Atea Pharmaceuticals, Inc. (AVIR) Earnings Call Transcript & Summary

Hello, everyone. I'm Maxwell Skor, Biotech Analysts with Morgan Stanley. And before we get started, I need to read an important disclosure. Please note that all important disclosures including personnel holdings disclosures and Morgan Stanley disclosures appear in the Morgan Stanley public website at www.morganstanley.com/researchdisclosures. And with that, I would like to welcome the Atea team, specifically Andrea Corcoran, CFO; Janet Hammond, CDO; Arantxa Horga, CMO; and John Vavricka, CCO.

And with that, I think it would be best if we off the top, I guess, have a broader discussion on COVID overall, and then we can kind of dive into the pipeline. So can you provide your view on the current state of the pandemic?

So I think it's one of those ever-moving target, isn't it? I think a couple of weeks ago, everybody talked that perhaps even gone away. But I think the last couple of weeks have really been fairly clear in showing that there has been a significant uptick in cases not just here in the U.S. but actually interestingly, globally. And I think it really brings home the realization that COVID is here to stay, and that is going to continue to be a serious endemic disease. I think it's an important disease, and it's different from some of the things that we've been used to in the past in terms of the fact that it causes more serious disease, I think, than flu, but it's also a virus which is more prone to mutations and it's keeps changing, and it changes faster than on an annual basis. The vaccines are good, but the community that you see from them is not durable. And what we are seeing is waning immunity to the vaccines. And also, I think because people haven't had an infection for some time, waning natural immunity to. And I think this creates susceptible population to the next variant. And we've got a couple of new variants that are circulating at the moment, too. I think people had to hope it's gone away. So I think monitoring is perhaps not at the level that we would like it to be. The CDC is doing some of a job in continuing to monitor wastewater and that's really, I think, where we see the viruses. And you can also determine the viral load in different populations. And so you know what is happening there. But other than that, testing is not happening very much, but we can monitor hospitalizations and death, obviously.

And touching on those metrics, in regards to different geographies, what are you looking to as metrics to measure infection rates or variance in across the world?

So a number of countries do a very good job in monitoring full variance. I think some of that has done through wastewater, about some of that has just done through patient testing. And so the variance, I think, of particular concern at the moment is the XBB 2.86 variant, and we've seen reports of that variant emerging in South Africa, in Spain, in Denmark, in countries in the Far East and then also here in the U.S. So I think there is ongoing surveillance that it's difficult. And I think testing again, is not happening in many cases and people have hoped that virus has gone away. So I think wastewater is possibly the best we can do. Here, perhaps a little better from some other cases, actually, surprisingly.

And if we can just drill down a bit on the circulating variants currently, and I don't want to push you on looking too far ahead, but thoughts on 2.86, the mutational burden in that specific subvariant and where you see that going or other potential variants out there?

So 2.86, I think, is the one which is causing people the most concern, as you said, because of all the mutations. I think there are about 30 new mutations in this virus and many of them are in the spike protein. And this is really a particular concern because this is where the virus attaches -- and also I think, well, we don't know yet about virulence. I mean I think the concern is that the 2 might attract together. It certainly seems that all of the Omicron variants are highly contagious and so infection spread easily. But we haven't yet seen probably data for enough weeks to know what the hospitalization rate is because there's generally a lag between, I think, the virus being detected starting to see the infections in and the next few weeks until you see hospitalization rates and then subsequently a few more weeks until you start to see real impacting what the mortality might be. But it certainly does appear that the vaccines, which were approved yesterday are going to be effective against at least from what we can tell today. So that's important. The other variant, which is circulating at the moment and which is dominant is also a new variant and that is called EG.5.1. And that's an important variant also because it's interesting, some of the mutations that it exhibits are seemingly directly related to the use of the first-generation monoclonal antibodies. And I think that's important because I think it highlights the weakness of using monoclonal antibodies as the magic bullet. There are clearly patients for whom monoclonal antibodies have been life saving, although we don't, at the moment, have any approved antibodies because the virus has outpaced the speed in which we can generate it. But I think that does serve to highlight the importance of direct-acting antivirals as a modality because generally, they maintain their activity against the variants as they emerge. And to date, we've seen consistent antiviral activity. And so they become a really critical form of therapy for patients as they become sick.

