Arcturus Therapeutics Holdings Inc. Q4 FY2021 Earnings Call

Greetings. Welcome to the Arcturus Therapeutics Fourth Quarter and Full Year 2021 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Deepankar Roy, Senior Director of Investor Relations. You may begin.

Thank you. Good afternoon and welcome to Arcturus Therapeutics, fourth quarter and full year 2021. Financial results and corporate update call. Thank you all for joining us. Today's call will be led by Joseph Payne, President and CEO. Andy Sassine, our CFO, and Dr. Pad Sassine, our CFO and COO. Before we begin, I would like to remind everyone that statements made during this call regarding matters that are not historical facts are forward-looking statements within the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of performance, and they involve known and unknown risks, uncertainties, and assumptions that may cause actual results to vary. Actual results may differ materially from those expressed or implied by these statements. Please see the forward-looking statement disclaimer on the Company's press release issued earlier today, as well as the risk factors section in our Form 10-K filed with the SEC. In addition, any forward-looking statements represent our views only as of the date such statements are made, February 28, 2022, and Arcturus specifically disclaims any obligation to update such statements to reflect future information, events, or circumstances. With that, I will turn the call over to Joe.

Hey, thank you Deepankar, good afternoon to all. Thank you for joining our quarterly call today. Before we begin, I would just like to acknowledge that today is National Rare Disease Day, February 28, and given that two of our pipeline programs are rare diseases, OTC deficiency, a rare liver disease, and cystic fibrosis, a rare lung-centric disease, I wanted to publicly express my gratitude to all those working diligently on these programs here at Arcturus, and to the clinicians, patients, and families on this national day of recognition. Now onto our update about our recent progress. We have continued to make excellent progress advancing our mRNA-based vaccines and therapeutic candidates. I will begin with a discussion of our vaccine programs targeting COVID-19. Let's begin with ARCT-154, our most advanced program and a vaccine that is designed to protect against the SARS-CoV-2 variant of concern. This program is supported by encouraging clinical data, including the recent booster data we reported, showing that a low dose of only five micrograms of ARCT-154 boosted or increased neutralizing antibody activity against the SARS-CoV-2 ancestral D614G and omicron strains by 28 and 54 fold respectively. We are excited to announce today that our collaborator Vinbiocare has completed an Emergency Use Authorization (EUA) application filing with the Vietnamese Ministry of Health for ARCT-154. This represents a very important milestone for our company, as we mature and strive toward becoming an integrated commercial stage global biopharmaceutical company. ARCT-154 is a product of our self-amplifying mRNA technology, our trademarked STARR platform. In addition, this vaccine includes an optimized mRNA sequence with multiple proprietary modifications to improve its stability, half-life, and increase its translation. We believe that these modifications and others incorporated into ARCT-154 have improved the immunogenicity profile of this vaccine candidate and may enable high levels of clinical efficacy, especially as a booster. ARCT-154 is designed to extend the duration of antigen expression, and this platform has shown robust T-cell responses and high levels of human immunity in multiple preclinical models. We've also been efficient in progressing ARCT-154 in clinical studies. We designed and developed this vaccine very rapidly based on our understanding of mutations in the clinically relevant variants circulating across the world. We expeditiously moved this program into the clinic in a combined phase 1, 2, 3 study. Earlier in this quarter, we announced highly encouraging immunogenicity phase 1/2 booster data from our ARCT-154 program, as well as our alternative ARCT-165 vaccine candidate. These data showed that when administered at low five microgram doses at least five months following initial vaccination with Comirnaty, we observed robust increases of 54 and 47-fold respectively in neutralizing antibody responses against the Omicron variant for these two booster vaccine candidates in an exploratory micro-neutralization assay. This is in addition to the data that showed broad coverage and encouraging neutralizing antibody activity of these candidates against the D614G ancestral, Beta, Delta, and several other variants of concern and variants of interest using validated and exploratory neutralization assays. These