris, and that was reported in the January [ RNS ]. And then the cash, GBP 3.3 million, and that obviously was augmented by the net GBP 5.8 million from the summer funding raise. So the message in these key financials for us is that we've entered 2025 well positioned to focus on our 2 core areas of focus. So the AT278 ultra-concentrated ultra-rapid-acting insulin, we partnered with medical device companies and the oral delivery of peptides platform. In addition, the 2025 cessation of activities at Tetris will be cash generative. And it's worth remembering that the operating cash flow out of Tetris in 2024 was GBP 3.2 million, but we expect that to be positive this year. We also have the partner revenues will continue to grow, particularly the AT220 royalty income, where, as Sarah mentioned, our partner is making good traction and is selling within major pharmaceutical markets within the world. And we also have the cost savings that were enacted initially in 2024. And that's with a 32% reduction in headcount from December '23 until today. So that's going to drive further savings in 2025. So these measures with a runway well into H1 '26, position Arecor to be able to focus our cash and people on striking a strategic partnership deal on AT278 and also to allow us to get to next stages in the oral development of peptides platform. And those are the 2 areas that we have identified that have the greatest opportunity to return shareholder value.

Thanks, David. So just to round off really, so as we talked around today and as David has just outlined, our real focus here is in areas that we can drive significant value and transformational value to the business and return that, of course, to our shareholders. So our focus is very much on strategic partnership discussions and drawing those to conclusion with AT278, again, as we've talked about, the highest value area there being within that insulin pump setting and then ultimately bringing that product to market. Within the oral GLP-1 area, this is around developing that data set now and validating that data set for the oral GLP-1 across a series of PK studies. And then importantly, leveraging that data to expand to additional peptides so that we can validate that as a broad platform technology for the oral delivery of peptides, which is a huge opportunity. And we'd expect to see those growing revenue streams from both AT220, but also pharma partnerships, and we're confident of entering into further partnerships throughout the year. So again, our focus here is very much on areas where there's high unmet patient need in large existing marketplaces. So that concludes the formal part of the presentation today, but I'd be happy to take -- any questions from within the room today?

Yes, Karl?

So Karl Keegan, Singer. On the deal sheets, you showed that there was quite a lot of money going into like Series A from platforms. And how do you see the Arestat platform sort of technically comparing? Or have you done that analysis to see or do you have a view that you can sort of allude to about where you might see some differentiation? And then secondly, on from that, I mean, GLP-1 is a nice to have, but the other peptides, I mean, that really is the sort of the one that we haven't factored into our analysis as yet, correct?

Yes. Yes. So maybe the first question in terms of, I guess, what you're asking is what are we going to bring to the table in oral delivery. How are we going to differentiate. So what has succeeded so far in the oral delivery of peptides, albeit in noting there's only 2 marketed peptides, oral peptides today has been permeation enhancers. So this is increasing absorption across biological membranes such as the intestinal lining, of course. But really, the potential of these as a stand-alone has been exhausted. So there are just those 2 products on the market. So the field is really crying out for a radical new approach and innovation in this area, which is where Arecor comes in here. So what we're looking at is we're using novel combinations of lipids, so lipid matrices here that are designed to stimulate the natural kind of lipid digestion pathways with the stabilized peptide and that's been stabilized using the Arestat technology as its cargo. So essentially, we're really smuggling the peptides in by natural processes. Now there's a series of challenges then once you're in around stabilizing and protecting those peptides. So we won't hesitate as well to combine this with permeation enhancers, protease inhibitors, all of those areas that can help refine and optimize and enhance. And we're looking at all of those areas today. But the core of the technology really is around this really novel approach to use those natural processes of the body to get the peptide in, which we believe there, if we can be successful there, we'll be able to optimize that and really enhance the bioavailability as well. So it is a different and novel approach to what's out there today. And I've forgotten your second question, Karl, sorry. What was your second question?

So what do you see the potential of...