Okay. Great. And I think on that note, we can transition to your lead program, AT-527, bemnifosbuvir. If you could please introduce this molecule, highlight initial COVID data that you've generated so far? And any key takeaways?

So bemnifosbuvir is a nucleoside polymerase inhibitor. And that's important because the polymerase is one of the most highly conserved parts of the virus. And so we believe that the susceptibility is going to be retained across different variants as they emerge. And we have continued to show that ever since the Wuhan variant, we have shown consistent potency against each variant as it's emerged. We had a study, the MORNINGSKY study, which enrolled 216 patients and then was interrupted. And in that study in an all-comer population to vaccinated unvaccinated, high-risk and low-risk patients, we saw an overall efficacy of 71%. When you look at the patients who were 40 years and above, we saw hospitalization reduction of 82%. So very much in the same ballpark as what has been seen with the approved antivirals to date. We're in the process of enrolling our Phase III SUNRISE-3 trial. And this is a study where we are studying patients who are at particular risk for hospitalization. Hospitalization is the primary endpoint for this study. And we're looking at high-risk patients, so patients 70 years and above without risk factors, patients 55 and above with at least 1 risk factor for hospitalization, and patients 50 and above who have at least 2 risk factors for hospitalization and then anyone 18 and above who's immunocompromised. And we think hospitalization is a particularly important endpoint at this time because the market, particularly in the U.S., is turning to being a private payer market and hospitalization is obviously an endpoint, which is good for reimbursement. So that is important. It's also interesting to note that we have achieved Fast Track status from the FDA with this study, and I think they continue to see the high unmet medical need in this patient population.

Okay. That's great. And I guess we can get into more of the details around the SUNRISE-3 trial. It's kind of a unique design. You have 2 arms. Could you outline the patients in each arm, what the treatment dynamic looks like and what you're hoping to learn?

Yes. So it's a unique study, in that, is a placebo-controlled trial, and we have authorization from the FDA to enroll it in the United States. We have sites in over 30 countries around the world, and we have over 330 sites in our study. The reason that we're allowed to run a placebo-controlled trial in the U.S. in an era when there are approved antivirals available in the U.S. is that patients who are eligible to receive other antivirals are frequently not receiving them in the U.S. because of the profile of the currently available drugs. And I think what bemnifosbuvir offers, and I should have mentioned this earlier, because it's really one of the highlights, I think, of the drug, is that it is so safe and well tolerated in such a pristine preclinical profile, and we think this is what differentiates it from these other antivirals. Moving to the patient population we're studying in the U.S. It's interesting to note during the pandemic that less than 30% of patients in nursing homes were prescribed Paxlovid when they had COVID. And I think this really highlights the fact that the drug interaction profile is a real problem and a real problem for physicians because the list of potential drug interactions is so expensive and that is [indiscernible] people from using the drug, which is an effective antiviral. It's also not a particularly a well-tolerated drug, at least nicely taste in the mouth and it has quite a bad GI profile. So people who've taken it all are reluctant to take it again. But all of these things mean that -- we're able to randomize patients in the U.S. to our monotherapy arm, which is bemnifosbuvir or to receiving bemnifosbuvir on top of standard of care, which could be Paxlovid or it could be molnupiravir. And then we will end up with 2 populations. The patient population who received monotherapy and that is the primary endpoint for the study. And then we will have a patient population that received combination therapy bemnifosbuvir plus Paxlovid or molnupiravir. And there, we'll be able to assess the efficacy of combination therapy which is an interesting and probably the first trial, which has been conducted, which systematically assesses that patient population. And we have a Protease inhibitor in the pipeline in preclinical development at the moment. And these data are really going to be important in informing us in how to take that program forward.

