Earnings Transcript for NLTX - Q2 Fiscal Year 2017

Executives: Brendan Payne - Associate Director, Investor Relations David Main - President & Chief Executive Officer Barbara Troupin - Chief Medical Officer & VP, Clinical Development & Regulatory Affairs Kamran Alam - VP, Finance & Chief Financial Officer

Analysts: Paul Matteis - Leerink Partners Bill Tanner - Cantor Fitzgerald Alan Carr - Needham & Company Arlinda Lee - Canaccord Genuity

Operator: Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to the Aquinox Pharmaceuticals Midyear 2017 Conference Call. At this time, all participants are in a listen-only mode. Following the conclusion of the prepared remarks, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, today’s conference call is being recorded. At this point, I would like to turn the call over to Mr. Brendan Payne, Associate Director of Investor Relations.

Brendan Payne: Good morning and thank you for joining us. On behalf of Aquinox, I’d like to welcome everyone to our conference call to discuss financial and operational results for the second quarter ended June 30, 2017. Joining me today are Mr. David Main, Chief Executive Officer; Dr. Barbara Troupin, Chief Medical Officer and Vice President of Clinical Development and Regulatory Affairs; and Mr. Kamran Alam, Vice President of Finance and Chief Financial Officer. During today’s call, Mr. Main will begin with a business update based on events that transpired in the second quarter of 2017, and an update on the current status of our LEADERSHIP 301 trial in interstitial cystitis bladder pain syndrome or IC/BPS. Then Dr. Troupin will discuss our clinical development activities, and Mr. Alam will then wrap up with a discussion of our Q2 2017 financial results. We will conclude the call with a Q&A session. One note to make at the beginning of today’s call is that, you would have seen in today’s press release that USAN has assigned generic name of Rosiptor to AQX-1125. Going forward, we will be referring to AQX-1125, primarily by that name. Just a reminder that today’s conference call will include forward-looking statements under the Private Securities Litigation Reform Act of 1995, including statements regarding our research and development plans and financial outlook. Actual results may differ from those indicated by these forward-looking statements due to numerous factors including those discussed in the risk factor section of our most recent 10-Q and other SEC filings. Our expectations and assumptions could change. While we may elect to update these forward-looking statements in the future, we specifically disclaim any obligation to do so even if our views change. And with that, I’ll now turn the call over to David.

