Earnings Transcript for ACST - Q3 Fiscal Year 2020

Operator: Ladies and gentlemen, Hello and thank you all for your patience and for joining today’s Acasti Pharma Third Quarter 2020 Business Update Conference Call. All participants are in a listen-only mode, but you will have an opportunity to ask questions after today’s prepared remarks. Today’s session is being recorded. And with that, I am pleased to turn the floor over to Mr. David Waldman with Investor Relations. Welcome, David.

David Waldman: Thank you. Good afternoon, everyone and welcome to Acasti Pharma’s third quarter fiscal 2020 conference call. On the call with us this afternoon are Jan D’Alvise, President and CEO; Pierre Lemieux, Chief Operating Officer, Chief Scientific Officer and Co-Founder; Brian Groch, Chief Commercial Officer; and Jean-François Boily, Vice President, Finance. If you have any questions after the call or would like any additional information about the Company, please contact Crescendo Communications at 212-671-1020. I’d also like to remind everyone that statements on this conference call that are not statements of historical or current facts, constitute forward-looking information within the meaning of the Canadian Securities Laws and forward-looking statements within the meaning of U.S. Federal Security Laws. Such forward-looking statements involve known and unknown risks, uncertainties and other unknown factors that could cause the actual results of Acasti to be materially different from historical results or from any future results expressed or implied by such forward-looking statements. In addition to statements which explicitly describe such risks and uncertainties, readers are urged to consider statements labeled with the terms believes, belief, excepts, intend, anticipates, potential, should, may, will, plans, continue, or other similar expressions to be uncertain and forward-looking. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this conference call. Forward-looking statements in this conference call include but are not limited to information or statements about Acasti’s strategy, future operations, prospects and the plans of management; Acasti’s ability to conduct all required clinical and non-clinical trials for CaPre, including timing and results of those trials; the timing and the outcome of licensing negotiations; CaPre’s potential to become the best-in-class cardiovascular drug for treating severe hypertriglyceridemia; Acasti’s ability to commercially launch CaPre to funds its continued operation; CaPre’s potential to meet or exceed the target primary endpoint of reducing triglycerides by 20% compared to placebo; Acasti’s ability to report top-line results for TRILOGY 2 within the contemplated timing; as well as Acasti’s ability to report key secondary and exploratory endpoints from both TRILOGY studies within the concentrated timing; and Acasti’s usability to file an NDA based on the TRILOGY studies. The following statements contained in this conference call are expressly qualified in their entirety by this cautionary statement, the cautionary note regarding forward-looking Information section contained in Acasti’s latest annual report on Form 20-F and most recent Management’s Discussion and Analysis, which are available on SEDAR at www.sedar.com, on EDGAR at www.sec.gov and on the Investors section of Acasti’s website at www.acastipharma.com. All forward-looking statements in this conference call are made as of the date of this conference call. Acasti does not undertake to update any such forward-looking statements whether as a result of new information, future events or otherwise, except as required by law. The forward-looking statements contained herein are also subject generally to assumptions and risks and uncertainties that are described from time to time in Acasti’s public securities filings with the Securities and Exchange Commission and the Canadian Securities Commission, including Acasti’s latest annual report on Form 20-F and most recent MD&A. I’d now like to turn the call over to Jan D’Alvise. Please go ahead, Jan.