Great. So just to reiterate, the monotherapy arm, that's going to drive your primary analysis. And okay. And if I can just get you to comment, I guess there's some anecdotal evidence of a potential bounce back with competing antivirals. Is there any evidence or do you have any thoughts on the virus coming back or symptoms coming back after the antiviral regimen?

So I think it's a phenomenon of the virus probably rather than of the treatment from what we are understanding now. It's certainly something that we will monitor for in our study. And I think others are being asked to do the same but the most recent literature that I read on the subject that suggests that at least 25% of people who've had COVID have a rebound subsequent to their initial infection.

Is there any patient profile specifically? Are there older patients, immune compromised or...

It does not seem to be the case.

Interesting. Okay. So moving on to what we should look out for over the next 6 to 12 months? You have 2 planned interim analyses for the monotherapy arm. Can you describe how these analyses will be conducted and how we should look at them?

So we have a safety monitoring board, and they will conduct a blinded analysis. And the primary objectives of these analyses are for futility and safety. So really, we're hoping, obviously, as the trial will continue, but we plan to have an interim analysis of 650 patients and then a subsequent analysis when we achieve 1,350 patients in the trial. And hopefully, these will continue to support the ongoing clinical trial. But we're looking for hospitalization rates. And obviously, we need a certain amount of hospitalization in order for the trial to be able to be interpreted at the end.

So we can expect basically an announcement that you passed futility. The trial continues on. Is there anything else or safety, of course?

Exactly. No. I think that's going to be pretty much what we will know.

And the first interim, you're projecting to be by the end of the year?

Around the end of this year, early next year, that's the time frame that we're anticipating. And then we have said that we will provide final data in the middle of next year, and we anticipate filing the NDA at the end of next year.

At the end of next year. So how is enrollment going overall? Are you seeing an increase, unfortunately, in COVID?

So enrollment is progressing well, but it's interesting because to your point, yes, we've seen a considerable uptick in enrollment in the past couple of weeks and not just in the United States, but actually globally.

And also, I just wanted to circle back to a few announcements from your 2Q earnings call where you stated that you made several protocol amendments. And could you provide some highlights on what drove those?

Sure. So the study was designed about a year ago and at that point hospitalization rates seem to be a little higher than they are now. And so -- and also, frankly, I think there was more COVID-circulating. And so there was a high level of immunity in the population than there is presently. So what we've done is we've changed the study design, from an adaptive study design to a static design. And this allows us to have increased power for the final analysis of the study. We've also increased sample size population. We initially had planned to have approximately 1,300 patients in the primary endpoint analysis with the opportunity at an interim analysis, which we had been planning to upsize that to about 1,800. So overall, we've increased the sample size now from 1,800 approximately if that was where we needed to go, which we thought was quite likely probably to now 2,200 patients. And that is a fixed sample size for the study. And the other adaptations that we've made are to broaden the population to people that we believe are susceptible to hospitalization should they get COVID. And so we have a slightly broader population than our initially more strict criteria, but we believe it's appropriate really in order to achieve a hospitalization rate, which has fallen gratifyingly for everybody. I think initially, the hospitalization rates were in excess of 6% or 7%. But we're now looking at hospitalization rates in an [indiscernible] patient population, probably around 2% thereabout. So

So, you are powering the study, yes, according to a 2% to 3% hospitalization, right? Okay. That's great. And so when we eventually see top line data, could you frame expectations around that? What are you benchmarking it against? How should investors view that?

So I think, again, the profile that we believe is going to be highly competitive. And on a number of fronts, I think, firstly, the benign profile of the drug, the absence of drug interactions, the fact that it is such a safe and well-tolerated drug. I think immediately differentiated and actually creates an opportunity for us. But in terms of efficacy, we expect a highly competitive profile. We believe that our data benchmark was the best of what we've seen to date. But I think also to bear in mind that with Omicron and Paxlovid, we saw efficacy in the 58% to 78% range. So we anticipate it's going to be very independent, but we anticipate seeing something in the same order of magnitude as that.

Okay. Great. And then expectations around regulatory plans outside the United States?