results provide us with confidence in the potential for ARCT-154 to provide substantial clinical efficacy against a wide range of circulating variants. Supported by these strong data, our goal is to develop ARCT-154 as a broadly immunogenic vaccine that can be used for primary and booster vaccinations. We aim to explore its potential use in populations currently seeking vaccination for initiation of or continuation of protection against severe COVID-19 disease. We are working closely with our collaborator Vinbiocare to operationalize the Phase 1/2/3 study of ARCT-154 in Vietnam. The study objectives include the evaluation of safety, immunogenicity, and efficacy of ARCT-154 against SARS-CoV-2 infections. All of the cohorts in the study, meaning Phase 1, 2, 3A, 3B, and 3C, have all completed two doses of ARCT-154 given 28 days apart. The safety and immunogenicity data from the first 1,000 participants of the Phase 1/2/3A cohorts are included in the EUA application that was submitted today. Efficacy data from the pivotal trial will be subsequently submitted to the Ministry of Health in our application for a potential full approval. In addition, our global manufacturing footprint continues to mature, and our technology transfer to Vinbiocare's manufacturing facility in Hanoi, Vietnam continues to progress toward an anticipated production capacity of 200 million doses per year. We remind everyone that this trial and the development of the Hanoi manufacturing facility are fully sponsored and funded by Vinbiocare, and we are indeed grateful for their support. I will now turn to ARCT-810, our therapeutic candidate for transcarbamylase deficiency or OTC deficiency. OTC is a rare and serious disease with no approved treatments that address the root cause of the disease. Our therapeutic candidate aims to restore expression of the normal transcarbamylase enzyme in the liver of patients with OTC deficiency. ARCT-810 has the potential to restore urea cycle activity, prevent neurological damage, and prevent the need for liver transplantation. We previously completed a Phase 1 healthy volunteer dose escalation study with ARCT-810 and demonstrated that ARCT-810 administration was associated with favorable tolerability and an attractive pharmacokinetic profile. Lipid excipients were no longer observed in the plasma after 48 hours. The doses we are clinically evaluating are within the anticipated therapeutic range that we have estimated based upon our preclinical studies. I'm happy to report that the Phase 1b trial for adults with OTC deficiency is now identifying additional patients for screening after COVID-related delays, and we expect to complete dosing in the first cohort in the second quarter. We have obtained approval from the United Kingdom Health Research Authority, as well as from Belgium and Spain to initiate a Phase 2 multiple dose clinical trial for ARCT-810, and we continue to conduct site startup activities while seeking authorization in additional European countries. This is a randomized, placebo-controlled, double-blind study with a nested single and multiple ascending dose design that would enroll 24 adolescents and adults with OTC deficiency. We anticipate that Phase 2 screening will commence in the second quarter, and we expect to obtain interim data in the second half of 2022 in a subset of participants. Moving now to our cystic fibrosis program, we have continued to progress the necessary preclinical studies to enable ARCT-032, our mRNA therapeutic candidate for cystic fibrosis to move into clinical studies. We anticipate the submission of a clinical trial application for ARCT-032 in the third quarter of 2022. Our flu vaccine program, termed Lunar Flu, also continues to progress towards candidate selection in clinical development. We believe that self-amplifying mRNA vaccines have tremendous promise to address the gaps with the current flu vaccines, which often suffer from sub-optimal efficacy and require lengthy manufacturing and release. In addition, mRNA-based vaccines potentially have the advantage of being able to be adapted through much faster mRNA manufacturing processes to target currently circulating flu strains. We expect to make a final selection of our Lunar Flu development candidate this year with a self-amplifying STARR platform candidate, and advance toward a clinical trial application in 2023. In addition to these internally developed programs, Arcturus has also partnered several of our Lunar therapeutic programs with some of the leading biopharmaceutical companies, including Ultragenyx and Johnson & Johnson and Takeda. The most advanced of these programs is a very promising therapeutic candidate for glycogen storage disease, which is currently being evaluated by Ultragenyx in a Phase 1/2 study. I will now pass the call onto Andy, our CFO.