Jan D’Alvise: Hey. Thanks, David. And I want to welcome everyone participating on the call today. I’d like to start by expressing my gratitude to all of our shareholders for your patience and support. We realize this has been a real volatile period for our stock. And we have been very limited in what we’ve been able to disclose to-date. To the extent possible, I’d like to use this conference call today as an opportunity to provide you with some additional insights on the unexpected TRILOGY 1 results that we reported in January, the status of our ongoing investigations, the potential implications of those investigations, and possible next steps. That said, I’d also like to say that I’m cautiously optimistic that the information we gained from this investigation may provide us a viable path forward with the FDA. Now, as we had recorded last month, we achieved a 30.5% and the 36.7% reduction in triglyceride levels compared with baseline, among patients receiving CaPre at 12 and 26 weeks respectively, as well as a 42.2% reduction in triglyceride levels among patients receiving CaPre at 12 weeks, while on a background of statin therapy. These results were in line with our expectations based on previous studies that we conducted with CaPre and based on the fact that the TRILOGY trials were being conducted in a much sicker, severe hypertriglyceridemia population. However, as all of you are well aware, despite the meaningful triglyceride lowering in the CaPre arm, the study did not reach statistical significance. The observed reductions in the triglyceride levels in the placebo group were far greater than anything seen in previous triglyceride lowering trials with the prescription omega-3. In these previous trials, the placebo responses ranged from a positive 16% to a negative 17% across 18 separate intervention arms with the placebo response in more than 75% of those arms ranging between a plus or minus 10%. So, our observed placebo response was 2 to 3 times what would have been otherwise expected. We believe it’s highly unlikely that the placebo used in TRILOGY, which is simple cornstarch, could achieve a 27.5% median reduction in triglyceride levels at 12 weeks. Cornstarch is a complex carbohydrate with a low glycemic index. Note that a low fat diet derives about 55% of energy from carbohydrates, which would represent about 180 to 220 grams of carbohydrates per day. Consequently, taking an additional 4 grams per day of cornstarch, which represents only about 2% of the daily intake of carbohydrates, doesn’t significantly add to this expected daily intake. In addition, cornstarch is generally regarded as safe and is a commonly used placebo in the pharmaceutical industry. It’s also known as the so called sugar pill and it’s well known to be an inert and inactive excipient with low nutritional value. So, for these reasons, cornstarch would be expected to have a neutral effect on key biomarkers of patients in the placebo group. And therefore, it’s highly unlikely to be a contributing factor to the unusually large placebo effect that we saw in TRILOGY 1. So, that left us with two possible explanations. First, either this outcome was simply due to chance, which we view as highly unlikely, or something related to how the patients were screened and qualified for the study or how the trial was conducted must have contributed to this unusually high placebo response. Consequently, this is where our investigations are focused. Immediately after reporting our top-line results and with the help of our clinical and statistical advisors, we dug into the data and we noted a very high placebo response at 5 sites out of the total of 54 enrolling sites, which appeared to disproportionately contribute to the overall placebo response and treatment effect. Armed with this information, we immediately launched a full investigation including an audit of these sites as well as a comprehensive review of all data and records from all patients taking both CaPre and placebo in order to identify a possible root cause of the unprecedented placebo effect. It’s important to note that while these five sites accounted for about 36% of the 242 patients enrolled in TRILOGY 1, they accounted for only about 12% of the total 278 patients in TRILOGY 2, with the majority of these patients coming from only three of those five sites. Before discussing the key aspects of the audit, I’d like to comment on the TRILOGY protocol and trial design as several investors have speculated that perhaps it was faulty in some way. I’d like to emphasize that our protocol was very consistent with other omega-3 therapeutic trials conducted in a severe hypertriglyceridemia population. The inclusion and exclusion criteria were virtually identical with these previous studies. With the exception that TRILOGY allowed patients on concomitant fibrates, provided however that their triglyceride levels were stabilized going into randomization. And in fact, only 17 patients in TRILOGY 1 were actually on fibrates and all appear to have been properly stabilized before starting on CaPre or placebo. Now, another difference in the protocol design is that TRILOGY ran for a total of six months or 26 weeks, although our primary endpoint was read out of 12 weeks, which is identical to all of the other omega-3 studies in severe hypertriglyceridemia. However, while the protocols were virtually identical, we did note some differences in the patient demographics, with TRILOGY 1 having a higher proportion of patients with diabetes. We had about 50% of our patients -- were diabetic versus 27% in Amarin’s MARINE trial, and 37% in the EVOLVE trial with EpanoVa. Also, about 43% of the patients in TRILOGY 1 reported concomitant use of the statin, which is actually about the same percentage as what was seen in EVOLVE, but compared to only about 20% of patients who are on statins in MARINE. Furthermore, the sites were monitored by our CRO and by us throughout the TRILOGY 1 trial to ensure adherence to the protocol. Our CRO is one of the world’s largest clinical research organizations and they manage trials for many of the largest pharmaceutical companies in the world. Furthermore, they have a lot of experience conducting trials in hypertriglyceridemia. Now, having said that, despite both, our CRO and the Company having conducted routine patient and site monitoring activities throughout the TRILOGY 1 trial to ensure adherence to protocol following the unblinding of TRILOGY 1 and the start of our investigation, we identified some unexpected and inconsistent findings that we believe may have negatively contributed to the overall top-line results. These findings are now being very carefully explored via a comprehensive and rigorous review of the data and patient