Arcturus Therapeutics Holdings Inc. (NASDAQ:ARCT) Q4 2023 Earnings Call Transcript

Arcturus Therapeutics Holdings Inc. (NASDAQ:ARCT) Q4 2023 Earnings Call Transcript March 7, 2024

Arcturus Therapeutics Holdings Inc. beats earnings expectations. Reported EPS is $-0.32, expectations were $-1.69. ARCT isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings and welcome to the Arcturus Therapeutics Fourth Quarter and Full Year 2023 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Neda Safarzadeh, Vice President, Head of Investor Relations, Public Relations and Marketing. Thank you. You may now begin.

Neda Safarzadeh: Thank you, operator. Good afternoon and welcome to Arcturus Therapeutics’ quarterly 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.

Joe Payne: Thank you, Neda. It’s good to be with you again, everybody. We look forward to providing our updates today on our quarterly investor call. I will begin my remarks with an update on progress regarding our Kostaive COVID-19 vaccine program. Following favorable clinical results from several Kostaive studies, including a 16,000 subject efficacy study performed in Vietnam, as well as a Phase 3 COVID-19 booster trial in Japan, the Japan’s Ministry of Health, Labor and Welfare, MHLW, granted approval for Kostaive, a self-amplifying mRNA COVID-19 vaccine for primary vaccination and booster for adults 18 years and older. This approval marks a historic milestone as the first self-amplifying mRNA product in the world to be registered.

And we are increasingly confident about the future applications of our now proven innovative STARR self-amplifying messenger RNA vaccine platform. We look forward to expanding our vaccine platform alongside our global exclusive partner, CSL, and CSL’s partner in Japan, Meiji Seika Pharma. The Kostaive Japan approval is further supported by an active controlled Phase 3 booster vaccine study conducted in 11 sites in Japan. The study included healthy adults initially immunized with two doses of an mRNA vaccine, whether that was Comirnaty or Spikevax, and then the third dose of Comirnaty. The study was conducted in partnership with CSL’s partner, Meiji Seika Pharma, this is a global health company based in Japan. The new analysis at six months post vaccination shows that Kostaive induces a broader and more durable immune response compared to Comirnaty for both the original Wuhan strain and the Omicron BA.4/5 variant and an advantage in antibody persistence.

Kostaive results were achieved with one-sixth of the dose of Comirnaty. Based on the totality of clinical data collected to date, Arcturus anticipates that the advantages of self-amplifying mRNA should provide superior protective efficacy against COVID-19 disease caused by future emergent variants of SARS-CoV-2. The Kostaive booster study is ongoing and will continue to collect safety data and assess durability of the immune response in participants up to 12 months post-vaccination. We are very pleased to report that Kostaive remains on track to launch in Japan this year. Meiji Seika Pharma, as the party responsible for distributing the vaccine in Japan, will be providing updates and further detail pertaining to the launch of Kostaive in official press releases.

In April, the WHO is expected to announce the updated COVID variant. In due course, manufacturing runs and the subsequent distribution of Kostaive in Japan will follow. The commercial case for Kostaive is becoming clear. A significantly stronger and broader immune response is preferred. The ACIP and other regulatory agencies are presently recommending two boosters each year for the approved conventional mRNA vaccines. Thus, it’s very apparent that, there’s a clear need for a more durable once-a-year COVID vaccine, and Kostaive has the potential to address this important global health need. COVID is here to stay, and the longer-lasting Kostaive is also here to stay. So moving on to ARCT-2138, LUNAR-FLU Program. This is our quadrivalent self-amplifying mRNA vaccine candidate for seasonal influenza.

I’m pleased to announce that the company, along with our partner CSL, initiated a Phase 1 dose finding study in January 2024, with the intention of assessing the dose response of the investigational vaccine and comparing the safety and immunogenicity with the licensed standard of care. with the licensed standard of care. Overall, 132 healthy individuals, which includes 84 younger adults and 48 older adults, are planned to be recruited in this Phase 1 clinical study. I’m now excited to announce that Arcturus has initiated new vaccine discovery programs for Lyme Disease and Gonorrhea. This decision is supported by the clinical and regulatory validation of LUNAR and STARR technologies provided by our first regulatory approval of Kostaive. Our technologies are ideally suited for these infectious disease vaccine opportunities.

