Earnings Transcript for NLTX - Q4 Fiscal Year 2016

Executives: Brendan Payne - Senior Manager, IR David Main - CEO Barbara Troupin - VP, Clinical Development and CMO Kamran Alam - CFO

Analysts: Paul Matteis - Leerink Partners LLC Bill Tanner - Cantor Fitzgerald

Operator: Good day ladies and gentlemen, and welcome to the Aquinox Pharmaceuticals Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference Mr. Brendan Payne. Sir you may begin.

Brendan Payne: Great. Good afternoon 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 year ended 2016. Joining me today are Mr. David Main, Chief Executive Officer; Dr. Barbara Troupin, Vice President of Clinical Development and Chief Medical Officer, and Mr. Kamran Alam, Vice President of Finance and Chief Financial Officer. During today's call, Mr. Main will begin with the business update based on events that transpired in the last quarter of 2016, and an update on the current status of our LEADERSHIP 301 with AQX-1125 in interstitial cystitis bladder pain syndrome, which we will henceforth refer to as IC/BPS. Mr. Alam will then discuss our year end 2016 financial results, and we will conclude the call with a Q&A session. 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 sections of our most recent 10-K 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. Good afternoon everyone, and thank you for joining us. As described in our press release earlier today, in 2016, we achieved several milestones towards advancement of AQX-1125 in IC/BPS. Most notably, in September of 2016, we initiated LEADERSHIP 301, our first Phase III clinical trial with AQX-1125 in IC/BPS. LEADERSHIP 301 is investigating the ability of 200 milligrams and 100 milligrams oral once daily AQX-1125 to reduce bladder pain in patients with IC/BPS. It's a three-arm multicenter randomized double-blind placebo-controlled Phase III trial enrolling a minimum of 300 patients in Canada, the United States, and Europe. The primary endpoint is the difference in the change from baseline in maximum daily pain score based on an 11-point numeric rating scale or NRS scale at 12 weeks recorded by electronic diary. The trial also includes a 40-week extension period contributing towards our ICH safety database requirements and affording all participating patients the opportunity for treatment with AQX-1125. As of today, we've received regulatory approval to initiate the LEADERSHIP 301 study in nine countries including the United States and Canada, but half of those countries have just come on Board here in the first quarter. While many of our assumptions going into the Phase III to improve enrollment over what we experienced in our Phase II LEADERSHIP 201 trial have been correct, speed of site initiation is definitely lagging. The principal reasons for the delays in site initiation have been largely administrative. For example, some of the European countries have taken longer to review than their stated review times. We've had some challenges in scheduling of ethics committees, and even contract negotiations at sites have taken somewhat longer than we originally anticipated. What's the good news though is, however, one sites are fully up and open, our per site per month overall enrollment rate has been as anticipated. Importantly, our site level enrollment rate is more than double the rate that we experience in our Phase II LEADERSHIP 201 study. To-date, the screen failure rate has also been as expected and similar to LEADERSHIP 201. And I think it's worth noting that in comparison to Phase II, we have enrolled just over 60 patients to-date in six months whereas in Phase II that took us almost a year and a half. But to be frank, the fourth quarter of 2016 was a very slow period for site initiation and patient enrollment. It's really been since mid-January of this year that we're starting to see the pace that we expect. Per our press release from earlier today, as of March 8th, 2017, we had a total of 64 patients enrolled and while we're considerably behind our target, the majority of these patients were enrolled in the past two months and importantly, the rates of both enrollment and screening are on the rise. Over the months ahead, we'll have a clear picture as to the sustained enrollment rates and we will be providing shareholders another update on enrollment and topline results projections at our mid-year 2017 call in early August. The 301 trial is our number one priority and we're taking active steps even further boost enrollment rates at already opened sites through cytosine [ph] strategies, but of course, as mentioned in the press release, we're also still adding sites in the countries where we have approval and we are also considering adding additional countries. However, as I've stressed before and I want to stress again, we are being very selective to add only countries and sites where we have a high degree of confidence in the quality of sites and the patients they will enroll. While readjusting our timelines is not our preferred approach, we believe for the long-term benefit of the program, this is much better than adding sites and in countries merely to speed enrollment. All of the other activities that we've previously guided you on to support the potential registration package for AQX-1125 in IC/BPS are proceeding on schedule, such as manufacturing and [Indiscernible] studies. Another example was on January 27th, we walked the database on our Human Absorption, Distribution, Metabolism, and Excretion study with AQX-1125. Data from this trial will be available later this year. Now, again, I think to put all this into context, especially for those of you may be new to the