Thank you, Joe. And good afternoon, everyone. The press release issued earlier today includes financial statements for the fourth quarter and fiscal year 2021, and provides a summary and analysis of the year-over-year and sequential financial performance. Please reference our 10-K for more details on the financial performance. I will go over our financials and present some operating metrics as we continue to transition to a late-stage clinical company with several assets in our pipeline. I will also provide some details regarding our manufacturing strategy as we prepare for the potential of Emergency Use Authorization in Vietnam. Finally, I will provide some insight regarding our cash position and expected run rate. As you heard, Joe mentioned we had a very productive Q4 in 2021, including the completion of our clinical trial in Vietnam and encouraging human trial results in our ARCT-154 booster program in Singapore and the USA. As you know, we partnered our ARCT-154 next-generation Lunar COVID-19 vaccine candidate in Vietnam with Vinbiocare. Vinbiotech is a part of the Vin Group, which is one of Vietnam's largest corporations. VinBio was sponsoring and funding our Phase 1, 2, 3 study in Vietnam targeting COVID-19 and variants of concern. This partnership, including the trial and the collaboration around building a vaccine manufacturing facility in Hanoi, resulted in significant cost savings of well over $200 million for Arcturus. Our technology transfer activities remain on track for the facility to become operational later this year, with the capacity of over 200 million doses annually. We're also continuing to work with other manufacturing partners to mature our global footprint, including Europe, Japan, and the USA. Revenues from strategic alliances and collaboration for the fourth quarter of 2021 were $5.8 million, which increased sequentially by $3.4 million. This increase was due to the partial recognition of the $40 million payment we received from Vinbiocare for the manufacturing technology transfer agreement. Total operating expenses for the fourth quarter were about $43 million, which declined approximately $10 million sequentially. This decline was primarily due to a sequential decline of $12.8 million in research and development expenses. For the fourth quarter of 2021, this was $32.6 million. This decline was due to the reduction in manufacturing and clinical costs primarily associated with the Lunar COVID-19 programs, including CMC requirements necessary for regulatory filings. The net loss for the fourth quarter of 2021 was approximately $39 million or $1.47 per basic and diluted share. For the year, we reported a net loss of approximately $204 million or $7.74 per basic and diluted share. Our cash balance at the end of the fourth quarter was $370.5 million. Based on our current pipeline, our cash position is expected to be sufficient to support operations into late 2023. I will now pass the call back to Joe.

Hey, thanks, Andy. As we can see, we've had another productive quarter advancing our pipeline of messenger RNA vaccines and therapeutics. I guess now it's the right time to turn it over to Kyle, our operator, to field questions.

Thank you. At this time, we'll be conducting a question-and-answer session. One moment, please, while we poll for questions. Our first question is from Yasmeen Rahimi with Piper Sandler. Please proceed with your question.

Good afternoon, team. And thank you so much for the updates, and congratulations on the emergency authorization being filed. So now with that behind you, can you maybe give us some color on when you should—when you would have the opportunity to present the data to us? And then have you had a chance to review the data so far with your partners and Vinbiocare?

Hey, great question, Yasmeen. Thanks for calling in. As we realize that the data is owned by Vinbiocare. And so we want to acknowledge that. We have had access to some clinical trial-blinded data, but we have no access to unblinded data and no access to any data of any kind on the Phase 3B portion of the trial and beyond. So that's where we are. There may be opportunities in the future to share the data publicly, but after we get clearance from Vinbiocare and after they share that data with the Vietnam Ministry of Health.

And Joe, maybe just to drill down because this is a question we get: What's the timing process? Like now it has been filed, how long does it take for their review process? And then how many days or weeks can you wait before releasing it? So just give us an idea of like each of these steps before you could share with us?

Well, now that the EUA has been submitted successfully, there's a period of time, of course, before that gets approved. We are guiding Q1 or this quarter for the approval of the EUA. After that point of approval, that presents the first opportunity to share additional data pertaining to this program. So I think those would be the near-term order of events.