David Main: Thank you, Brendan, and good afternoon, everyone, and thank you for joining us. As described in our press release earlier today, the first-half of 2017 saw strong enrollment progress in our LEADERSHIP 301 trial with Rosiptor in IC/BPS. In particular, our team has very effectively increased the number of initiated trial sites from 65 in March to over 100 today, and that’s now ahead of our target. So during the same period, we’ve tripled our enrollment and are now effectively at 50% of the minimum number of females needed to complete enrollment. At the same time, we’ve completed a rigorous analysis of potential additional disease area of opportunities for rosiptor and are pleased to announce their plan to initiate a Phase 2 trial in Chronic Prostatitis, Chronic Pelvic Pain Syndrome in men, or CP/CPPS, previously referred to as nonbacterial chronic prostatitis. Clinical trial activities will commence in the second-half of this year, while we anticipate doing the first patient in the first quarter of 2018. So you’ll recall LEADERSHIP 301 is investigating the ability of 200 milligrams or 100 milligrams oral once daily rosiptor to reduce bladder pain in patients with IC/BPS. This is a three-arm multicenter, randomized, double-blind, placebo-controlled Phase 3 clinical trial being conducted in Canada, the United States and Europe. LEADERSHIP 301 is designed to enroll up to 600 men and women combined, but we plan to close enrollment once we surpass a minimum of 300 women. The primary endpoint is the difference in the change from baseline in the maximum daily pain based on an 11-point numeric rating scale at 12 weeks record by electronic diary. All analyses in men are considered exploratory. This first 12 weeks is referred to as the treatment phase, and the trial also includes the 52-week extension period, where patients treated with rosiptor in the treatment phase will continue at their current dose, while placebo patients are randomized to one of the two doses of rosiptor. This extension contributes towards our one-year ICH safety database requirements and affords all participating patients the opportunity for treatment with rosiptor. So as of today or as of yesterday, we had 108 trial sites initiated an opened for screening across 12 countries with 78 of those in North America. 66 of those are approximately 63% are located in the U.S. alone. Our target from the outset of LEADERSHIP 301 was to have more than 100 sites in total enrolling subjects and we’ve achieved that goal. Thus far, a total of 195 subjects have been enrolled, with a little more than half of those in North America, 113 of which or roughly 50% have already completed the treatment phase and approximately 97% of those completing treatments have progressed in the extensions period. Up to this point, approximately 79% of patients enrolled have been women. Screened failures, as anticipated, given our stringent pain in urinary frequency enrollment criteria have been consistent with our LEADERSHIP 201 trial at approximately 45%. We’ve seen a very low dropout rate of enroll subjects in the treatment period of about 9% thus far, which is less than what we saw in our LEADERSHIP 201 trial. The LEADERSHIP 301 trial has been powered at 90%, allowing for a dropout rate as high as 15%. Taking into consideration all of the updated figures above, we now project that enrollment will be completed in early 2018, allowing top line data reporting from the LEADERSHIP 301 trial in the third quarter of 2018. All other activities to support the potential registration package for rosiptor in IC/BPS are proceeding on schedule. For example, we recently completed our Absorption, Distribution, Metabolism, and Excretion study and we plan to present the data from this trial later this year. We continue to engage with the FDA and other regulatory authorities to discuss the safety and efficacy trials and analysis required for approval of rosiptor in IC/BPS in the U.S., Europe and other targeted countries. And we continue to evaluate the design in a number of additional trials that we will conduct in order to meet ICH patient exposure guidelines and demonstrate the safety and efficacy of rosiptor in support of a potential NDA filing. We expect the data from the LEADERSHIP 301 trial, as was as further discussions with regulatory authorities to be fundamental in determining the number designed in size of these additional trials, and we look forward to updating you on those as we come to those points in a road. So at this point now, I’d like to turn call over to our Chief Medical Officer, Dr. Barbara Troupin, who will add more detail on our 301 progress, as well as walk through our decision to move forward in CP/CPPS. Barbara?