Aquinox story or unfamiliar with IC/BPS, it is reminding you that this is a chronic debilitating inflammatory disease of the bladder, characterized by pelvic pain and increased urinary urgency or frequency. The disease is believed to arise from a degradation of the interlining that protects the bladder wall from the contents of the urine. While the underlying cause is generally unknown, IC/BPS is primarily recognized as a disease suffered by increasing numbers of women, though the disease has recently been reported to be underreported and either underdiagnosed or misdiagnosed in men. The disease manifests as a chronic pain that is somewhat relieved by bladder voiding [ph] as well as frequent urinary urgency and nocturia or night time awakenings. There is no known cure for /C BPS and there's no new oral treatment approved by the FDA for IC/BPS in the last 20 years. Most drugs that are tried for these patients are prescribed off-label and many available treatment regimens today are cumbersome, invasive, or only provide temporary benefit with a protracted time to onset of action. We believe AQX-1125 has the potential to address the significant unmet medical need for a novel oral therapeutic that not only reduces symptoms, but also may modify the underlying disease process and of course, this is something that will have to stay long-term to really understand. What is important that it's also convenient for patient as a once daily well-tolerated oral pill AQX-1125 could represent an easier and more convenient option for patients relative to current therapies. Now, in light of today's news, I want to keep reminding everyone that we believe we have a very strong competitive advantage and lead in this clinical indications and we're not aware of any other oral therapies being studied in Phase III studies at this time. The prevalence of IC/BPS is estimated to be greater than 5 million people in the United States and it's our belief based upon commission research that with no definitive diagnostic test and limited effective treatments for diseases both underreported and underdiagnosed. With an effective oral once daily therapy, our market research supports diagnosis and treatment rates escalating with the advent of a novel effective therapy, translating into a product opportunity that we estimate could exceed $1 billion in the United States alone. Now, beyond our development activities, another key event in the fourth quarter of the year was in the fall of 2016 on September 23rd, we closed a public offering with gross proceeds of $75.4 million at a price of $12.25 per share. LEERINK Partners, Canaccord Genuity, Guggenheim Securities acted as joint book running managers for the offering, while Needham & Company acted as lead manager. The proceeds of this financing are intended not only to further advance our Phase III program with AQX-1125 in IC/BPS, but also to explore other potential indications with 1125 and a portion of the proceeds is also being directed to accelerate next generation compound development and we think by mid-year, we'll be able to say more on both of these activities. We also think it's worth again acknowledging the strong support we've had from our existing shareholders in making this offering possible. Now, related somewhat to our ongoing research into potential next-generation compounds and additional SHIP1 activators on December 3rd, Prof. Graham Packham Professor of Molecular Oncology within Medicine at the University of Southampton presented very compelling data at the 58th American Society of Hematology Rash Meeting, demonstrating that with one of our next-generation SHIP1 activators, the in-vitro response of malignant human B cells to a normal novel chemical activator of SHIP1. Dr. Packham's work supports the hypothesis that that activation of SHIP1 may provide a novel therapeutic strategy to suppress malignant human B cells. That abstract can be found on either the ASH or Aquinox websites. And as I mentioned, as further progress is made, we'll be definitely keeping everyone apprised of our activities. Now, that pretty summarizes the fourth quarter and early events this year. And before I pass on the discussion over to Kam to discuss our financial results, in October 2016, we welcome Dr. Barbara Troupin to the Aquinox team as VP Clinical Development and Chief Medical Officer. Barbara is with us here today for the call and will participate in the Q&A session. Barbara has only been with us a few short months, but is a welcome addition to our Executive team to lead our overall clinical and medical affairs strategies as well as plans for future development and potential commercialization of AQX-1125. Now, I thought for today, given Barbara's recent appointment that I should provide a full review of our programs, but you can all expect going forward, that you will be hearing a lot more from Barbara on the activities she's overseeing. It's also worth pointing out by way of background, Barbara's most recently served as Senior Vice President and Chief Medical Officer at Apricus Biosciences, where she led the development and execution of clinical strategy for three development programs including Vitaros for the treatment of erectile dysfunction, which, of course, is in urology space and before that she was with VIVUS and played a pivotal role in the approval of an anti-obesity drug, an area with notoriously difficult clinical and regulatory requirements. So, we believe that her track record of the building KOL and patient advocacy relationships, defending regulatory submissions, and overall success in clinical strategy will be invaluable as we move forward. So, welcome Barbara.