Just to make sure I understand. So let's say on March 30th, you get the EUA accepted. Is it just a matter of a few days as soon as it's accepted that you can disclose the data to us?

It's a fair and appropriate question, but that would be ultimately under the responsibility of Vinbiocare. Of course, we'd like to work with them and share what's appropriate.

Got it. Thank you. I will jump back into the queue for questions. Thanks.

Yeah. Thanks. Yasmeen.

Thank you. Our next question is from Brian Chang with Cantor Fitzgerald. Please proceed with your question.

Hey, Joe, thanks for taking my question. Can you provide some color on whether you have any feedback from other boosters travel?

Hey, Brian, you're breaking in and out a little bit.

Can you hear me?

Hey Brian, please proceed.

Please repeat the question.

Yes. Can you provide some color on whether you have any feedback from the regulators?

Sure. So I'm just going to repeat your question because it broke up a little bit, but I believe you're just trying to understand our regulatory approval strategy for boosters. We're in the process of engaging and aligning multiple regulatory authorities around the globe, frankly, and we're determining trial requirements in real-time for that. So once we have that feedback, that information, and we have alignment there, then we will be able to communicate that.

Okay. Just one quick one on stockpiling. Will the Hanoi facility that's operated by Vingroup be operational by the time your EUA comes through? And can you comment on where you are in terms of stockpiling? It seems that your R&D expense this quarter has come down a fair bit?

Sure. Vingroup is definitely funding the manufacturing facility, and I can comment that we are continuously assisting them in that effort. The state-of-the-art facility is continuously being built. But with respect to specific updates on timing, it would be inappropriate for us to provide guidance on their facility that they're paying for and building. But I can comment that we're actively helping them and assisting them in the process, and it's progressing. In terms of a specific date of when it will launch, we'd be looking to them to provide that guidance. It would just be inappropriate for us to do that.

Thanks, Joe.

And then Andy, do you have another comment?

No, I did provide some color in my commentary that the facility should be operational sometime later this year. Hopefully, that'll help give you some guidance with respect to when they anticipate going into production.

Thanks, Andy.

Our next question is from Seamus Fernandez with Guggenheim Securities. Please proceed with your question. Mr. Fernandez, your line is now open. It looks like Mr. Fernandez has disconnected. Our next question will come from Nick Abbott with Wells Fargo. Please proceed with your question.

Terrific. Thank you very much and congratulations to you and your partners on the EUA. So obviously, the approval would be for the prime series and you mentioned, Joe, the global booster strategy, but presumably, Vinbiocare has a booster strategy in mind for the local market. Can you talk about their plans for a booster approval strategy in Vietnam as well as types and others?

Vietnam has vaccinated the majority of their population with approximately eight vaccines that have been approved locally. They've made a concerted effort, as you can appreciate, in the past year or two to do so. But now, it provides an opportunity to boost these folks. We haven't disclosed any details with respect to our booster strategy in Vietnam, but we have shared that we're actively engaged with the Vietnam Ministry of Health in an EUA application process. We've also disclosed that we're working with Vinbiocare on the development of a manufacturing facility. So there are some indirect implications of that, but we haven't provided any direct guidance as to the timing of any sort of boosters being manufactured or distributed.

Okay. Thanks, Joe. So is it reasonable to assume that Vinbiocare could be conducting a booster trial in Vietnam?

Yes. What we've disclosed is that we are talking with multiple regulatory authorities, including the Vietnam Ministry of Health. We have active trials with ARCT-154 in the U.S. and Singapore. And there are other regulatory agencies that we're communicating with, right, and determining trial requirements and trying to harmonize and get alignment there. Once we have that information collected, we'll be better suited to communicate it.

We plan on finding some more clarity.

Yes.

Okay. And then Joe, you mentioned the fact that the data is owned by Vinbiocare. What is the process for you to share that data with potential partners outside of Vietnam?

