Q3 2019 Earnings Call

And first internally develop novel compound to enter the clinic is making good progress in the phase One said Mad study initiated this year.

Assuming success in phase one the goal. The next study will be to demonstrate the pharmacodynamic profile in a well characterized condition such as rheumatoid arthritis, which also provides us with the potential to extrapolate into various other inflammatory conditions that are characterized by high levels of TNF Alpha IL one beta.

Ill six annihilate.

In the coming months, we will also be identifying a second inflammatory indications that we will be pursuing with VTI. Fourfifty. In addition, we have other breakthrough kinase inhibitors in our soft Jack.

Covanta rebound Teekay, Jack three in Korea, India Advancement.

Given the continued unmet needs broadly in the immunology space, we believe the opportunity exists for novel focus mechanisms and oral formulations that have the potential to reshape the immunology landscape a key feature of our current drug candidates is their positioning to parallel or potentially exceed the efficacy of established high value and Jack.

Couple drugs, including anti TNF Alpha anti IL, one beta and anti IL 17, biologics as well as mitigating the rising safety concerns with oral systemic JAK inhibitors.

As Frank will review in more detail later in the call. We ended the third quarter with 91 million and this is sufficient to get us to the third quarter of 2021 I want to reiterate that this guidance gives no effect to any additional potential new business development transactions or financing activities and so we anticipate that the cash out.

It should only improve if we execute on our business development plans.

As a reminder, the catalyst we expect to deliver in 2020 in our current budget are as follows.

84, 480, 450 phase one data sat mad by year end or early Q1.

And then initiate if successful initiating a phase two trial and rheumatoid arthritis in the first half of 2020 with a subsequent data read out in the second half of 2020.

Moving to the soft JAK inhibitor, which is a 17 77, we plan to submit nine d. in the first half of 2020 and initiate a phase one two trial and in atopic dermatitis and the second half of 2020 and then finally.

Our third candidate 80, 20 138 is in K, Jack three covalently bound timber and that will have an I'd submitted in late 2020 early 2021.

With that I'll hand, it off to David Gordon, Our CMO, who will update you on our R&D progress Dave. Thanks, Neil Good afternoon, everyone. We've had a busy and successful quarter from the R&D perspective last month, we announced results from our successful phase three clinical development program for it.

One of 145% topical solution for the potential treatment of common worse or Veronica folk are us.

I would refer you to the data included enough announcements, but in summary fourth phase three studies known US one on for two met the primary endpoint an old secondary efficacy endpoints with high statistical significance.

Mild to moderate application fight adverse events made up the vast majority of all adverse events.

We believe toward one and support to roll support an anda and but you want to 145% has potential to be the first ft approved prescription medicine for the treatment of common wars I'd like to find investigators on the patients who participated in this trial I'm proud of our team that worked so hard to deliver the for successful phase three.

The program for a prescription treatment of calling wars.

Moving to our immuno inflammatory pipeline Ittai for 50, as our investigational MKT two inhibitor, a small molecule oral drug that targets TNF iowan IL six denial pathways.

In the first half of 2019, we successfully file but I and the for this drug and the phase one program as well underway.

So based on from the single and multiple ascending dose study or side Mad study are expected by the end of first quarter 2020 .

The next step after the sodomized study will be to initiate a phase two trial for Sci fourfifty in subjects with rheumatoid arthritis in the first half from 2020 .

Since inhibition of Mt. Two is expected to target Cnf Iowan IR section eight we're also considering a number of an additional inflammatory indications, which we will update you on and the coming months.

Our second immuno infantry pipeline candidate as Ittai 17, 77, our Topicals soft Jack one three inhibitor, which were developing as a potential treatment for moderate to severe atopic dermatitis.

In the context of 17 77 soft refers to as metabolism characteristics, which means that if any drug passes systemically. It will be quickly metabolize to non ACA forms.

A number of of studies have demonstrated that the Jack class of drugs deliver efficacy and atopic dermatitis with both oral on topical formulations Aclaris have previously reported a topical solution of our job one three inhibitor.

Five will to delivered a good response rate and a small open label study patients with moderate to severe atopic dermatitis.

We believe that the JAK inhibitor class will have utility any topic dermatitis, but we're very aware of the safety concerns related to systemic exposure of JAK inhibitor drugs.