Right. Yes, yes. Sorry. Yes. Yes. I mean, so the highest activity for peptides at the moment is clearly in the diabetes and obesity space. So there's a huge number of peptides in development in this space, over 100. So you're looking at second-generation GLP-1s, GIPs, dual triple agonist there. So by far, our primary focus area is in the diabetes and obesity space, both because of the activity in the area, the patient unmet need, the size of the market, but not least because of Arecor's knowledge of diabetes and obesity space and expertise and also our pharma relationships in that space as well. So it makes total sense for us to start in the diabetes and obesity space. If you look beyond that area, there's an increasing use and development of peptides in neurodegenerative diseases and also oncology there. So -- and as you said, this is really around developing a platform per se across the peptide class, which then can be leveraged in different therapeutic areas. And in some cases, will be guided by partnerships there as well.

Julie Simmonds, Panmure Liberum. I was just wondering on AT278, sort of how the progress with the discussions are going. And given that these are with pump companies, I think, from the commentary you've got, how working with one pump company helps you progress to reach the larger market?

Yes. So I think it's actually really interesting space here, and it's certainly aligning strategically both from the pull from the patients and what the insulin device companies and now pump companies are saying very publicly towards this need for a highly concentrated rapid-acting insulin. So I think if we look at, say, start with the type 2 diabetic patient population, both Insulet and Tandem, which are 2 of the top 3 in this area now have label approval for the use of their pumps for type 2 diabetes. They published their clinical studies. They've shown between a 15% to 20% increase improvement in time and range in the type 2 patient population when you switch from MDI to pump. And this has translated into significant HbA1c improvements as well. They saw Insulet in their study saw between a 0.8% to a 2.1% improvement in baseline A1c. So these are really significant results here and demonstrating that people with type 2 diabetes will do much better using insulin pump therapy. But as I've spoken about today, the challenge then becomes they're just simply not practical. They can't get to 3-day wear. So to really penetrate that patient population, there's innovation needed there. You need to get them to 3-day wear and potentially to 7-day wear as well. They're also all really talking openly about next-generation pumps around patch pump technologies, Insulet have a patch pump, Tandem have partnered with a Swiss company, AMF. And the Medtronic are talking very openly now about longer wear time patch pumps, and they've even started publicly speaking about an all-in-one very small patch pump, which incorporates a CGM algorithm and the pump as part of their vision. Clearly, to get to any of these product concepts, you have to have a highly concentrated ultra-rapid acting insulin and AT278 is the only insulin that meets that profile. So in terms of tension there and competitive tension, Arecor is in a really great position. And for us now moving forward, it's about doing the right deal. And I think maybe your question, Julie, you were sort of alluding to, is it an exclusive with one or is it co-exclusive or open access. They're all on the table essentially and part of these discussions. We want to make sure that AT278 is available to the broadest patient population that we can because that's good for patients and obviously, commercially very attractive. But it's also around the moving it forward at pace now and having the right deal structures and the right investment around that to ensure that we can develop AT278 in the pump at pace and bring it to market as quickly as possible.

Ed from Singer Capital Markets. Just back to your oral potential peptide platform. I'm just thinking how early do you think you'll be able to market that to potential partners? Is that potentially after their pharmacokinetic dog studies? Or is it -- does it come a little bit later?

Yes. I mean I think it partly depends. I think the deal that Merck did last week with Cyprumed is a good example of what I would consider to be an early partnership deal here. That's based on sort of preclinical PK data, no human clinical data there, and Merck have come in. It's on a nonexclusive basis at this stage. And obviously, it's a [ buybox ] -- that value is a [ buybox ] deal value. We don't know how that's structured exactly. But it shows you there that the appetite from large pharma is significant here, and they're prepared to come in early as well. So not necessarily waiting for what you'd historically expect for them to wait for human clinical data. So I think for us, it's going to be very much on a product-by-product basis and also looking at how do we generate and create the most value potential here across the platform and return that value to the business essentially.

Yes, that makes sense. And then just maybe on the pathway to a pivotal AT278 Phase II. I was just wondering, in terms of the IND, has it been guided by the discussions with potential partners? Or is that something that you guys had always planned to do?

Yes. So this accelerated pathway to the Phase II and then going straight into a pivotal Phase II clinical study has been guided by both the ex-FDA reviewers so they're from the diabetes division, but also in conversations with those insulin pump companies. So we've been really mapping out what's the most efficient and effective pathway to market whilst generating all of the data that we're going to need to get the very best label for the end product there. Okay. I think if there's no more questions in the room, we'll close the formal part of the presentation.