Arcturus Therapeutics Holdings Inc. (NASDAQ:ARCT) Q3 2023 Earnings Call Transcript

Arcturus Therapeutics Holdings Inc. (NASDAQ:ARCT) Q3 2023 Earnings Call Transcript November 14, 2023

Operator: Greetings and welcome to the Arcturus Therapeutics Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Neda Safarzadeh, Vice President, Head of Investor Relations, Public Relations and Marketing. Thank you. You may proceed.

Neda Safarzadeh: Thank you, operator. Good afternoon and welcome to Arcturus Therapeutics Third Quarter 2023 Financial Update and Pipeline Progress Call. Today’s call will be led by Joe Payne, our President and CEO; and Andy Sassine, our CFO. Dr. Pad Chivukula, our CSO and COO, will join them for the Q&A session. Before we begin, I would like to remind everyone that the statements made during this call regarding matters that are not historical facts are forward-looking statements within the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of performance. They involve known and unknown risks, uncertainties, and assumptions that may cause actual results, performance, and achievements to differ materially from those expressed or implied by the statements.

Please see the forward-looking statement disclaimer on the Company’s press release issued earlier today, as well as the risk factors section in our most recent Form 10-K and in subsequent filings with the SEC. In addition, any forward-looking statements represent our views only as of the date such statements are made. Arcturus specifically disclaims any obligation to update such statements. And with that, I will now turn the call over to Joe.

Joseph Payne: Thank you, Neda. It’s good to be with you again, everybody. I’m going to begin my remarks with an update on progress regarding our monovalent COVID-19 vaccine, ARCT-154, following favorable clinical results from the Phase 3 pivotal studies, the new drug application is currently under review by Japan’s Pharmaceuticals and Medical Devices Agency or the PMDA. The ARCT-154 Japan NDA submission is supported by an active-controlled Phase 3 booster vaccine study, which was conducted in Japan, and a placebo-controlled Phase 3 primary vaccination series efficacy and safety study, which was conducted in Vietnam. The ARCT-154 Phase 3 booster vaccine study achieved its pre-specified primary endpoint, demonstrating the non-inferiority of an immune response against the SARS-CoV-2 ancestral strain as compared to Comirnaty.

In addition, the superiority of ARCT-154 in neutralizing antibody response against the SARS-CoV-2 Omicron BA.4/5 variant was also demonstrated as a key secondary endpoint. Updated preliminary Phase 3 booster data was recently presented at the 11th International mRNA Health Conference in Berlin. In a heads-up comparison to an FDA-approved monovalent mRNA vaccine, monovalent ARCT-154 showed multi-fold improvement in durability and multi-fold superior titers of neutralizing antibodies against Omicron BA.4/5 and this was at the six months post-boost mark. These Phase 3 booster results were consistent with the Phase 1/2 booster clinical trial durability data that were collected previously and presented at the 9th ESWI Influenza Conference in Valencia.

All of these observed clinical benefits were achieved with the STARR next-generation mRNA technology which is administered at 5 micrograms. This is an 83% to 92% lower dose level compared to approved mRNA vaccines. This lower dose level highlights the potential safety and tolerability benefits of this next-generation mRNA vaccine platform technology. Based on all the clinical data collected to-date, we believe that the next-generation STARR mRNA platform is an effective and differentiated vaccine technology that may offer a longer-lasting immune response, relative to the older conventional mRNA platform technologies. Supported by the ARCT-154 clinical data, Meiji Seika Pharma, the partner of CSL Seqirus submitted our Japan NDA to support ARCT-154, as a primary series and booster vaccine for COVID-19.

The review of this application remains underway and is on track for approval in December. We filed a marketing authorization application in Europe. And we are seeking approvals for ARCT-154 in other major markets. We continue to mature the value and scope of the STARR next-generation mRNA vaccine platform by collecting meaningful bivalent vaccine clinical data as well. We’re pleased to report today that the planned enrollment target of 850 participants has been reached in the ongoing Phase 3 bivalent COVID vaccine trial comparing immunogenicity to bivalent Comirnaty. The initial top-line results of the study are expected in Q1 of 2024 followed by an unanticipated PMDA approval in Q3 2024. In summary, we are delighted with the rapid progress we have achieved this year with our STARR next-generation mRNA vaccine platform.