Well, we haven't seen any of the unblinded or blinded data pertaining to Phase 3B or beyond, but we've had the opportunity to see some of the blinded data for the earlier clinical trials that remains encouraging. We have the freedom to share that with potential partners.

Yes. I mean, with them owning the data, obviously, you don't perhaps have that free hand that you would otherwise to share the data. So it's encouraging that you can. But can you update us on perhaps discussions with potential partners outside of Vietnam?

Well, it's challenging always to give specific guidance on that. Arcturus has always been active in its strategic discussions with potential partners, right? But we don't provide specific guidance on that.

Okay. Thanks. I will go back in the queue. Thank you.

Thanks, Nick. I appreciate you calling in.

Thank you. Our next question is from Kumar Raja with Brookline. Please proceed with your question.

Hi. I'm Kumar. With regards to the Omicron crowd, could you provide us some color on the ongoing enrollments in Europe? And also do you think the current unfortunate situation that is ongoing there might impact enrollments? And how are you preparing for it?

Are you speaking to the enrollment of our therapeutics programs, our rare disease programs, or for OTC deficiency?

Yes, right.

Okay. Yes. What's unique about this Phase 2 trial is that it's a multi-dose trial. So it's easier to recruit people for that reason, as people are looking to potentially have significant improvements potentially or functionally curing there. We have three locations: the United Kingdom, Belgium, and Spain. We're looking to add additional countries as we've mentioned in the guidance. Surprising waves of COVID that can interrupt things should not impact recruitment. So we're guiding that we are on track for sharing some interim clinical data for our OTC program in the second half of this year.

Okay. Great. So we think that the current situation will have no impact on the recruitment process?

No. So we don't have any recruitment going on in Ukraine or neighboring countries or anything like that, so we're fine there.

Excellent. Okay. Thank you. Regarding the cystic fibrosis program, could you indicate what remains to be done for the CTA applications?

Yeah. So we're in the process of completing all the toxicology studies, which are required for the IND, or in this case, the CTA-enabling studies for that program. We have a tighter guidance there for Q3 for a CTA to be filed. We are in the final steps that we've gone through previously in other programs in terms of just establishing the appropriate support of toxicology data that's required for these submissions. We feel very comfortable and confident that we can meet that Q3 guidance for filing the CTA for cystic fibrosis, but there's nothing atypical about the data being collected.

Okay. Great. Sounds great. Thank you so much for taking my questions.

Yes, of course. Thank you for calling in.

Thank you. Our next question is from Seamus Fernandez with Guggenheim. Please proceed with your question.

Hi, guys. This is Adrian for Seamus. Thanks for taking the question, and congrats on the EUA submission. Sorry, I got a little disconnected earlier, but maybe this was already asked. Can you talk about the next events within the ARCT-154 trial, I guess emphasizing the Phase 3B and 3C programs, when might those programs or portions be complete and when might Arcturus share data? Another question is, I guess, how confident is Arcturus in bringing forward ARCT-154 in ex-Vinbiocare markets? And I have a follow-up.

With respect to timing of what's next milestones in Vietnam, we've just filed an EUA application that Vinbiocare did in our behalf. We are looking to have that approved. Our guidance is the approval of the EUA in the first quarter of this year, so by sometime next month. Looking beyond that, the Phase 3B data or efficacy data that will be anticipated to be included in some sort of full approval application will be later this year. Once we have that bolted on with an EUA approval, it can be combined for a full approval application. We haven't provided tight guidance except just later this year as soon as we can, of course. With respect to what other countries will honor and respect an emergency use approval or full approval for Vietnam, that's a great question. We're exploring that with other Southeast Asian countries or developing nations or Vietnam as well, networked with the WHO and all those nations.

Yes, that's helpful. Thank you. Can you talk about the OTC program? Another Phase 2 has been authorized since, I think, mid-last year. How have patient identification efforts been since authorization, and how is the company prioritizing enrollment in the Phase 1B and the Phase 2 studies?