Barbara Troupin: Thank you, David and I am very pleased to be here at Aquinox.

David Main: So, with that, that concludes my remarks. And I'll now turn the call over to Kam Alam, our Chief Financial Officer to discuss our year end 2016 financials. Kam?

Kamran Alam: Thank you, David. As we reported in our press release, cash, cash equivalents, short-term and long-term investments as at December 31st, 2016 were $153.1 million compared to $112.9 million on December 31st, 2015. This increase was primarily the result of the public offering of common stock in September 2016 and was partly offset by the ongoing expenditures related to our LEADERSHIP 301 clinical trial in IC/BPS. Research and development expenses were $28.4 million for 2016 compared to $15.8 million for 2015, with the increase primarily due to the increased clinical activities as we initiated LEADERSHIP 301 in IC/BPS. General and administrative expenses for 2016 increased to $9.3 million compared to $5.5 million in 2015, with the increase primarily -- personnel related cost and the establishment of an office in San Bruno, California. In 2016, Aquinox had a net loss of $37.0 million compared to net $21.9 million for 2015. The increase in net loss was primarily due to increased operating expenditures related to the initiation of our LEADERSHIP 301 clinical trial. Overall, we ended 2016 with cash resources anticipated to be sufficient to take us beyond topline data from the LEADERSHIP 301 trial and see us into 2019 as well as to fund 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. So, in closing, we recognized the urgency in advancing AQX-1125 as quickly and as efficiently as possible, not only for our investors, but also for the millions of patients suffering from IC/BPS. We'll continue to monitor and take the necessary steps to achieve our clinical milestones and we're confident that the measures we've taken to accelerate enrollment in LEADERSHIP 301 will be effective. Meanwhile, we are executing the necessary activities on schedule to support current programs with AQX-1125 and explore other opportunities that may exists. As mentioned, we'll be certainly looking forward to giving you a further update at our mid-year call in early August, but for today, we want to thank you all again for joining us and we appreciate your continued support and look forward to updating you next call. So, operator, we can now open the call for questions.

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

Paul Matteis: Hey, thanks so much for taking my questions. David I have a couple. My first one is -- thank you for the color in enrollment, I was wondering if you could just characterize your level of confidence that the topline data won't come later than 2018 and could dip into 2019 and that the update in August is just a matter of narrowing the timeframe within 2018?

David Main: That's certainly our expectation that the call in August is to narrow the time within 2018 when it will come.

Paul Matteis: Okay. And then can you talk a little bit about your current cash balance, I think you have $150 million or so, you said that goes into 2019, I guess are you worried at all that you could hit 12 months of cash before the data? Do you feel like -- and if you did, do you feel like that's something that you'd want more of a cushion, just curious in how you guys are thinking about the runway into the result?

Kamran Alam: Currently, with $153 million on the balance sheet, we do expect to have sufficient cash to go well beyond the topline data and so we're not in any dire need to think about raising additional money anytime sooner.

Paul Matteis: Okay. Thanks. And then is there anything operationally that you feel like you should change with respect to facilitating the site opening process or now at this point given that a bunch of sites are already opened, it's just matter of meeting that per patient per month quote that you were hoping?