medical records by an independent team of auditors. We’re working very closely with our CRO, our principal investigator, Dr. Mozaffarian, who has been extremely helpful, as well as our other clinical and regulatory advisors. We’ve put together a team of experts who are conducting a thorough review of all data and records from patients taking both CaPre and placebo. We’re making steady progress with the audit of the clinical sites and additional post hoc analyses. We believe that we now have a better understanding of what may have contributed to the unusually large placebo response. And we hope that the results of the site audits and the additional data analyses will provide us with confirmation and validation. Once we have all of the information and data compiled, we plan to request a meeting with the FDA to discuss and get their feedback on a proposal to potentially adjust the statistical analysis plan for TRILOGY 2 based on these findings from TRILOGY 1. Now, specifically, some of the key areas of focus for our investigations include but are not limited to the following. First, we want to determine whether all patients, enrolled and randomized in TRILOGY 1, came from a valid study population. This means we need to verify that all patients were properly confirmed by their patient history and fasting triglyceride levels during screening and the study qualification process as having severe hypertriglyceridemia, before they were randomized to placebo or active drug. Second, we need to confirm that the protocol was strictly followed at each of the five sites throughout the entire screening, randomization and trial periods. And related to that, we want to know if all patients not just at the five sites were actually compliant throughout the study, despite indicating to the clinical staff at each clinical site that they actually took the drug, we can verify whether they actually took CaPre by looking at levels of EPA and DHA in their blood at each time point before and during the trial. And finally, we want to verify whether patients inappropriately resumed use of other lipid-lowering drugs after being washed out during screening and/or whether they were properly stabilized on any concomitant therapy prior to the start of the trial. So, as you can see, there are a number of factors that we will continue to pursue and assess. And it’s extremely important that we fully understand and are able to validate what may or may not have contributed to the unusual and unexpected results in TRILOGY 1, and then determine to what extent any of these factors may also have impacted TRILOGY 2. We’re moving as quickly as possible now to complete this work and to secure a meeting with the FDA to discuss the TRILOGY 1 data, and our rationale and proposal for revising our statistical analysis plan for TRILOGY 2. We clearly want to seek FDA guidance prior to unblinding TRILOGY 2. This is very important to give TRILOGY 2 the best chance of success. Once we submit our meeting request to the FDA, which we expect will occur in the second quarter of 2020, the FDA will then have 75 days to respond and then schedule a meeting for us to present our data, ask our questions and for the FDA to provide feedback and guidance. We regret that we’re currently unable to share any additional information and data from our investigations at this time. But, until we can complete our audits and get the FDA’s perspective and guidance, our current information will continue to be preliminary and subject to change. Consequently, we made the determination that it was absolutely critical to first complete a thorough investigation of the data and in turn review this data with the FDA before reporting our findings from TRILOGY 1, and what we might see as the potential implications for TRILOGY 2. Please also bear in mind that we would not be planning a meeting with the FDA, if we did not feel it was justified, based on our current understanding of the data and what we believe impacted the success of TRILOGY 1. Again, we recognize how frustrating this delay is for our shareholders. However, we need to systematically work our way through this investigation and do everything possible to position TRILOGY 2 for success. As a result, we currently anticipate the unblinding of the top-line results for TRILOGY 2 sometime in calendar Q3 of 2020. Acasti will provide further guidance as to the timing of the reporting of TRILOGY data, based on the progress of the audits and feedback from the FDA. Given this timing for the top-line data, we would expect to report key secondary and exploratory endpoints from both TRILOGY 1 and TRILOGY 2 studies, as soon as possible, after the unblinding of TRILOGY 2. Now, as we’ve noted previously, there is established precedent for the FDA accepting post hoc analyses of study results assuming the analyses are transparent, well-justified and well-supported. If the interpretation of the analyses produced as an outcome of the audits and post hoc data review are supported by the FDA and if TRILOGY 2 achieves statistical significance, we believe we may still have a viable path forward to file an NDA for CaPre. Now, switching gears a bit. I’d had a lot of questions recently from shareholders regarding our current cash position and how long it will last us. As you saw in this morning’s press release, as of December 31, 2019, we had $25.7 million of cash, cash equivalents and marketable securities, which we project will provide us with sufficient funding through at least December of this year, December 2020. I also want to emphasize that we currently have no plans to raise additional capital until we have completed our meeting with the FDA, which of course will clarify our regulatory path forward and until we have unblinded TRILOGY 2 and the data is reported. Given our current cash position, we’re not dependent on our share price at the moment. And while the delay has certainly led to share price volatility in the near term, ultimately we believe our success will be measured by the final data that we report. Therefore, we’re taking a long-term view. And we have chosen a path that we believe will maximize our chances with the FDA and in turn maximize value for our shareholders. So, to wrap up, we’re working as quickly as possible to complete the investigations into TRILOGY 1, prepare a meeting package and secure a meeting with the FDA. Based on our Phase 2 data -- or Phase 2 trial results and the preliminary findings of our investigation into TRILOGY 1, I personally remain very confident in the potential of CaPre and look forward to providing further updates as soon as possible. So, with that, I’ll now turn it over to Jean-François Boily, our VP of Finance, to present our Q3 financial results. Jean-François?