For the OTC deficiency program, we're starting to recover momentum and success in recruitment now that COVID is being controlled in many of these countries. We're restocking our recruitment efforts and screening efforts for the Phase 1B trial, but also in Phase 2 in Europe, the United Kingdom, Spain, Belgium, and some additional countries that we've guided towards adding. We think we're on track to share some interim data in the second half of this year that we'll believe will be biological proof-of-concept for the OTC program.

Great. Thanks.

Thank you. Our next question is from Steve Seedhouse with Raymond James. Please proceed with your question.

I want to ask you guys, is the vaccine efficacy event-based study for O21 still feasible or a possibility in Singapore, given the primary vaccination rate there? And would you consider event-based studies in other potential geographies at this point?

I think for placebo-controlled vaccine efficacy trials, those are a trial design of the past going forward. But with respect to that question, it's complicated because it depends on the regulatory agency or the country we're talking to. We have completed a vaccine efficacy trial for ARCT-154. But with respect to O21, we've partnered that with a global entity that's funding any sort of late-stage clinical trial efforts there. We will be looking to them with respect to the Phase III trial and the respective design of that trial.

Okay. Thank you very much.

Yes.

Thank you. Our next question is from Ed Arce with H.C. Wainwright. Please proceed with your question.

Hi. Good afternoon, everyone. Congratulations on all the progress this quarter. This is Thomas here asking a couple of questions for Ed. Given the ARCT-154 vaccine program, it sounds like it's mostly in the hands of Vinbiocare. And as you just pointed out, 021 development is still ongoing with a global entity. Can you discuss what geographical area this upcoming study will be?

The geographical area for which study, for 154?

For 021. We know 154 is primarily in Vietnam.

Yeah. The O21 study—updates regarding the clinical trial design and location of that study will be shared by the global entity. We won't have direct updates for that. ARCT-154 is more advanced, of course. We announced today an emergency use approval filing in Vietnam. So that one's closer to reaching approval, and that is where our preliminary focus is going to be on with respect to our vaccine franchise around ARCT-154.

Understood. And then perhaps one question about the OTC program outlined: the interim data in the second half of this year is still on target. Can you describe what kind of data should we expect? Is it safety data or perhaps some efficacy data?

Yeah. I hope all of the above, right? All we've guided is interim data in a subset of the participants. Of course, we are going to be looking not only at safety in OTC deficiency patients but there are multiple biomarkers associated with that disease, including ammonia in the plasma and erotic acid in the urine. Urea itself, or urea genesis, can be tracked—this is a urea cycle disorder. If any of that data proves the concept, we'll be excited to share it. But interim data is what we've guided for the second half of this year.

Understood. Thank you so much again for taking my questions, and we look forward to the EUA decision next month.

Yes. Thanks, Thomas, and say hi to Ed for me.

Hey Sam. Just thanks. Thanks for taking my follow-up question. This is directed to Andy. Andy, can you comment on whether Vinbiocare has scaled up manufacturing now that they have seen the data and filed? Do you see those activities being ramped up? Thank you for taking my question.

No. Thanks for coming back on and asking that question. As we alluded to in our commentary, we had indicated that we needed to get CMC approval in manufacturing some of these runs. You would have to assume that we're trying to remain consistent here in the U.S. for ARCT-154 production and also in Europe with our partners. Hopefully, as we alluded to, the facility in Vietnam will be able to start production later this year. We haven't been able to get specific guidance as to when this year, but they are on that path to hopefully getting it done. We continue to work very closely with them in sharing the technology transfer information with their team.

Thank you, Andy.

We have reached the end of the question-and-answer session, and I will now turn the call over to Joseph Payne, President and CEO for closing remarks.

Just thanks everyone for calling in. We look forward to reconnecting either at a conference or, as always, you can reach out to IR and we can address any follow-up questions you have if you couldn't think of it at this time. So it's bye for now until we meet again. Bye.

This concludes today's conference. You may disconnect your line at this time. Thank you for your participation.