David Main: Right. Well, I would say that we certainly haven’t waited until today to make any changes. So, in fact, the clinical team I think has been doing a very good job -- as best we can, some of the things that I mentioned are very difficult to control like regulatory time -- regulatory review times, even contract negotiating, you can push on sites as much as you want, but we have to remember this is the first time that a lot of these sites have participated in a Phase III trial for IC/BPS. So, how they will -- how they have to come up with their budgets has taken some time. But operationally, we've put more people on the ground, both here at Aquinox as well as our partner in this; Icon [ph] has put more people in the field to help address these things as quickly as possible. We think that's already paying results, but as I mentioned, really it's been coming here in the first quarter that we didn't make the progress we wanted in the fourth quarter.

Paul Matteis: Okay. All right. Fair enough. Thank you, David. Appreciate it.

David Main: Thanks for your questions Paul.

Operator: And our next question comes from Alan Carr from Needham & Company. Your line is now open.

Unidentified Analyst: Hi guys, this is Danielle on for Alan. Thanks for taking my questions. I guess first of all, I just wanted to clarify the issues with initiating new sites, were those only occurring in Europe, or were you having the same problems within the U.S. and Canada?

David Main: Well, I'd say it's predominantly in terms of regulatory timing that's where the reviews in Europe. We got our approval to proceed in Canada and United States because there is a much more a fixed timeframe. You make your submission and you wait a certain number of days. So, timing for the regulatory clearances in North America were very straightforward. However, things like contract negotiations, ethics committees' timing, that's been something that we've experienced in multiple jurisdictions.

Unidentified Analyst: Okay, great. And then I was wondering if maybe you could comment at all on enrollment rates in terms of males versus female if you have any insight to that yet?

David Main: Sure, we didn’t put the exact number in the press releases just because it changes on a daily basis, but it's been exactly where we're expecting, sort of in that 10% to 15% male participation, which is very consistent with what the diagnosis rate is of men versus females and is very consistent with the results from historical trials in this area.

Unidentified Analyst: Great. Thanks so much for the questions.

David Main: Thanks Danielle.

Operator: And our next question comes from Brandon [Indiscernible] from Jefferies. Your line is now open.

Unidentified Analyst: Hi, thanks for taking the questions. So you had mentioned that the initiating of some sites was going slowly, can you say if any sites have declined to participate? And if so, why? Also along that same line, are any sites having issues with the current trial design? And if so, what's driving that?

David Main: Well, when you go through a feasibility process trying to identify sites, there are always sites that decline to participate and that could be just because they don't have the resources or they don't feel that they see enough of these patients to make it worth their while or our while. In terms of the sites that are participating, it's in terms of -- maybe you can just read -- ask that question again, so I make sure I get it right.

Unidentified Analyst: Sure. Are they struggling with either enrolling patients due to the trial design or are they having any issues where their hospital or their location is not set up to handle the design you've proposed?

David Main: Well, on the latter one, again, if they didn't feel that they could handle the trial, they would have never agreed to participate in the first place, so that's not an issue for us. In terms of enrolling the patients, its -- all of them are screening the patients as we expect. When we get further into the trial, I'm sure we will find just like any other clinical trial that there's going to be some sites that contribute more than others. But in terms of what we've seen today, everybody screening, some sites have had screen failures and again, just like we saw in Phase II, the principal reasons for screen failures is people just not meeting our entry criteria on pain scores and symptom scores, which a site can't prejudge before putting the patients into screening. So, these are all things that we're expected from our perspective.

Unidentified Analyst: Got it. And can you give us a sense of the dropout rate so far?

David Main: No, we have not published that. And, again, it would be premature to give any kind of indication of that because that number, again, changes and it's really what's the dropout rate gets when we're really close to completion is the most meaningful.

Unidentified Analyst: Got it. And have any of the patients completed the 12 weeks of therapy and chosen to go on to the extension? And if so, what percentage of the enrolled patients?

David Main: I can't give you the percentage, but I'll say yes, there are a number of patients now that have completed the full 12 weeks and gone on to the open label extension.