Jean-François Boily: Thank you, Jan. Turning to our results for the quarter. R&D expenses before depreciation, amortization and stock-based expenses were $4.2 million for the quarter ended December 31, 2019, compared to $8.8 million for the three months ended December 31, 2018. The $4.6 million decrease was mainly attributable to a $5.6 million decrease in research contracts. That lower research contract expense is primarily attributed to the Phase 3 clinical program getting closer to completion. General and administrative expenses before stock-based compensation expenses were $1.6 million for the three months ended December 31, 2019, compared to $800,000 for the three months ended December 31, 2018. Our loss from operating activities for the third quarter ended December 31, 2019 was $7.9 million compared to a loss from operating activities of $10.7 million for the quarter ended December 31, 2018. The decrease again was due mainly to a reduction in research contract expenses as our Phase 3 clinical program is getting closer to completion. Our net loss for the quarter ended was $15.7 million or $0.18 per share, compared to a net loss of $4.6 million or $0.07 per share for the quarter ended December 31, 2018. The higher net loss was primarily due to the non-cash financial loss of $7.9 million for three months ended December 31, 2019, which was due mostly to the change in the fair value of the warrant derivative liability partially offset by a decrease in the number of warrants. Cash, cash equivalents and marketable securities totaled $25.7 million as of December 31, 2018, compared to $28.9 million for the quarter ended December 31, 2018. The decrease was mainly generated by the operating losses, partially offset by the net proceeds from the sales of share through the established ATM, at-the-market program, and the recent exercise of warrants. As Jan stated earlier, we believe that existing cash will fully fund the Company’s operation through at least December of 2020. Operator, we’ll now open the call to any questions.

