Achieve Life Sciences, Inc. Q3 FY2022 Earnings Call

Good day, everyone, and welcome to Achieve Life Sciences Third Quarter 2022 Earnings Conference Call. All lines are in listen-only mode. We will open the floor for questions and comments after the presentation. I am now pleased to turn the floor over to your host Nicole Jones from CG Capital Investor Relations. Ma'am, you have the floor.

Thank you, operator. On today's call from Achieve we have John Bencich, Chief Executive Officer; and Jerry Wan, Principal Accounting Officer. Achieve management will be available for Q&A after the prepared remarks. I'd like to remind everyone that today's conference call contains forward-looking statements based on current expectations. These statements are only predictions and actual results may vary materially from those projected. Please refer to Achieve's document available on our website and filed with the SEC concerning factors that could affect the company. I'll now turn the call over to John.

Thank you, Nicole, and thanks everyone for joining us today. It was yet again a busy and exciting quarter for Achieve. As we continue to advance cytisinicline through the clinic and closer to becoming the first new prescription treatment for nicotine dependence in nearly two decades. In September, we announced completion of target enrollment in our confirmatory Phase III ORCA-3 trial for smoking cessation. And just last week we announced the earlier-than-expected completion of enrollment in our Phase II ORCA-V1 trial for nicotine e-cigarette or vaping cessation. As a reminder, the ORCA-3 trial is the second and final randomized Phase III trial required for FDA submission and ultimately marketing authorization in the US. The design mirrors that of the previous ORCA-2 trial that read out with overwhelmingly positive results earlier this year. Both trials were designed to evaluate the smoking cessation efficacy, safety, and tolerability of 3-milligram cytisinicline dosed three times daily over a period of either 6 weeks or 12 weeks compared to placebo. The trials also share the same primary endpoint to evaluate smoking abstinence during the last four weeks of treatment, which is the FDA's approvable endpoint for smoking cessation medications. The outcome of ORCA-2 further enhanced our belief that cytisinicline, if approved, has strong potential to become the new gold standard for the treatment of nicotine dependence. With single-digit rates of adverse events, cytisinicline's side effect profile is substantially better than what has been seen in currently available treatments. From an efficacy perspective, the odds ratios we observed in ORCA-2 were unprecedented, with six to eight times higher odds of quitting at the end of treatment compared to placebo. Additionally, our quit rates were impressive despite the highly addictive study population and the execution of the trial during a pandemic. We hope to see similar results from ORCA-3 and look forward to sharing those with you in the second quarter of 2023. Vaping continues to be an important topic on a global scale, particularly with the alarming rate of adolescent users and new data reporting the potential harmful impacts to cardiovascular and respiratory health. The CDC released data last week indicating more than 2.5 million high school and middle school students were current users of e-cigarettes in the US alone. There are also more than 11 million adult users of nicotine vape products in the US and no treatments are currently approved specifically for vaping cessation. We pursued the ORCA-V1 trial with the expectation that cytisinicline would be of interest to this growing and underserved population. The swift recruitment of ORCA-V1 appears to reinforce our assumptions of the demand for treatment within this population. Recruiting at only five clinical trial sites, ORCA-V1's target enrollment of 150 subjects was completed in roughly four months. Regarding the design, ORCA-V1 will evaluate 12 weeks of cytisinicline versus placebo. As with the other ORCA trials, all participants will receive behavioral support throughout the study. The primary objective will be to evaluate for successful nicotine vaping cessation defined as weekly abstinence for the last four weeks of treatment, with cotinine levels serving as biochemical confirmation of abstinence. Top-line data for ORCA-V1 is also expected to be reported in the second quarter of 2023. With the two trial enrollment milestones behind us, we turn our attention to three key priorities over the coming months. First, continuous engagement with the ORCA-3 and ORCA-V1 clinical trial sites and our third-party clinical research organization to ensure data reporting accuracy and adherence to timelines. Second, extensive preparations to support an NDA filing in the U.S., post-successful ORCA-3 trial results, including the completion of the remaining supportive trials required for filing. Third, commercial readiness including launch preparedness activities and partnering discussions with interested parties who also believe in the immense potential of cytisinicline. Also, as part of our commercial readiness objective, we continue to work closely with our manufacturing partner Sopharma to ensure adequate commercial capacity at launch. As we announced today, Sopharma recently invested more than €3 million to complete the build-out of a new dedicated cytisinicline API purification suite and its primary manufacturing plant in Sofia. The new API suite complements Sopharma's capacity to produce nearly three billion tablets annually. I would now like to turn the call over to Jerry for the third quarter financial update.