We believe ARCT-154 provides clear validation of the broader opportunity for Arcturus’ mRNA vaccine and therapeutic programs. Our strategic collaboration with CSL which is Arcturus’ exclusive global license fee is focused on developing and commercializing next-generation mRNA vaccines and continues to make substantial progress. Our partnered LUNAR-FLU program which is also now known as ARCT-2138 continues to progress with funding and operational support from CSL. LUNAR-FLU utilizes Arcturus’ next-generation mRNA platform. And we are intending to initiate a Phase 1 clinical trial, which is expected to begin soon. We’ll now move on to ARCT-810, this is our messenger RNA therapeutic candidate for ornithine transcarbamylase or OTC deficiency. This investigational medicine is designed to functionally replace the deficient OTC enzyme in the liver, restoring urea cycle activity and preventing metabolic crises that cause neurological damage.

ARCT-810 could reduce the need for ammonia scavengers and ease the rigid dietary protein restrictions that OTC patients face today, thus improving the quality of life for those with the disease. ARCT-810 has received Orphan Drug Designation and Rare Pediatric Disease Designation from the FDA. ARCT-810 is currently being evaluated in two ongoing clinical studies in patients. Our Phase 1b study in adults and a multi-dose Phase 2 study in adolescents and adults with OTC deficiencies. The Phase 1b single ascending dose study is being conducted in the United States and has completed dosing of all planned four cohorts in a total of 16 subjects. We expect the final database lock to occur later in this fourth quarter of 2023. The ARCT-810 Phase 2 study is being conducted in the United Kingdom and Europe and plans to enroll up to 24 adolescents and adults with OTC deficiency.

The ongoing study evaluates two dose levels and includes up to six bi-weekly administrations for each participant. We remain committed to the development of ARCT-810 and we are taking various actions to address the continued challenging enrollment rate in Europe, by adding study sites and patient services to improve screening participation. Updated guidance of interim Phase 2 data is expected in H1 for the first half of 2024. Moving now to our ARCT-032 program. ARCT-032 is an inhaled messenger RNA therapeutic candidate for cystic fibrosis, formulated with Arcturus’ LUNAR delivery technology, which has been optimized for bronchial epithelial cell delivery. We completed enrollment and dosing in a Phase 1 study in New Zealand, of 32 healthy subjects across four ascending single dose cohorts.

We look forward to presenting the safety and tolerability study results of this Phase 1 study at an appropriate conference in the first half of 2024. We’re pleased to report that we have initiated enrollment and scheduled dosing of the first patient in a Phase 1b clinical study in New Zealand, which is designed to enroll up to eight adults with cystic fibrosis with each participant receiving two administrations of ARCT-032. We are presently guiding interim data in H1 2024. Arcturus is sincerely grateful for the continued support of the CF Foundation and September the organization agreed to increase its financial commitment to $25 million to advance ARCT-032. In October 2023 ARCT-032 received Rare Pediatric Disease Designation from the FDA. As such if ARCT-032 achieves FDA approval for a pediatric indication, Arcturus is eligible to receive a priority review voucher of a subsequent marketing application for a different product.

New data was presented at the North American Cystic Fibrosis Conference or the NACFC in November. This new proof of activity in vivo data was collected with a CF Ferret model, also known as G551D. The ferrets in the study required continuous treatment with the CFTR modulator Kalydeco to prevent disease progression. A single administration of ARCT-032 showed successful transaction of airway epithelial cells and restoration of mucociliary clearance above the level maintained with Kalydeco. And with that, I’ll now pass the call to Andy.

Andrew Sassine: Thank you, Joe, and good afternoon everyone. The press release issued earlier today includes financial statements for the third quarter ended September 2023 and provides the summary and analysis of year-over-year financial results. Please also reference our most recent 10-Q for more details on the financial performance. Arcturus recently achieved a $35 million milestone from CSL. The milestone payment will be used to fund development activities for the LUNAR COVID-19 vaccine program with CSL. We are very pleased with the ARCT-154 new drug application, with the PMDA in Japan, and we believe that this product could represent a highly differentiated vaccine option for patients. Furthermore, the development and manufacturing plans supporting ARCT-154 was carried out in a financially disciplined and efficient manner.