Barbara Troupin: Thank you, David. Since we last provided an update, the LEADERSHIP 301 team has made substantial progress in increasing the number of active sites, intensifying a broad range of recruitment activities and augmenting the number of potential subjects being screened by sites, with a net result of the significant increase enrollment numbers in the last couple of months. We have achieved this not only through the hard work and proactive focus of the clinical operations and development teams, but contributions from medical and commercial in mining and implementing what we have learned about the patient experience in IC/BPS. We know that in this disease often with a delayed time to diagnosis and a lack of current treatment options, the patients commonly suffer for a long time with limited relief, which is often physically and physiologically debilitating. With that frustration, many of these patients are not routinely accessing medical care and it’s thus been somewhat more challenging to recruit. In our efforts to partner on a grass roots level with patients and their advocates, we have launched several field-based activities to understand this landscape better and engage the patients where they are. This is facilitated not only increases in subjects being aware of our trial directly, but also interactions with the community clinicians who care for them and can potentially refer them to study sites and an overall enhanced feasibility through advocacy and support groups. These learnings, which continue from the patients, clinicians and investigators, advocacy groups and our KOL advisors contribute to optimizing our understanding of the disease, clinical trial execution strategies and the disease state landscape. These tactics will continue to be refined and augmented, as we continue to expand our development program activities with upcoming Phase 2 and 3 trials with an eye towards an NDA, which addresses the true unmet need in IC/BPS. As noted previously, IC/BPS is a chronic disease of the urinary bladder characterized by the hallmark symptom of bladder pain, plus one or more additional urinary symptoms, including urinary frequency, urgency or nocturia, with no known cure for IC/BPS and no new oral treatment approved by the FDA in 20 years, relief of IC/BPS symptoms remains a largely unmet medical need. The current paradigm of off-label use of drugs and other treatment regimens can be cumbersome, invasive, provide only temporary relief often with a delayed onset, a modest benefit and/or and adverse side effect profile that many patients find them satisfactory. The prevalence of IC/BPS is estimated to be greater than 5 million people in the U.S. with the belief that the disease is both underreported and under-diagnosed. Having an oral therapy with robust safety and efficacy data available for use with first line dietary life style and behavioral modifications proving adequate could be instrumental in helping to close the treatment gap that exists today for patients with IC/BPS. To the best of our knowledge, we continue to have the most advanced clinical program in IC/BPS with the only oral therapeutic program in late-stage development. Additionally, with its fundamental mechanism of action as a SHIP1 activator, we have long belief that rosiptor may have therapeutic potential beyond the treatment of IC/BPS. With encouraging results in LEADERSHIP 201, we believe that other disease states could potentially benefit from rosiptor’s drug characteristics and therapeutic profile. With that in mind, we also announced today the selection of Chronic Prostatitis/Chronic Pelvic Pain Syndrome or CP/CPPS, as the next therapeutic indications we’ll be pursuing with rosiptor. Our team is very excited to be moving ahead with rosiptor in CP/CPPS. We considered several disease indications, where rosiptor may have therapeutic potential based on the mechanism of disease, both in the urology and gastrointestinal therapeutic areas to arrive at our selection of CP/CPPS. This decision was based on rosiptor’s mechanism of action and available preclinical data in CP/CPPS. Our assessment was supplemented by discussions with clinicians, a review of clinical study designs in costing regulatory considerations and commercial input. CP/CPPS is a chronic pain syndrome characterized by pelvic pain in men without relation to bladder filling or emptying, which is an important point which helps differentiate CP/CPPS from IC/BPS. In addition to pain, patients with CP/CPPS also experience one or more urinary symptoms, such as frequency, urgency or nocturia. The majority of men with CP/CPPS will have some degree of underlying acute or chronic inflammation. There is not yet a clear understanding in the scientific community of the initial causation of the inflammation or the exact role it plays in prostatitis. However, the presence of an inflammatory component was a key factor in our selection of CP/CPPS, as the next disease state to explore for rosiptor. Other paradigms between IC/BPS and CP/CPPS are that CP/CPPS is also treated by the same urology community. It is similarly viewed as a challenging to treat condition with a considerable unmet medical need and there are currently no available FDA approved treatments for CP/CPPS. In the U.S., approximately 1 million patients with CP/CPPS are diagnosed and treated by urologists, thus making it a good fit with our overall commercial and business development strategies. We believe that many of the operational learnings from IC/BPS are also applicable to the new Phase 2 study being designed in CP/CPPS. This proof-of-concept in CP/CPPS will be a randomized, double-blind, placebo-controlled trial and approximately 80 symptomatic men and will exclude men who have an underlying infectious etiology to their prostatitis. The endpoints will be primarily patient reported outcome measures to address pain and symptoms. We presently anticipate initiating activities to start the trial in the fourth quarter of this year, with the first patient dose sometime in the first quarter of 2018. We look forward to sharing more information on the disease and the trial as we get closer to initiation. In summary, the past quarter has been very productive. We are pleased with the progress made with LEADERSHIP 301, resulting from a focus on site initiation and patient recruitment activities. We are likewise excited to be adding a new clinical indication to our development activities with a soon to commence trial in Chronic Prostatitis/Chronic Pelvic Pain Syndrome. With that, I’ll turn the call over to Kam Alam, our Chief Financial Officer to discuss our second quarter 2017 financials. Kam?