Thank you, John. I will be providing an update on our cash position as of September 30, 2022, and reviewing our operating expenses for the third quarter. As of September 30, 2022, the company's cash, cash equivalents, short-term investments, and restricted cash were $18.2 million, compared to $43 million as of December 31, 2021. Our cash forecast includes reimbursements from the awarded $2.5 million grant received from the NIH to support the Phase II ORCA-V1 trial to evaluate the use of cytisinicline as a treatment for cessation of nicotine e-cigarette use. As a reminder, approximately half of the cost from the ORCA-V1 trial is funded through the NIH grant. With respect to our statement of operations, the net loss increased to $13.1 million for the quarter ended September 30, 2022, compared to $6.7 million for the same quarter of 2021. Net loss for the nine months ended September 30, 2022, increased to $31.1 million, compared to $26 million for the same period of 2021. Operating expenses increased in the third quarter, with the achievement of targeted enrollment in our ORCA-3 trial and initiation and enrollment in our ORCA-V1 trial. We expect our quarterly operating expenses to remain elevated in the fourth quarter of this year before reducing in the first half of 2023, as the ORCA-3 and ORCA-V1 trials reach completion. That concludes my financial remarks, and I will now turn the call back over to John.

Thanks, Jerry. 2022 has been a pivotal year for Achieve, with key highlights being the successful Phase 3 trial results and completing enrollment in two other important studies. We are pleased that we continue to deliver on our milestones and the commitments we have made to bringing forward this important new treatment. Smoking and nicotine addiction directly impacts more than one billion people around the globe. In the U.S. alone, there remain more than 30 million people who smoke, and nearly half a million people die each year due to smoking-related illnesses. In an analysis we recently conducted with current smokers who want to quit, 80% overall stated they would be interested in new smoking cessation products. In the segment we believe will be most appropriate for cytisinicline, 93% desired something new. The current treatments that are available have a high dissatisfaction rating for both smokers and prescribers, and new options are long overdue. More needs to be done to help people who want to quit and to improve and extend their lives. We believe we have a unique opportunity and responsibility to make a real difference with cytisinicline. Again, thanks all for your continued support and joining us today. I'd now like to turn the call over to the operator and open the line for questions.

Thank you. The floor is now open for questions. Our first question comes from Thomas Flaten from Lake Street Capital. Go ahead, Thomas.

Hey guys. Thanks so much for taking my questions and congratulations on all the progress. I was just curious, John, do you have any insight into the publication of ORCA-2?

Thanks, Thomas. Appreciate the question. So, this is an activity that we are actively engaged in, in particular with Dr. Nancy Rigotti, who is the primary investigator on the ORCA-2 trial. So we currently have a draft manuscript that's being reviewed, and we hope to get that submitted in the near future.

And then on the Sopharma expansion, was that done specifically to support your pending approval and launch?

That's correct. So the new API suite that was just recently completed is 100% dedicated to cytisinicline and that was in furtherance of making sure that we've got appropriate throughput as we look to move this program forward to market.

And I'm assuming you guys are going to do a pre-NDA meeting with FDA, and if that's incorrect, please let me know. And is it your intention to discuss with them the ability to squeeze in the vaping data into a potential label expansion this early, or do you think there are other steps that are required in the interim?

Hi. Yes, we will be looking at including the vaping study of safety data. We won't have enough efficacy because that's a small Phase II, but what we will do is discuss with the FDA after we get approval for smoking cessation that we would only need to have one Phase III study to add then vaping onto the indication in the label.

Excellent. Thanks, guys. Appreciate you taking the questions.

Thanks, Thomas.

Thank you. And our next question comes from François Brisebois from Oppenheimer. Go ahead, François.

Thank you for taking the question here. So I just was wondering, how are you seeing generics doing? And if it's doing pretty well how do you see any read-through for your product? And then just any updates on CHANTIX being removed from the market here?

Yeah. Thanks, Frank. So we have been monitoring the first generic entrant, which has been from Endo Pharma, and they did put out their Q3 earnings. As we've indicated previously, they look to be on a run rate to achieve $300 million in sales here in 2022, and that is roughly 50% of the script volume that we saw with CHANTIX, before it was withdrawn from the market last year. And keep in mind that Endo doesn't have reps on the ground. They're not marketing this in a way that a branded product would be. So I think that's quite impressive to see a run rate like that, with what we've seen to be a fairly disliked product in vertical. In terms of CHANTIX, the brand coming back to the market we haven't seen any new indications from Pfizer in terms of a timing for that. So at the moment, it continues to be off the market in terms of the brand and we'll continue to monitor to see if that changes here in the future.