The approach we've taken with Sci 17, 77 may provide a good balance of local efficacy, while reducing systemic exposure.

We are on track to enter phase one two in patients with moderate to severe it topic dermatitis in the second half of 2020 .

The third immuno inflammatory pipeline candidate I'll briefly mention as Ittai 20, 138, so small molecule oral indicate jaktwo inhibitor, which has potential as an oral small molecule to treat T cell mediated diseases.

This will progress to an eye Andy in Q4, 2020 or Q1 2021.

Finally, we previously announced that we had made a strategic decision to focus our R&D spend on our immuno inflammatory portfolio.

As such we are currently seeking partners to further develop ittai fiber, one and ittai fiber to our investigational oral and topical one three inhibitors, both of which were being developed for our future indications.

Before I close I'd like to encourage shoes to review the R&D day slides that are posted on our website.

This was a meeting held at the end of September where we showcased our immuno inflammatory team and our pipeline.

With that I'll pass over to Frank.

Thanks, David.

Good afternoon, everyone.

As I walk through our third quarter financial results. Please reference the financial tables that can be found in today's press release.

For further details please refer to the Mdna section in our Form 10-Q that was filed today.

First just to note about the current quarters in the prior years financial statement presentation.

As a result of our strategic review and the decision to refocus our resources on our immuno inflammatory development programs, our historical revenues and expenses from our product sales are summarized in the line item loss from discontinued operations on the face of Rpls statement.

Please reference footnote 15 of our financial statements in our Form 10-Q for the details of what is included in these line items, including the operating results for our marketed products and related balance sheet items.

As of September Thirtyth, 2019, we had cash and investments of $91.4 million and had 41.4.

Million shares of common stock outstanding.

For the nine months ended September Thirtyth 2019, net cash used in operating activities was $76.1 million.

Earlier this year, we had given cash runway guidance that our capital was sufficient to fund our operations until the fourth quarter of 2020.

We now anticipate that our current capital, including both the upfront proceeds from the sale of propane and the full wrote repayment of the loan facility with Oxford in October 2019 will extend our cash runway into the third quarter of 2021 without giving effect to any additional potential new business development transactions orphan.

Answering activities.

Now switching to our continuing operating expenses.

For the third quarter 2019, our total R&D expenses were $16.2 million compared to $15.2 million for the third quarter of last year.

These amounts included non cash stock based compensation expense of approximately $1.4 million in each period.

The increases were mainly the result of a $4 million milestone payment made to rigel for the achievement of specified development milestone as well as a preclinical development activities associated with recent initiated phase one clinical trial for 84 50.

These increases were partially offset by decreases in spending for our various phase two clinical trials for our JAK inhibitor programs and phase three work programs as these projects were at or near completion at the end of the third quarter. This year.

For the third quarter 2019, our total gene expenses were $6.7 million, which included noncash stock based compensation expense of approximately $2.6 million.

This compared to $6.1 million for the third quarter of last year, which included $2.3 million of noncash stock based compensation.

Other income net for the third quarter 2019 decreased by about $1 million as compared to the third quarter last year due to interest expense incurred on our outstanding debt, which was borrowed in October 2018, and subsequently repaid in October 2019.

Our loss from continuing operations was $23.1 million for the third quarter 2019, compared to $20.6 million for the third quarter of 2018.

Our loss from discontinued operations was $32.2 million for the third quarter 2019, compared to $12.1 million for the third quarter of last year and was $48.7 million for the nine months ended September 32019, compared to $35.6 million for the nine months ended September thirtyth.

2018.

And just two main items to draw your attention to on the line item loss from discontinued operations, we recognized $5 million in net sales of rotate for the third quarter 2019.

And $13.4 million for the nine month ended September Thirtyth 2019.

We also recognized a onetime noncash impairment charge of $27.6 million for the breakdown of our intangible asset related to rotate.

Included in both the third quarter and nine months ended September Thirtyth 2019.

As a result of our new strategic direction, which resulted in the reclassification of expenses related to our commercial products into discontinued operations. Our prior full year 2019 estimated operating expense guidance no longer represents an accurate estimate of our anticipated operating expenses and we do not believe that update.

Good full year guidance for 2019 would be meaningful.