Our validated vaccine platform is now being applied to seven global infectious diseases, five with our partner, CSL Seqirus, and two wholly-owned vaccine discovery programs, Lyme Disease and Gonorrhea. The total estimated global market opportunity for these new vaccine discovery programs exceeds $4 billion. I’ll now move on to ARCT-810, our messenger RNA therapeutic candidate for ornithine transcarbamylase or OTC deficiency. This investigational medicine is designed to functionally replace the deficient or missing 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 this disease.

Our Phase 1b single-ascending dose study in the United States has completed enrollment and dosing of all cohorts with 16 patients. The Phase 2 study in the United Kingdom and Europe is enrolling up to 24 adolescents and adults with OTC divisions. The ongoing study is evaluating two dose levels and includes up to six biweekly administrations for each participant. The company expects to share Phase 2 interim study data by the end of Q2 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. This investigational medicine is designed to functionally replace the deficient or missing CFTR transporter in the lung and thus restoring the balance of salt and water.

We have now completed the dosing in a Phase 1 study in New Zealand of 32 healthy subjects across four ascending single-dose cohorts. In addition, we have dosed patients in a Phase 1b clinical study in New Zealand. The Phase 1b study is designed to enroll up to eight adults with cystic fibrosis with each participant receiving two administrations of ARCT-032. We remain on track to share interim Phase 1b data in Q2 2024. In November 2023, ARCT-032 received orphan drug designation from the FDA. The designation provides significant incentives to promote the development of the drug, including the potential for market exclusivity for seven years upon FDA approval, eligibility for tax credits for qualified clinical trials, waiver of Prescription Drug User Fee Act application fee, and eligibility to receive regulatory guidance from the FDA and the design of an overall drug development plan.

In February 2024, ARCT-032 received orphan medicinal product designation from the European Commission, which will give Arcturus access to protocol assistance, centralized authorization process, in reductions, and 10 years of market exclusivity. And with that, I’ll now pass the call to Andy.

Andy Sassine: Thank you, Joe and good afternoon everyone. The press release issued earlier today includes financial statements for the fourth quarter and fiscal year ending December 31st, 2023, and provides a summary and analysis of year-over-year financial results. Please also reference our Form 10-K, which will be filed early next week for more details on the financial performance. Before we begin the financial review, I wanted to give you some highlights from our recent trip to Tokyo where Joe Payne, Pad Chivukula, and I met with the Executive teams from Meiji Seika Pharma and Axcelead, our JV partner in our ARCALIS manufacturing venture. I am happy to report that everyone was very excited about the approval of Kostaive in Japan and the opportunity to manufacture the world’s first self-amplifying mRNA vaccine in Japan under the Meiji-brand.

All of our partners are working very closely with the Japanese and local government officials to prepare for the launch of Kostaive in the second half of 2024. We are deeply grateful to the Japanese government for their financial support of Kostaive and our manufacturing partner, ARCALIS. Going forward, official from Meiji Seika Pharma will provide regular updates on the launch of Kostaive and official press releases this year. I will now provide a quick summary of our financial results. We reported revenues of $169.9 million during 2023 compared to revenues of $206 million during 2022. Revenue recognized from CSL in 2023 was $157.4 million, which slightly increased by $3 million compared to 2022. We also made significant progress with the BARDA pandemic flu vaccine agreement that led to an increase in revenue of $8.8 million.