Kamran Alam: Thank you, Barbara. Cash, cash equivalents, short-term and long-term investments totaled $131.3 million as of June 30, 2017, compared to $153.1 million as of December 31, 2016. The decrease was primarily the result of the ongoing expenditures related to our LEADERSHIP 301 clinical trial with rosiptor in IC/BPS. Research and development expenses for the second quarter of 2017 increased to $10.5 million from $9.2 million in the second quarter of 2016. This increase was primarily driven by increased clinical activities as we continued our LEADERSHIP 301 clinical trial. General and administrative expenses for the second quarter of 2017 increased to $3.5 million from $1.8 million in the second quarter of 2016, with the increase primarily driven by higher personnel-related costs and pre-commercial and market assessment activities. Net loss for the second quarter of 2017 was $13.8 million, compared to a net loss of $10.9 million in the second quarter of 2016. This increase was primarily driven by increased operating expenditures as we continued our LEADERSHIP 301 clinical trial. Overall, as of the six months ended June 30, 2017, our cash resources are anticipated to take us beyond top line data from the LEADERSHIP 301 trial and see us into 2019, as well as funding additional clinical development manufacturing preclinical and pre-commercial and market assessment activities. With that, I’ll turn the call back over to David.

David Main: Thanks, Kam. In closing, we’re encouraged by our current state of enrolment in LEADERSHIP 301 and the advancements we are making on multiple other fronts, including the move into CP/CPPS with Rosiptor. We anticipate the next announcement on LEADERSHIP 301 will be completion of enrolment and we’ll have additional details on our trial plans with Rosiptor and CP/CPPS closer to when patient recruitment commences. As one alert to everyone, we are in the process of planning a KOL and R&D event in New York, open to investors tentatively scheduled for October with additional specifics to be announced soon. In the mean time, we acknowledge and appreciate the support of our investors and look forward to the reporting of key milestones. So thank you all again for joining us today and we look forward to updating you on our next call. So, operator, can we now open the call for questions?

Operator: [Operator Instructions] And our first question comes from Paul Matteis with Leerink Partners. Your line is now open.

Paul Matteis: Great, thanks so much. Congrats on all the progress, I appreciate it. I just had a few questions on LEADERSHIP. The first one is, can you remind us how you are homogenizing the patient populations in each group with respect to experience with other medications like Elmiron or the concomitant use of opioids or any other treatment techniques that could be a compounding variable in the results?

Barbara Troupin: Yes, certainly. So the way the trial is structured and how enrollment subjects works is, patients can be on any of the background therapies that you discussed, short or long-term opioid therapy, they were long asking opioid therapy. So we are adding on to therapy whatever is the therapy that they are currently on which is insufficient to relieve the symptoms of their disease.

David Main: And maybe I’ll just add to that, just more specifically recalling that to be eligible for the study you have to have a relatively high pain score that’s been consistent that we had in 201, as well as high urinary symptoms. So as Barbara just said, our belief is that when you are having uncontrolled symptoms of pain and urinary symptoms, the whatever background medication you are on is not adequately controlling the disease and so it’s an added benefit from 1125 and that’s exactly how 201 was designed as well.

Paul Matteis: Okay, it makes sense. And then separately, David and team, can you talk about the analysis that’s been done in man, you said it was exploratory, is there any reason to believe that the drug wouldn’t work in male patients and I guess how would you – what’s your kind of preconceived notion for how you didn’t perforate diverging results in men and women where you didn’t show a significant of a clinical benefit in male patients?

Barbara Troupin: So previously in the 201, the LEADERSHIP 201 trial, that study included women-only, so we don’t have prior experience in men, which is why the focus of the analysis for 301 is on female subjects only. However, we are open to enrollment with men, about 20% men in the study as it stands. So we don’t have any specific reason to believe that they would respond differently. We just don’t have a way to power or predict exactly what their response would be. Our thesis is it’s the same, but the way we pre-specify the primary end points are in the female patient population and the analyses in men are exploratory and we expect that with comparable data that the gender differentiation will be removed in future trials.

Paul Matteis: Okay thanks. And if I could just ask one on chronic prostatitis, could you just remind us, let’s say the past five to 10 years have there been any notable drug approvals in this category and has anyone else already clearly established an FDA regulatory path and validated registrational end points? Thanks so much.