That leverages multiple external collaborations. The two ARCT-154 Phase 3 Japanese booster study and the product manufacturing related to this collaboration are being funded by Meiji Seika Pharma and the Japanese government. Meiji Seika Pharma has an agreement with CSL Seqirus, whereby Meiji will be responsible for the regulatory approval, marketing distribution, and sales of ARCT-154 in Japan, as well as coordinating the manufacturing of COVID vaccine products with ARCALIS for the Japanese market. ARCALIS located in a strategic biomedical research and development hub in Japan. It’s poised to become a key player in the global mRNA drug manufacturing landscape. This CDMO is designed to support the production of mRNA vaccines, as well as our mRNA-based therapeutics, and has already completed the construction of a state-of-the-art mRNA drug substance manufacturing facility.

To date, $165 million has been awarded to ARCALIS by the Japanese government. These funds are being used to build mRNA drug substance formulated drug product capabilities and to construct the DNA template manufacturing facility. We expect this facility to become a leading manufacturer of mRNA-based vaccines and therapeutics with the ability to manufacture vaccines within 100 days of an emerging viral strain. We expect this entity to provide meaningful financial dividends to our company over the coming year due to our substantial equity position. We are greatly appreciative of the Japanese government for their financial support. I will now summarize our financial results for the third quarter of 2023. Our primary source of revenues were from license fees, consulting and related technology transfer fees, reservation fees, and collaborative payments received from research and development arrangements with pharmaceutical and biotechnology partners.

For the three months ended September 30th, 2023, we reported revenues of $45.1 million compared with $13.4 million for the three months ended September 30th, 2022. Revenues increased by $31.7 million during the three months ended September 30th, 2023, as compared to the prior year period. The increase was primarily attributable to revenue recognized from the collaboration agreement with CSL Seqirus and grant revenue recognized from the agreement with BARDA. Revenue increased by $90.3 million during the nine months ended September 30th, 2023 as compared to the nine months ended September 30th, 2022. The increase was attributable to an increase in revenues of $133 million primarily related to the collaboration agreement with CSL this year. This increase was primarily offset by less revenue in 2023 from other COVID program customers.

Total operating expenses for the three months ended September 30th, 2023, was $64.5 million compared with $50.2 million for the three months ended September 30th, 2022. Our research and development expenses consist primarily of external manufacturing costs, in vivo research study, and clinical trials performed by contract research organizations, clinical and regulatory consultants, personnel-related expenses, facility-related expenses, and laboratory supplies related to conducting R&D activities. R&D expenses were $51.1 million for the three months ended September 30th, 2023, compared with $37.7 million in the comparable period last year, primarily reflecting increased clinical research and manufacturing costs and personnel-related expenses.

General and administrative expenses primarily consist of salaries and related benefits of our executive, administrative, legal and accounting functions and professional fees for legal and accounting services as well as other general and administrative expenses. G&A expenses were $13.4 million for the three months ended September 30th, 2023, compared with $12.5 million in the comparable period last year. The increase resulted primarily from personnel expenses due to increased headcount and salary, increased travel and consulting expenses as well as an increased rent expense associated with the new headquarters facility. With the three months ended September 30th, 2023, Arcturus reported a net loss of approximately $16.2 million or $0.61 per diluted share compared with a net loss of $35.3 million or $1.33 per diluted share in the three months ended September 30th, 2022.

Cash, cash equivalents, and restricted cash were $369.1 million as of September 30th, 2023, and $394 million at December 31st, 2022. We have achieved approximately $365 million in upfront payments and milestones from CSL Seqirus, as of September 30, 2023. We expect to continue to receive future milestone payments from CSL that will support the ongoing development of the COVID and flu program and three additional vaccine programs by CSL. Finally, I’m happy to report, the expected cash runway now extend through the end of 2026 based on the current pipeline and program. In summary, we believe the company remains in a strong financial position and has the resources to achieve multiple near-term value-creating milestones for the vaccine and therapeutic program.

Furthermore, with the anticipated 154 product approvals in December in Japan, we look forward to beginning to report potential commercial share in the next few years. I will now pass the call over to Joe.

Joseph Payne: Thanks, Andy. We’ve continued to make excellent progress and advanced our proprietary messenger RNA, and LUNAR delivery platform technologies toward later stages in clinical development. And we’re excited about the progress toward our first potential product approval in December with ARCT-154. The achievement would definitely mark a critical milestone for the platform and for Arcturus. And so with that, we’d like to turn the time over to the operator for questions.