The majority of the decrease in FY 2023 revenue was driven by the discontinuation of our collaboration agreements with Vinbiocare and J&J in 2022. In the fourth quarter of 2023, Arcturus achieved $29.2 million in milestones from CSL. The milestone payments will continue to be used to fund development activities for the LUNAR COVID-19 vaccine and self-amplifying mRNA flu programs with CSL. Total operating expenses for the year ended December 31, 2023, for $245 million, compared with $193.8 million for the year ended December 31, 2022. For the three months ended December 31, 2023, operating expenses were $49.1 million, compared with $38.8 million for the three months ended December 31, 2022. I want to highlight that total operating expenses declined by $15.4 million sequentially from the third fiscal quarter of 2023 due to lower manufacturing expenses.

Our research and development expenses consist primarily of external manufacturing costs, in vivo research studies 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. Research and development expenses were $192.1 million for the year ended December 31, 2023, compared to $147.8 million for the year ended December 31, 2022. The increase in research and development expenses were attributable to our continued effort to progress the CSL and BARDA programs, as well as our internal OTC and cystic fibrosis programs. Additionally, we have increased investments in early stage and discovery technology.

The company initiated preclinical research related to its Lyme Disease and Gonorrhea Vaccine discovery programs. G&A expenses were $52.9 million during 2023 compared with $46.1 million in 2022. The increase resulted primarily from personnel expenses due to increased headcount and salaries, increased travel and consulting expenses, as well as an increased rent expense associated with the new headquarters facility in San Diego. We anticipate total G&A expenses for 2024 will remain consistent with 2023 totals. For the year ended December 31, 2023, Arcturus reported a net loss of approximately $26.6 million or $1 per diluted share, compared with net income of $9.3 million to $0.35 per diluted share in the year ended December 31, 2022. For the three months ended December 31, 2023, we reported a net loss of approximately $8.6 million or $0.32 per diluted share, compared with a net income of $117.4 million or $4.33 per diluted share for the three months ended December 31, 2022, prior year quarter included a $200 million upfront payment from our CSL collaboration.

Cash, cash equivalents and restricted cash were $348.9 million as of December 31, 2023, and $394 million as of December 31, 2022. Since the beginning of our deal with CSL in November 2022, we have achieved approximately $396 million in upfront payments and milestones as of December 31, 2023. We expect to continue to receive future milestone payments from CSL that will support the ongoing development of the COVID and flu program with three additional vaccine programs by CSL. Finally, I’m happy to report the expected cash runway now extends through the first quarter of 2027 based on the current pipeline and programs. I would also like to highlight that total shares outstanding on a fully diluted basis have remained relatively consistent for three years in a row at approximately 26.6 million shares.

This demonstrates management’s commitment to continually improving shareholder value as we execute our strategic business plan. 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 programs. Furthermore, with the Kostaive product approval in December in Japan, we look forward to beginning to report potential commercial sales in the next few years. I will now pass the call back to Joe.

Joe Payne: Thanks, Andy. We continue to make excellent progress, and we are incredibly excited about our first product approval with Kostaive. This achievement is an important validation of our mRNA technology and delivery platform. So with that, let’s turn the time over to the operator for questions.

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Q&A Session

Operator: At this time, we’ll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Evan Wang with Guggenheim Securities. Please proceed with your question.

Evan Wang: Great. Thanks for taking the question, guys. Two from me. First, it was encouraging to see the ACIP recommendation on revaccination of the elderly last week. I’m wondering, if we’ve seen similar recommendations internationally. And additionally, what kind of regulatory feedback you’ve gotten on how a more durable vaccine may be implemented, if you could talk both FDA and internationally in markets like Japan and Europe? And second, looking forward to some updates in 2Q from OTC and CF. As we’re getting closer to data, I’m wondering if you can share how many patients we can expect from each trial? Thanks.

Joe Payne: Hey, thanks, Evan. Yes, first I can address the question about the recent recommendations by ACIP. We’re very happy to see that they recommended regular COVID vaccination, especially in the elderly, and the fact that they’ve recommended two boosters annually. We, of course, because we’re approved in Japan, we wanted to provide some updated and new information to the people on this call that they may not appreciate. But Japan government has also now communicated that starting April 2024 that routine COVID-19 vaccinations for the elderly will be recommended. And if you just go to the MHLW website, another new update that they recommend twice a year vaccination for the elderly, but also, and I’ll quote from the actual website in Japan, that people aged 65 and older, those with underlying medical conditions and health care workers, so each of these three sets of people will be vaccinated twice a year, while all of the others will be vaccinated once a year.