Operator: Very good. Thank you all for your remarks today. [Operator Instructions] We’ll hear first from Leland Gershell at Oppenheimer. Please go ahead.

Leland Gershell: Hey, Jan and team. Thanks for taking my question. Just one question for me at this point your discussions with your regulatory and perhaps statistical advisors, wondering to what extent the FDA would be insensitive to a P value that may be more rigorous than point 0.5, perhaps 0.1 or other as requirement for TRILOGY 2 with respect to what’s happened to TRILOGY 1 to a potential approval? Thanks.

Jan D’Alvise: Yes. Thanks, Leland. Pierre Lemieux, can you take that question?

Pierre Lemieux: Well, I mean, it’s obvious that the investigation will need to describe well the phenomenon that was observed in TRILOGY 1. And despite the fact that we don’t -- we might not necessarily see -- show a significant P value, being close to it will be helpful to make the point. And so really, FDA will consider that post hoc analysis, based on what we’ve heard from our regulatory experts. And I think that observation will be important to translate into TRILOGY 2. So, if there’s anything we can do in the SAP of TRILOGY 2 to improve the outcome and meet the primary endpoint. Even though we might be truncated on the number of patients, it’s still a good story. And this is what we’re going to need to do with the FDA once we meet with them. And it’s going to be a review issue, obviously. But still, there’s some precedence where companies can have even non-significant P value and yet still make the point to FDA that there was a, I would say, medical benefit, or maybe some potential post commitment, post approval commitment with the FDA. So, it’s a very good question. It all depends on how the FDA will react to in the feedback that we’re going to get from FDA and also what we could learn from the FDA. I’m pretty sure that they’ve seen that sort of a situation before. And honestly, I think they want to see the success of good product. So, if there’s anything scientifically that we can explain, even though we might be short on the P value for TRILOGY 1, and the TRILOGY 2 is turned out to be positive, it is still a good story and a possibility to improve the product.

Leland Gershell: Yes. I guess, [Technical Difficulty]

Jan D’Alvise: Leland, did you have any further question?

Operator: Leland, I believe we lost connection with your line. [Operator Instructions] All right. He’s re-singled. Sorry about that. Mr. Gershell. Please go ahead. Your line is reopened.

Leland Gershell: I wanted to just push a little further on that question. Just with regard to the level of significance in the P value that you ultimately get from TRILOGY 2, to what extent would it matter, should you be more stringent, let’s say at a P 0.1 [ph] or better level versus between P 0.1 [ph] and P 0.5 [ph] in TRILOGY irrespective of what ultimately transpires with your post hoc and site review for TRILOGY 1?

Pierre Lemieux: Obviously, TRILOGY 2, that’s why we’re taking some very good time to exchange with FDA. So for us TRILOGY 2, the likelihood of getting an approved product is really -- will really base on the success of TRILOGY 2. So, what we’re looking for is a P value of 0.05. And so that’s what we’re looking for. So, as I said before, you can have one trial that is positive. And the second one might not be -- or the one that we’ve seen with TRILOGY 1 is not as is. But, if we start explaining why, the combination of the two, because at the end of the day what we’ve been requested to do was to have three Phase -- two Phase 3 trials. And it’s exactly for that reason that you see reproducibility. But, there might be an explanation for not being able to reproduce TRILOGY 2 if that turns out to -- if that trial turned out to be positive. So, I think there’s - as I said, we do have precedence that gives us some I would say confidence or hope that that we can still have an approvable product despite this hiccup in TRILOGY 1.

Operator: Thank you, Leland, for asking the question. Sorry about the mix up with your line today. Next, we’ll hear from the line of André Uddin with Mackie Research. Please go ahead. Your line is open.

Toby Ma: This is Toby for André. I have two questions. First, I was wondering, Jan, if you can talk about the placebo effect in the other 49 normal sites in TRILOGY 1? Was the true reduction rate within the plus minus 10% of the design? And my second question is in terms of FDA meeting, what are you hoping to discuss with the agency? Thank you.