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Q&A Session

Operator: Thank you. At this time we will conduct a question-and-answer session. [Operator Instructions] First question comes from Yasmeen Rahimi with Piper Sandler. Please proceed.

Yasmeen Rahimi: Good afternoon team. Thank you so much for all the updates. The first question is directed to the upcoming Japan approval. Many clients are asking us if we should be expecting any update in terms of the commitment of Japan, order for vaccines for 2024 at the time of the approval. That’s question one. Question two, we would love to hear your thoughts on — given that the bivalent vaccine enrollment is complete. When we should be expecting data? And in terms of the next steps with the program. And then third is, congrats on the CF program and patient dosing. Are you planning to get to eight patients or is there an opportunity to maybe report data on a small cohort in 2024? And I’ll jump back into the queue. And thank you for letting me ask my questions.

Joseph Payne: Hey, Yas. Thanks. With respect to government orders that maybe associated with the approval of ARCT-154, Meiji is primarily responsible for collecting or soliciting those orders whether that’s from the government or from the private sector in Japan. We’re unfortunately we do not have insight into that, so I’m unable to address that. But clearly an order cannot happen until the platform or a particular asset is approved. So I won’t be able to speak to any detail on that. With respect to the patients being recruited to support the Phase 1b trial for cystic fibrosis, we indicated that the first patient is getting dosed here shortly, but we’re more than willing to share interim data if required. The guidance we’ve provided is in the first half of next year.

With respect to the safety and tolerability data those — the Phase 1b trial for cystic fibrosis. Now you asked a question about when data for another program and this is for the bivalent. And so the — yeah, the bivalent booster data we’ve guided that — the bivalent I’m just looking at my notes to confirm. Yes, enrollment is completing very soon, in fact, later this month. But we are going to be providing data next year. So, top-line data is expected in Q1 and an anticipated approval or PMDA approval in Q3 in ’24.

Yasmeen Rahimi: Thank you so much. I’ll jump back in the queue.

Joseph Payne: Thanks, Yas.

Operator: The next question comes from Myles Minter with William Blair. Please proceed.

Myles Minter: Hey, thanks for the questions. Just relevant to what Meiji has been saying previously which was potential approval to monovalent vaccine in October and you’ve been more conservative say in fourth quarter. I think that’s panned out nicely. But is there anything else going on there from like a regulatory conversations point of view? I know you’ve shown us, the six-month durability data now to the PMDA requests that because you have it. I’m just wondering why there is an optical delay from October to December. And maybe that’s just the fault of Meiji and not if your own, but any clarity there would be great. And I’ve got a follow-up.

Joseph Payne: No, just the day 29 data was a prerequisite for the primary endpoint, the six-month data was not. However, this data is aware to the regulatory agency and taken into consideration as they look at regulatory approval going forward. And we’ve guided again that this that approval is in December.

Myles Minter: Okay. And then maybe just, sorry, was there any comment there?

Joseph Payne: No.

Myles Minter: Sorry, maybe just one on the cystic fibrosis program. Do you have to dose those CF patients in a stepwise fashion? So a single patient would receive two administrations be monitored for safety before clearance to dose the next patient or can you get these patients in eight of them at a time and dose them altogether? Thank you.

Padmanabh Chivukula: Yeah. We anticipate, this is Pad in, we anticipate dosing on all the cohort altogether. That’s correct.

Myles Minter: Okay. Thanks, Pad. Thanks for the question.

Operator: The next question comes from Seamus Fernandez with Guggenheim. Please proceed.

Seamus Fernandez: Thanks for the question. So, just a couple of quick ones here. In terms of the progression of potential milestones going forward, just hoping that if you guys could help us understand the sort of key steps forward from a milestone perspective, whether it be from the COVID program, the flu program, or potentially other programs. And perhaps just in percentage terms, maybe not without absolute numbers where some of the key, you know, sort of catalyst milestones would really lay out or as a percentage of the terms of CSL what’s possible in 2024? Obviously, we know what the runway is now through 2026 with the existing cash, but it seems like that could be drawn out quite significantly in 2024 as more of these programs advance, and as we see more of the COVID 154 applications move through into other jurisdictions more broadly.