But as we exit 2019, we expect to incur some additional employee and vendor wind down costs related to our discontinued operations as well as some cost to complete our various clinical trials for 8.8 hundred 145% and the LP should phase two trials, but as we move into 2020 based on our current plan, we anticipate our cash burn for.

I'm continuing operations to decrease significantly from the quarterly burn rate experienced during 2018 and the first three quarters this year.

Based on these assumptions, we estimate that our current capital will be sufficient to fund our operations into the third quarter of 2021 without giving effect to any additional potential new business development transactions or financing activities.

Ill now turn the call back over Neil for a few closing remarks.

Thank you Frank.

So we've obviously had a lot of change over the third quarter.

But the team continues to execute on the R&D side, we produced two clinically meaningful and highly statistically significant pivotal phase three studies in common warrants, we continue to manage our expenses and we pivoted now from dermatology focused company to one focused on immuno inflammatory diseases, where we.

I believe we have a strong competitive advantage vis-a-vis our team down in Saint Louis.

And we will be investing in three programs as we stated today and we'll be looking at.

Looking forward to reporting on the results of our sad and Mad work in the coming months with that ill hand, it off to Josh to please poll for questions.

Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound.

First question comes comes from Louise Chen with Cantor You May proceed with your question.

Hi, Thanks for taking my questions here I had a few.

So my question first question is what are you most excited about in your immuno inflammatory pipeline what product or products are most differentiated and have blockbuster potential in your view.

And then in terms of the assets that you have left to commercialize.

What is out there and what kind of economic or valuation do you think are ideal for these.

And then in terms of your immuno inflammatory pipeline outside the U. ads are you going to develop this yourself versus update you cut partner and if so who is an ideal partner for these types of assets. Thank you.

Hey, Louise as Neal. Thanks, Thanks for the question so.

I'll take it in kind of reverse order so on the ex U.S side I think given.

Yes of those indications that we would have to look at with with the three assets that we mentioned targeting anti TNF anti IL, one beta having a soft Jack topical and then also going after the T cell receptor I think we'd be looking at larger pharmaceutical companies to partner with ex U.S.

And that wouldn't be something we would pursue ourselves we would absolutely look to partner.

Sorts of rights on a on a country by country basis relative to the valuation question on some of the assets that were cycling on from a BD perspective, we don't comment on that specifically, obviously, we think there valuable assets and we're now into in a formal process on that so.

We'll be looking forward to updating everybody on our progress on that front and then in terms of your first question. What do we most excited about I think it isn't often that you get an asset like BNK two inhibitor that comes along where you have an oral that can mimic can potentially mimic the.

Factset one season in biologic therapy with anti TNF Anite anti IL, one beta and being an oral that I think thats always been something that a lot of companies have looked at so although we're looking at a couple of indications on to the gate I think if we if we see the results we think we're going to see.

It will be broadly applicable so I think that that asset is kind of a pipeline in a product and has the largest potential for for a blockbuster status down the road. Obviously, we got a long way to go we just are finishing the sad mad work, but I think the team is broadly very excited about potential for for that product.

Okay. Thank you.

Thank you and as a reminder to ask a question you will need to press star one on your telephone. Our next question comes from cautious or off with SVB. Larry You May proceed with your question.

Hi, This is doing the please sitting in for Pasha. One question when it comes to those that the wind down.

How much will wind down should be looking at in considering and in terms of how to model.

Near term operating expenses and what does the time on look like for completing this wind down.

So this is Frank thanks for the question I think when you talk about wind down I mean, a lot of that is behind us in Q3, we're wrapping up a couple of trials just in the fourth quarter. So burn will be a little bit they will obviously be less than where we're headed our what we spent in the first three quarters of this year and then far less as we head into next year. So I think now for the most.

Part around the personnel costs and some of the severance related items they'll be why don't wind up in the will wind down in by the end of the first quarter and so we'll have a little bit of that not a whole lot and then next year as I mentioned on our and our remarks.

We're going to have a significantly lower burn rate on a quarterly basis.

Great. Thank you very much.

Thank you and I'm not showing any further questions. At this time I would now like to turn the call back over to new Walker for any further remarks.

Thanks, Josh.

Appreciate everybody joining the call. This evening and we'll look forward to updating you on our side matter results in the coming months. Thank you.

Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.