Okay. And I'm just wondering, any thoughts on the implication of the generic doing well for your product?

Yeah. I think we obviously – it helps solidify the size of the market that we're going into. So seeing a generic out there selling a healthy amount of scripts, I think does provide a nice tailwind, again, given the differentiation that we see with cytisinicline being – having single-digit rates of adverse events, strong efficacy as well as a shorter course of treatment option. I think it bodes well that it will resonate well in what continues to be a very robust market. One of the things that we will also continue to monitor for is further generics entering. But so far, it looks to be only Endo that's available today.

Understood. And then in terms of the e-cigarette here, the V1 trial, is there any chance, maybe compare and contrast the study designs between ORCA and the V1 – ORCA-V1? And any reasons that e-cigarette cessation wouldn't work as well for this type of nicotine addiction?

Yeah. So if we just think about the mechanism of action for cytisinicline, it's specifically targeting the nicotine receptors in the brain. And so, we think it should have applicability on a broad basis for various forms of nicotine addiction. The data we've seen historically has all been focused on cigarette cessation, so we've got a high degree of confidence that works there. But it should have applicability, whether it's vaping, chewing tobacco, snus, or any form of nicotine addiction. However, we haven't tried it there. So we've got to run the experiment and see if we can again show that efficacy in this new segment. From a market perspective, the category that we're most excited about. I think when you look at 30 plus million e-cigarette or cigarette users here in the US, the e-cigarette market is the next largest segment behind it with more than 11 million users. So we think it's the right place to be. We see that as a segment that will only grow over time as big tobacco continues to redirect their marketing dollars. And as we mentioned on the call today, seeing more and more data points coming out around the harms associated with e-cigarettes, we do see more and more folks in this category looking for solutions to help them quit, and we think we can be a viable solution there.

All right. Thanks, John, and congrats on the progress.

Yes, thanks, Frank.

And our next question comes from Michael Higgins from Ladenburg Thalmann. Go ahead, Michael.

Thanks, John, for taking the questions, and congrats from me as well on ORCA-V1's enrollment and the progress in your development efforts. A couple of questions on the Sopharma construction of the API suite. Just trying to understand, what are the next steps going forward here into gaining FDA approval of that supply and then the obligations that they additionally may have to you guys?

Yes. Thanks, Michael. So the API suite, we see as a nice milestone just in terms of our partnership with Sopharma and getting a dedicated facility specifically for our product. And I think having that in the same location as their tableting facility in Sofia, which is a less than 10-year-old facility, really is state-of-the-art, computer-controlled. I think it puts their best foot forward as we think about moving this forward to an NDA submission. So there will be a lot of efforts as we move ahead to an NDA filing, continuing to work with Sopharma to make sure that they are ready for an FDA inspection. And so that is a high area of focus for us as we drive things forward in parallel in the clinic with ORCA-3 data coming together in the second quarter of next year.

Just to follow-up with that, are you able to share with us when the FDA may be coming in to take a look at that facility?

Yes. In terms of timing, it will be unlikely that the FDA makes any business until after an NDA is on file. So we're still more than a year out from an anticipated NDA filing date. So between now and then, we'll continue to work with Sopharma to make sure they're prepared for a future inspection.

Makes sense. Turning to ORCA-V1. What can you share with us, and you may not be able to, but if you could share with us any make-ups of the patients that have been enrolled, such as how many are dual users, age, duration of smoking, that sort of thing. Thanks.

I think for this one, I'll hand this over to Dr. Jacobs again.

Sure. For the study, no one could be dual users. That's just too complicated. So the subjects in the vaping study were vaping nicotine only. And the demographics we're seeing a younger crowd, obviously, where they're in their 20s and 30s versus the smoking cessation, most were in their 40s, 50s, and 60s. So it will be a younger population in this study.

Do you know if the patient is receiving any text messages or anything unique about the standardized behavioral support? Thank you.

Yes. Standard, there is no really standard behavioral support for vaping cessation. So we basically took a lot of the materials for smoking and applied it then in a vaping cessation. We did this with our PI, Dr. Nancy Rigotti and our key opinion leaders in the area. So the study does have standardized vaping cessation material. There was no elaborate text messaging for that. We obviously have texting as far as taking meds three times a day, that's part of the study. But everyone has the same counseling for stopping nicotine dependence. Basically, we're focusing on that when they come into the clinics every week as well.

That's helpful. And then, one last one. Maybe you can help with here is the Q1 we're looking for renally impaired patient trial to finish up in the Phase I QTc study. Still on track for those?

We will be starting those by the end of this year, and they are expected to be completed sometime early to mid-next year.

Sounds great. Appreciate it. Thanks, guys.