Barbara Troupin: Yes, so there are no proved drugs for chronic prostatitis, so there isn’t a precedent to exactly to follow. I think many of our learning is from CPPS actually will help us understand, it would be with the same division and so our understanding and discussion of what that would look like, we’ll have the learnings from our current development program in that relationship, but there isn’t a specific precedent, part of our selection of this disease state is the fact that it is an unmet medical need based on the fact that there aren’t established treatments for the disease.

Paul Matteis: Okay, got it. Thank you very much.

Operator: Thank you. And our nest question comes from Bill Tanner with Cantor Fitzgerald. Your line is now open.

Bill Tanner: Thanks for taking the questions. I had a couple of them, either for David or Barbara. Maybe Barbara you mentioned some preclinical animal models for BPS or CP/CPPS that would lead the company to believe there could be some efficacy for 1125, just wondering if you could shed a little bit of light on that and then I have a couple of follow-ups please.

Barbara Troupin: Yes, I mean there is one pretty good model of prostatitis, a rodent model in prostatitis and we’ve looked at that and see data that’s highly suggestive of a benefit in that setting. And I don’t think we’ve shared that specifically, but that could be something that we could incorporate into future calls or updates. But the preclinical data is suggestive that there could be a benefit in this indication.

David Main: Just like Barbara was describing on the call, clinically there is parallels between learning in IC/BPS and CP/CPPS is the same as the preclinical models. The preclinical models there is where you just carry gene into the prostate to induce inflammation and then you can do studies on both the prostate, but more importantly see if the animals under treatment can tolerate pain better, which is very similar to a preclinical model of cystitis, where you use chemotherapy to induce hemorrhaging and pain in the bladder. So those results we saw in that model, again were just as encouraging to us is the preclinical results we find in the cystitis model. So we feel like it all hangs together.

Bill Tanner: Got it. And then when the data come out for LEADERSHIP 301 and if you do see whatever the data are in the men in that study, what could be reasonable read-through to CP/CPPS, meaning that it looks like it works in men, do you feel a lot more comfortable about the prospects for its success and CP/CPPS it does and do you feel like it moves back to the drawing board?

David Main: The results from 301 can be – it can be a whole bunch of things other than just the men versus women. I would say it’s a different organ, so that that’s definitely adds different risk for the fact that’s part of a whole chronic pain syndrome area, we think there’s also some similarities. So, yes, we do think that there is – this is the reason why we chose it is that it’s a very nice fit together by the same urologists, but there of course there will be some differences about the disease that may cause a difference in response to the drug.

Bill Tanner: Right, right. And then I guess the last thing is, obviously I think both of you guys mentioned learnings from what’s going on with BPS/IC or IC/BPS rather, what’s the likelihood or prospects that you might be able to accelerate then development in CPPS meaning maybe go from a smaller Phase 2 to a Phase 3 and again I guess this is all going to be data-driven, but I would assume that not only from a call point standpoint there could be synergies, but it seems like from a clinical trial execution there could be benefits from what you’ve done previously and just curious if you might be thinking that the CPPS opportunity could materialize faster than IC/BPS?

David Main: I think you said the right word, it’s all data-driven. Our number one priority is to advance the IC/BPS program through the registration as quickly as possible, so that’s until we have data to – for other areas, that’s the number one priority for the company.

Bill Tanner: Got it, okay thanks very much.

Operator: Thank you and our next question comes from Alan Carr with Needham & Company. Your line is now open.

Alan Carr: Good morning, thanks for taking my questions. I wonder if you can comment a bit on what sort of impact this might have on the announcement that you updated in 3Q, what this does to your schedule for the second Phase 3 trial and NDA submission? Thanks.

David Main: Well, we haven’t previously guided when we start, but we believe that we have to have that data from the conclusion of 301 and at least need a quarter or so beyond that to then to be able to make some decisions based upon the data to finalize the design. In there were also – you will make a decision of whether or not there is value in having a meeting with the regulatory agencies before commencing the next study. So we – what our team is doing is doing all of the pre-work to be as ready to move as quickly from one to the other. But once we have the data, then we’ll make a decision upon what finalization do those additional trials need to be made and whether or not a conversation with regulatory authorities would be beneficial before starting next studies.