Jan D’Alvise: Okay. Yes. Thanks, Toby. I’ll take the first question and then let Pierre comment on the strategy and plans for the FDA meeting. I can simply say that we have not disclosed yet the details of the data in the other 49 sites. Obviously the focus of our investigation is in the five sites. But, this is a complex analysis and we don’t want to report any information that’s premature. So right now, we really want to finish this investigation and make sure we have the full benefit of the audits and all of the post hoc data analysis before we release any more specific data on either the 5 sites of the total 54 sites. And Pierre, do you want to comment on the objective for the FDA meeting?

Pierre Lemieux: Yes. The FDA meeting is really there to help us see through this -- the finding and for reconfirming with the audits. I think, it’s really, again unusual to see a very strong placebo effect. And for us, we have some, I would say, ideas of what might, I’ve explained this and I think Jan, alluded to some of those possibilities in script. And so obviously this is what we want to share with the FDA, share the findings, and we might learn as well from FDA. So, I think it’s obvious for us that it’s very unusual situation and it really deserves a meeting with FDA. So now, FDA has seen that sort of product before and they probably know more than we do maybe on some of the raw data that they’ve seen. And this is what we want to share with the FDA. So, we want to have the benefit of picking their brain and having them I would buy in our strategy. And what we’ve said in the -- today is the possibility of modifying the statistical analysis plan. So, as you know we have pre-established a way to look at the data and analyze data. And so, based on the information we have, we might have the possibility to modify slightly the SAP, based on the observation, not necessarily to meet -- to get a positive trial. But I think it would be justified for us to do so. And especially that the SAP for TRILOGY 2 was not I would say filed officially. And I think for that reason, actually, it was good -- even though it’s the same protocol for each trial for TRILOGY 1 and 2, TRILOGY 2 -- the SAP for TRILOGY 2 was still not available to the FDA. And now that if we have this TRILOGY 1 finding on usual placebo effect, I think it’s really normal for us to discuss the possibility of changing the SAP. So, it’s going to be, I would say, a very interesting discussion with FDA to see how we can improve and integrate may be what would have explained the failure of TRILOGY. And yet with TRILOGY 1 if you -- if we by doing some post hoc analyses, we can convince the FDA that we’ve put our finger on the explanation, then we have -- as I said before, we have a path forward to keep going with TRILOGY 2. So, it’s really good practice on our part. We could have I would say modified the SAP without consulting with the FDA. But, I think it’s very prudent on our part to do so, because it’s unusual. I think, it’s really out of the extraordinary here. So, that that was our -- and it was also, as you can imagine, discussed internally intensively with our regulatory experts. And they all agreed, including Dr. Mozaffarian as well that it really deserves a good meeting with FDA.

Toby Ma: Okay. I just have a one more quick question. So, is it fair to assume you would have reported the outcome of the FDA meeting ahead of the TRILOGY 2 top line results?

Jan D’Alvise: Yes. I don’t know that we can comment on that yet at this point, Toby. It’s going to depend on the timing of the FDA and what the FDA says about the approach to the statistical analysis plan, and then, of course, the timing to unblind TRILOGY 2. So, I think at this point, we can’t comment on that. But, we’ll certainly provide an update as we move forward.

Operator: And to our audience joining today, that concludes our Q&A session in the interest of everyone’s time today. I will turn the floor back to our management team for any additional or closing remarks.

Jan D’Alvise: Thanks, Tim. And I just would like to wrap things up here briefly by saying, as always, of course, we want to thank everyone again for joining us today. And we look forward to providing further updates, as soon as possible. So, thank you, and I hope everybody has a good Valentine’s Day. All the best.

Operator: Ladies and gentlemen, this does conclude today’s business update, and we thank you all for joining. You may now disconnect your lines, and we hope that you enjoy your weekend.