So I think the first goal is to get it across the finishing line here in the U.S., but we have clear alignment with regulators around the world and EMA in Japan, in particular, I mean, have been very anxious to see this study coming forward. And I think there is a deep recognition by the regulators of the unmet need that continues to persist for good treatments for COVID.

And I guess two additional questions to kind of round out the discussion on the lead program here. Manufacturing being one and then preclinical testing. Are you testing activity against emerging variants? Or how could we expect any, let's say, updates in regards to publications or information around that?

So yes, I mean, there are publications coming out, several publications that I'm aware of that are in the pipeline. And we have ongoing testing against all emerging variants. And we've shown consistent potency against variant after variant as they have emerged. And we have good activity against XBB, so we know that. And then in regard to manufacturing, we have a manufacturing organization that is taking care of all of that for us, so that's progressing well.

And do you think the opportunity to file for emergency use authorization is available?

We've been told that it is available. I think it's going to happen on a case-by-case basis. And obviously, the best case scenario would be for us that we share amazing efficacy in this trial and can apply for either at the end or with one of these interim analyses, should we see something truly spectacular.

That's great to know. And then additional programs. You commented on a Protease inhibitor that is in the pipeline. Can you provide any details or any updates we should expect?

So we're working on a highly differentiated profile, protease inhibitor. And we -- it's preclinical at the moment, and we plan to have data by the end of the year to update people with.

Okay. That's great. And then let's pivot to hepatitis C, that program? And any updates around that? I guess, it's a compelling approach. Could you outline clinical trial design and thoughts around that program?

Yes. So we are right now executing our Phase II program, Phase II study, where we're putting together both molecules ruzasvir and bemnifosbuvir. The treatment in the study is 8 weeks, which is a differentiator for other trials that have been done before and other treatments. It's a pan-genotypic regimen with low potential for drug interactions. There is no food effect and it's a Protease inhibitor-free ribavirin-free regimen. So all of it makes it a very compelling best-in-class regimen moving forward and we are executing right now. We are expecting data in the leading cohort of 60 patients at the end of this year. And once we have data from that leading cohort, which is 8 weeks, so we decided to do a leading cohort first. Based on that data, we'll open the remaining of the Phase II trial, which is -- total is 280 patients. And then we move on based on that data, hopefully, to Phase III. We have plans to start at the end of next year. So it's a program that's moving very fast, and there is quite a lot of enthusiasm around the world with investigators enrolling the trial pretty quickly. We're very pleased with that and how it's being received.

That's great. And can you comment at all on the market opportunity?

I'm going to pass that to John.

For HCV..

For hepatitis?

The market for HCV, the global market remains quite large. The sales for last year were in excess of $3.5 billion. And that was net sales, so when I emphasize it's net sales. The incidence for HCV is growing globally, including in the United States. You have over 75% of those who are identified in the United States are not treated. And most importantly is that the number of new cases of HCV in the United States are exceeding that of those who are treated with the current antivirals. So when you look at a market of that magnitude, a multibillion dollar magnitude, there is definitely room for a third drug to treat HCV.

And the competitive landscape, is there -- do you have a view on that? And how potentially your approach could fit in?

Well, I mean, I'll let Janet comment on the profile, that's under discovery -- but that's under development, but we see it being very, very competitive, being protease free, ribavirin-free, an 8-week therapy that I think the market will welcome, particularly one that doesn't have a food effect. And so far, talking to various stakeholders, they're very excited about the opportunity.

I think what -- maybe just to add, that each molecule is best-in-class for their class of drugs. And when you put them together, like John said, that profile with the efficacy that we're expecting it's going to be very compelling. This is a population that is difficult to bring to the clinic and to treat. They tend to have difficulty following up and so if you can shorten the treatment we hear to 8 weeks, it really will make a big difference.

To 8 weeks. And so what would be a clinically meaningful response, if you can comment on that overall.

So we're expecting in 8 weeks sustained biological rates, which is really the endpoint SVR, competitive with what's out there. So it's north of 95%. That's what these regimens are delivering. And we're expecting that pangenotypically in patients with cirrhosis, without cirrhosis all across.