Thanks, Michael.

And our next question comes from John Vandermosten from Zacks. Go ahead, John.

Thank you, John, Jerry, Cindy, good afternoon. I wanted to follow up on the demographics of the patients. They were younger. Can you provide any additional details on their socioeconomic background or anything else that might differ from the typical smoker?

Yes, we did not collect any socioeconomic information as they came in. We do see that roughly females and males are coming in, maybe a little more females, but that it's pretty average. I think the younger age is probably the one that stood out the most. Like I said in the 20s and 30s, where our average on ORCA-2 was about late 50s.

Okay. And I think vapers are actually taking significantly more nicotine than smokers are. Does that change the potential efficacy of cytisinicline in any way, maybe perhaps a longer duration treatment or something may be more effective or shorter, but wondering if you have any comments on that?

Well, we are collecting the amount of nicotine in their vaping. There are so many different vaping devices, so we will have that information to make correlations to see if there is any difference right now. The only stratification factor is whether they at one time were smokers. They couldn't be smokers obviously and vaping, but we do have history in terms of their previous nicotine consumption, whether they were smokers, or have always been vapers. Those kinds of demographics we will have to be able to look at the efficacy data in comparison with those demographics.

What do you anticipate the cash burn will be over the next 12 months now that enrollment for the two final trials is complete?

Sure. Yes. On the cash burn side of things, as Jerry mentioned earlier on the call, we would expect the burn to remain elevated here in the fourth quarter of this year, just given the heavy lift still with ORCA-3 as well as ORCA-V1. And then as we get into 2023, we would expect that to start to come down as those studies wrap up through the middle of the year.

Got it. All right. Thank you, Tom. Appreciate it.

And our next question comes from Jim Molloy from Alliance Global Partners. Go ahead.

Hey, John. Thanks for taking my questions. I was wondering if you could discuss how you would describe the partnership environment as you approach the finish line. Has the dynamic changed at all? And what do you believe triggers the partnership? Is it initiated after the data or FDA approval? How do you see that developing on your end?

Yes. Thanks for the question, Jim. On the partnership side, we've seen some kind of increased momentum on the other side of the ORCA-2 results. So that has been encouraging to see more folks come to the table. I think in terms of a trigger, it's always hard to know. You got to put yourself in the other shoes in terms of what's going to get them over the hurdle to go ahead and move forward with a term sheet. But we had and continue to believe that ORCA-3, as well as ORCA-V1 is going to be an important metric in moving those discussions along. ORCA-3 obviously sets the stage for the final product profile of this product in terms of the smoking cessation indication. I think ORCA-V1 from a potential market expansion opportunity into a category that frankly doesn't exist today. So we have heard strong receptivity in terms of having the ability to move forward in the vaping category as well. So I think it's a combination of things, but we do see the milestones that we'll expect to see in the second quarter of next year being important to those discussions.

Excellent. I think in the past, you've discussed attempting to synthetically create the API versus the current tree grow. Any updates on where that is? I think that's something that eventually will come along or the synthesis just not worth the effort given the fact you can get it all from maturity.

Yes. Good question. So, on the synthetic side, this is an area that we've looked into over the past several years in terms of looking for alternative ways to produce this outside of getting more plants in the ground. So far that's proven elusive just given what nature produces. It's not something that's easily replicated in vitro. So, it's something we'll continue to look into. It's not something that we're actively exploring or researching currently but we do continue to look for other ways to solve for that. But so far, it looks like we'll continue to focus on natural sourcing for the foreseeable future.

I have one final question. As your scientists will have some available time in the second half of 2023 when ORCA-3 concludes, do you have any plans for new projects or initiatives?

Yes, that’s a good question. We have often considered what could complement our current work. For us, the smoothest area for expansion has been into vaping and utilizing cytisinicline for other nicotine-related addictions. However, there may be other types of addictions beyond nicotine that could also benefit from cytisinicline. We are continuously looking out for potential assets that could be complementary. If our progress continues successfully, we will keep evaluating these opportunities.

Great. Thanks for taking the questions.

Thanks, Jim.

And at this time, I would now like to turn it back to management for any closing remarks. Thank you.

Thanks operator, and thanks everyone for joining us today. We're excited about continuing to deliver on our milestones having both of our current pivotal trials now fully enrolled with ORCA-3 as well as ORCA-V1. We look forward to the continued progress in bringing forth the trial results to everyone in the second quarter of next year. So, I appreciate everyone's continued interest. We look forward to providing further updates in the near future.

Thank you. This does conclude today's conference. We thank you for your participation. You may disconnect your lines at this time and have a wonderful day.