Unidentified Analyst: Great. Thanks for taking the questions.

Operator: And our next question comes from Bill Tanner from Cantor Fitzgerald. Your line is now open.

Bill Tanner: Thanks for taking the question. David I had a couple for you. As you think then about 302, I'm wondering is there -- would you encounter some of the challenges as a way to get a head start in terms of opening up the sites? I mean I guess you're going to be contracting for that trial as well as IRB review or study, I don't know, the logistics of it or is that something that it's going to be contemplated to go back to the same sites or easy -- easier to go back the same sites for the second time around? Just maybe helpful -- so that you run in to obviously the protraction that you're -- looks like you're running into a 301?

David Main: Yes, I think that's a great question. Again, it's not protracted, again, if you look at where we are relative to where we want to be, we're delayed and I think we -- the fact that we've got now 65 sites up and running is excellent progress overall, but not where we wanted to be and not where we want to be based upon the original projections we gave everybody. But we're feeling pretty good in terms of once those sites are up and running, what they are contributing. But to answer your question more directly, Bill, I think it's a great point and that's one of the things that we always felt was a benefit of our strategy of stagger starting the two trials is that we'll be able to see who are the best sites to work with, who really is efficient at enrolling patients, where have been --got to remember that there's a big difference between the principal investigator and their actual contract office. So, who are the sites that are easier to work with and more efficient and all of that will really benefit us in terms of who we select to be sites for the next trial.

Bill Tanner: Okay, that's helpful. And then as it relates to the next gen compounds, wondering the one that you alluded to, can say something about the chemistry, just trying to figure out if what you know about 1125 and be interested if there's any wrinkle with the ADME that you might anticipate, but the next gen if you feel like 1125 is -- the profile looks good and by the way the next generation is a similar scaffolds who will feel pretty good about that as well, any commentary you could make as to that that you think at least from a pharmacology that -- the pharmacophore itself the program -- the next gen programs have been de-risked somewhat?

David Main: Well, I think the -- again, I always wanted loosely use those words de-risk because we're talking about early-stage compounds. The scaffold -- the pharmacophore is very similar, but the scaffold is different and that's why it gives us new intellectual property. So, all of the compounds that we're focused on in our next gen program are very distinct from 1125 in terms of that's why we have new intellectual property and much longer IP coverage over 1125, because they are new overall scaffold, but the central pharmacophore is quite similar. But they do have very different ADME profile, that's part of the reason why we chose them. There's not much that we would want to improve upon on 1125. This drug has almost perfect ADME properties. So, where these other next generation compounds came from is when we were screening for compounds with increased potency. So, almost all of the ones that we're focused on are far more potent than 1125 and with the changed chemical structure that also changes their ADME properties in terms of half-life metabolism. And so those things -- I don't think it would be fair to try to draw comparisons between 1125. These compounds will need to go through their development phases just like any other new drug.

Bill Tanner: And just on the ADME for 1125, I mean definitionally I guess you cannot expect surprises, but you would anticipate to really being any kind of a wrinkle with those results?

David Main: Sorry, I'm not--

Bill Tanner: Well, it's just something we're seeing, it feel pretty good about when you get the ADME, you mentioned that the outset that you're doing the ADMA--?

David Main: Okay. Sorry, wrinkle with 1125.

Bill Tanner: That's right.

David Main: Not a wrinkle -- not with an next -- no, I think that we've seen enough of the data that exactly the way that that program will rolled out is what we expected. It's -- we feel that 1125 is on very solid footing.

Bill Tanner: Great. Okay. Thanks very much.

Operator: Thank you. At this time, that's all the questions that we have for today. I will now like to turn the call back over to Brendan Payne for any closing remarks.

Brendan Payne: So, in closing we just like to say thank you for everyone joining us today. A recording of this call will be available on our website shortly thereafter. We remain committed to delivering on our milestones and we look for to talking to everyone again in about six months' time.

David Main: Thanks everybody.

Barbara Troupin: Thank you.

Operator: Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone have a great day.