Okay. And then moving on, I guess, let's talk about strategy broadly. Because as you reported in your second quarter earnings announcement, you have a large cash position of $608 million, providing a runway well into 2026. Could you talk a bit about capital allocation?

Sure. Thanks, Max. And we are fortunate to have that cash resource to invest in the programs that Janet and Arantxa have just described. As John noted, there are multibillion-dollar opportunities, and we're clearly focused on the development of those programs. So for the near term and the remainder of '23 and '24, we'll be focused on COVID-19. Moving that forward through the Phase III NDA preparation and then preparation for commercial launch. And for hep C, as Arantxa has described, we'll be moving forward with the Phase II program as well as in the preparation for Phase III.

So a lion's share of operating expenses are dedicated to COVID at this point, but it is spread across both parts?

Both programs, both programs. But as a Phase III, obviously, is a more expensive program to advance. But clearly very laser-focused on making good investments in both programs.

And is there any expectation of increasing headcount going into 2024? Or how should we think about that?

We're just in the process of doing our budgeting for 2024. But we have 72 employees at this point. And the commercial organization may grow as we move closer to the end of '24 and look for the commercial launch. But other than that, we don't really have expectations for substantive increase in headcount. So we want to maintain an efficient and effective group of employees.

Okay. That's great. I guess, in the last several minutes or so, talk about partnership opportunities, your view overall in collaborations. I know this is a -- you own the rights to this molecule globally, but how you view opportunities outside?

Yes, and we do own the rights to bemnifosbuvir, but we did in-license ruzasvir. We had identified that as probably the most important NS5A that would be suitable for combination with our product. It has a very good profile, as Arantxa has described. And so we focused on that and we're successful in licensing that from -- that was in 2021, we did that. So our in-licensing criteria are very high. We will expand funds if we find an asset that meets those high thresholds, but we will not do it unless we find that type of asset. For clinical development, we expect to do this independently. But for commercialization, we will look for a partner. In the U.S. for COVID-19 we'll look for a partner that has strong primary and managed care capabilities. And then for hep C in the U.S., we're still evaluating the opportunities with regard to partnership. But for ex U.S., for both programs, we would anticipate to engage a global partner to expand our reach.

Okay. That's great. And then overall, what should investors look for over the next 6 to 12 months, we could talk about the blue sky scenario. I know we touched on the EUA opportunity, the potential interim reads out. But if you could just comment a bit on investors' focus and your view on the path forward.

Sure. Well, I think as you've heard, right. We have really key inflection points coming in the COVID program, both the 2 interim analyses and then obviously, the data card that will flip in mid-2024. And we're quite excited about the HCV program. And so that, as Arantxa mentioned, at the end of this year, beginning of next, we'll be delivering information around that program for the 60-patient leading cohort and then moving forward. The enrollment in hep C is going spectacularly well. And so we'll look to deliver that information as well and then hopefully move to Phase III in late '24.

Okay. And then anything for the third quarter earnings announcement that we should watch out for or focus on?

Not that we...

There maybe updates around enrollment for COVID-19, just because, of course, it's a moving target in regards to infection rate?

Yes. So I think, as we said, Janet has indicated that, that's -- the first interim analysis will be done at 650 patients, and we would expect that at year-end. So it will probably be closer to the end of the year rather than Q3. But we will continue to update the market on the continued growth of our infrastructure for our clinical program. As we have indicated in the past, we're in 30 countries and upwards to 350 sites, and we continue to make progress in establishing and opening those and activating those sites.

Okay. Great. And with that, I would appreciate very much that you attended the conference. I think we had a great conversation, and thank you very much.

Thank you, Max. Appreciate it.

I think just to wrap up from our side, I think we're making solid progress with our clinical and operational execution of both our HCV and COVID programs. We know clinical data are key and we're planning to provide several updates in the course of the next year. And we thank you for your continued interest and support of Atea as we strive to make a difference for patients with serious viral infections and unmet medical need. Thank you.

Great. Thank you.