The vaccinations remain free of charge as well, and that’s clearly communicated. So these developments, of course, are very good news for us because we’re addressing a need of durability for the field, but also that there’s elevated support for the elderly and those with underlying medical conditions and healthcare workers in Japan, and that their vaccinations remain free of charge, which of course is going to be helpful to us commercially. With respect to Europe, there’s been no second vaccination recommendation for the elderly there by the European CDC, but those discussions are ongoing, and we’ll be looking for those updates shortly. Now, you also asked additional questions about just enrollment processes for the two therapeutic programs, correct, Evan?

You know, we remain on track. That’s something that we want to clearly communicate, that we’re on track to communicate some interim data for Phase 1b in our CF program, and that’s recruiting all patients, no placebo in that group. Six to eight patients is what we’re estimating. We’re still guiding interim data to be shared in the second quarter, so that’s a relatively near-term milestone. And likewise, we maintain our guidance on the OTC program for the end of Q2. With respect to specific updates and specific numbers, we haven’t provided those details. But thank you for your questions.

Operator: Our next question comes from Yasmeen Rahimi with Piper Sandler. Please proceed with your question.

Unidentified Analyst: Hey, good afternoon, team. This is Jim on for Yas. Thanks for taking our questions. We have two. First, what do you say is the rate limiting step for orders in Japan and for cystic fibrosis and OTC, what types of data should we expect the top line? And what would you say like the bar for success?

Joe Payne: Sure. I can speak to the data for – the top line data for the therapeutic programs. But the first question, I’ll turn the time over to Andy with respect to what’s – what’s rate limiting on getting orders in Japan, Andy?

Andy Sassine: Yes. No, I think what we articulated earlier in the call is that we’ve had some very positive meetings with all the Meiji Seika Pharma officials and executives. And I think they’re going to be driving the bus here, and they’ll be announcing and making press releases as appropriate. So please stay tuned and be patient that is certainly — the encouragement was kind of articulated by Joe just now that — and this is kind of a recent development that the government is going to continue to financially support this population over 65, which is about 32 million to 36 million people, right. That’s not including the people that have compromised immune issues and so forth, so were chronic illnesses. So you’re looking at — if you multiply that by two, somewhere in the vicinity of 60-plus million potential doses, right, if everyone gets two shots, two boosters, right, of conventional mRNA.

So we’re just kind of reiterating what’s in the public domain, what’s available. And Meiji will certainly give you more concrete information as soon as they can. So stay tuned.

Joe Payne: And then pertaining to the top line data for CF and OTC, for OTC, we’re looking for biomarkers to change in these patients, specifically ammonia to be adjusted to at or near normal levels. Many of these patients are on ammonia scavengers. So if that is indeed the case, there’s other biomarkers that we can evaluate and measure, including orotic acid in the urine. And glutamate is another amino acid impacted by the urea cycle. And then OTC itself can be measured. So plenty of biomarkers to measure in these trials, as in terms of top line data. With respect to the CF program, we’re going to be looking primarily at safety for Phase Ib. These are – this is the first time that this therapeutic has been administered as two administrations in actual patients. And so it will be very meaningful for us to establish some sort of track record of safety and tolerability and a spectrum of CF patients. Anything to add to that Pad for either program?

Pad Chivukula: I think for the CF, I think what we’re going to be looking at is mainly safety, you’re right, but we’re also going to be looking at various respiratory functions and making sure that this dose is well tolerated in a patient population. So I think we will be happy to see some of those results. And then with regard to OTC, we just obviously, want to reiterate the Phase Ib that we talked about was primarily a safety study. So we will be presenting that data at a conference coming up very soon. So thanks.

Unidentified Analyst: Thank you so much for the detail.

Operator: Our next question is from Whitney Ijem with Canaccord Genuity. Please proceed with your question.