Alan Carr: Okay, thanks. And then around a number of sites, I think you commented before that there might be a maximum number of quality sites in the U.S. and Europe, is that still your feeling that it’s around a 100 and there’s not much, I guess, it wouldn’t be appropriate to go beyond that?

David Main: Well, I think we believe that there is going to be some match moment. We always wanted for this study to have at least 100, we’ve actually identified even beyond that, because at some point you start to learn some are productive, those get dropped off and you add in new ones. I don’t think we have an exact number, but I think as we are investigating we’re starting to learn about new sites. We probably say at this point that probably the upper limit for all quality site to be involved with a number of trials would be somewhere in the 150 to 200 range above that would start taking us into jurisdictions where we’re less confident on the medical practice or don’t have the experience.

Alan Carr: All right. Thanks very much.

Operator: [Operator Instructions] And our next question comes from Arlinda Lee with Canaccord Genuity. Your line is now open.

Arlinda Lee: Hi guys, thanks for taking my question. I guess it clearly is about prostatitis [indiscernible], how long does it take for them to get [indiscernible]?

David Main: Arlinda, unfortunately we couldn’t hear a single thing you said, we know you’re there, but we couldn’t hear the question.

Arlinda Lee: Okay. So, sorry, is this better?

David Main: Yes.

Arlinda Lee: Hello, okay. I guess on the chronic prostatitis, a new indication that you’re starting the Phase 2 in, can you provide any additional information about what patients that’s currently are getting once they’re diagnosed? How long does it take for them to get diagnosed? And what typically causes this and any natural history information? Thanks.

Barbara Troupin: Yes, thanks Arlinda. So, as patients present with kind of pain and symptoms what they’re often treated with initially is antibiotics. And so it’s viewed as whether it’s infectious or noninfectious a lot of the patients are still getting antibiotics and so that that maybe the first, second, third set of treatments that they get. Before somebody looks a little bit more closely at it. So I think perhaps the delays may not be as long as we see with IC/BPS. But again since there aren’t other treatment options they may move onto [indiscernible] or range of pain treatments. But I think, because there are fewer – there are no options available specifically for this. There is a little bit of swirl around getting treatments for what there are treatments for rather than for the disease that the patients have. And so I think again it’s there is a delay in diagnosis. But even with the diagnosis, because there aren’t specific treatment options, it’s usually treating symptoms of pain primarily. And again, thank you David. The other things that we see primarily is because there is some overlap in symptomatology risk BPH that many of these men will also in the course of treatment get alpha blockers.

Arlinda Lee: So maybe, I’ll just add. So again, not dissimilar from IC/BPS. This is why the reasons why we like this indication. We think we’ve learned a lot. There’s no approved drug. So we think that there’s a real opportunity for something that works here to really become a treatment of choice. And what we’re seeing is that, again, most of these patients are just being empirically treated with painkillers or alpha-blockers or antibiotics really is a way to try to – if they respond to one of those drugs, that would help to solidify the diagnosis, if they’re not responding, then it’s a diagnosis by exclusion, you sort of ruled out some of those other potential causes. And then now it’s believed that it’s – this chronic condition not related to BPH, not related to infection, I mean, inflammatory condition likely plays a role. So this is where we see a drug like rosiptor, which has demonstrated the ability to reduce inflammation, but importantly, reduce pain associated with these kind of conditions as a very good fit currently.

Operator: Thank you. Ladies and gentlemen, that does conclude our Q&A session. I would now like to turn the call back to Mr. Brendan Payne for any further remarks.

Brendan Payne: We just like to say thank you again to all our investors for their support and continuing to track the company as we move along. As David mentioned, we are working hard towards a potential KOL event in October and we’ll provide more information on that as we get closer. But in the meantime, we look forward to speaking with you again in our Q4 call 2017 in March of next year.

Operator: Ladies and gentlemen, thank you for participating in today’s conference. This concludes today’s program and you may all disconnect. Everyone have a wonderful day.