Arcturus Therapeutics Holdings Inc. Q3 FY2024 Earnings Call

Good day, everyone, and welcome to today's Arcturus Therapeutics Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. Please note this call may be recorded, and I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Ms. Neda Safarzadeh, Vice President, Head of Investor Relations, Public Relations, and Marketing. Please go ahead.

Thank you, operator. Good afternoon, and welcome to Arcturus Therapeutics Quarterly Financial Update and Pipeline Progress Call. Today's call will be led by Joe Payne, our President and CEO, and Andy Sassine, our CFO. Dr. Pad Chivukula, our CSO and COO, will join them for the Q&A session. Before we begin, I would like to remind everyone that the 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. They involve known and unknown risks, uncertainties, and assumptions that may cause actual results, performance, and achievements to differ materially from those expressed or implied by this statement. 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 most recent form, 10-K, and in subsequent filings with the SEC. In addition, any forward-looking statements present our views only as of the date such statements are made. Arcturus specifically disclaims any obligation to update such statements. And with that, I will now turn the call over to Joe.

Thank you, Neda. It's good to be with you again, everybody. We look forward to providing our updates today on our quarterly investor call. I will begin my remarks with an update on progress with our vaccine franchise led by KOSTAIVE, our self-amplifying mRNA COVID-19 vaccine. We're thrilled about our recent commercial launch of KOSTAIVE in Japan. Last month, members of our senior management team, including myself, had the wonderful opportunity to travel to Japan to be vaccinated with KOSTAIVE in Tokyo. In addition to our team from Arcturus, we shared this experience with senior management from Meiji, CSL, and Arcalis. As you can imagine, it was an experience our team will never forget. In connection with the first sale of our COVID-19 vaccine, Arcturus received a $25 million commercial milestone. On the regulatory front, CSL Secures partner in Japan, Meiji Seika Pharma, announced earlier this year that they submitted a partial change application for an amendment to the manufacturing and marketing approval of KOSTAIVE to include domestic manufacturing sites in Japan, including Arcalis. When approved, this will allow for Meiji Seika Pharma to begin selling domestically produced KOSTAIVE this season. The European Medicine Agency continues to review the KOSTAIVE marketing authorization application. I've been impressed with how our team has worked diligently with the agency as they review the first potential self-amplifying mRNA product in Europe. The process is near completion with the CHMP opinion expected next month. As we look forward to achieving marketing approval in the U.S., we plan to file a BLA for KOSTAIVE in the first half of next year, which will be supported by positive results from multiple Phase 3 studies. We continue to collect meaningful clinical data for our proprietary next generation STARR mRNA platform. The company announced today another set of positive Phase 3 results wherein ARCT-2303, a monovalent XBB variant derivative of KOSTAIVE, met all four primary study objectives and key secondary objectives. The study supports co-administration of KOSTAIVE with licensed influenza vaccines. ARCT-2303 demonstrated superior immune response versus ARCT-154 as measured by neutralizing antibodies against Omicron XBB.1.5.6 in terms of geometric mean titer or GMT ratio and a seroconversion rate or SCR difference. Co-administration of ARCT-2303 and cell-based quadrivalent influenza vaccine showed non-inferior immune response versus standalone QIV administration. Co-administration of ARCT-2303 and QIV also showed non-inferior immune response versus standalone ARCT-2303 administration. Lastly, co-administration of ARCT-2303 and adjuvanted QIV in older adults showed similar responses versus standalone administration of ARCT-2303 and adjuvanted QIV. In September, the company along with our partners, CSL, Seqirus, and Meiji, announced new 12-month post-vaccination data for KOSTAIVE at Options 12 for the Control of Influenza Conference. The results of a head-to-head Phase 3 study demonstrated that KOSTAIVE maintained superior immunogenicity compared to the conventional mRNA vaccine COMIRNATY for up to one year against Wuhan-Hu-1 and Omicron, BA.4 and 5 and certain other variants, and at one-sixth of the dose of the comparator. These results were published in the Lancet Infectious Disease. Additional Phase 3 data presented at the Options Conference showed that bivalent KOSTAIVE, also known as ARCT-2301, induced superior immunogenicity over conventional bivalent mRNA vaccine COMIRNATY that persisted against key variants up to six months post-vaccination. Now shifting our attention to our mRNA therapeutics franchise, let's begin with an update on ARCT-032. ARCT-032 is an inhaled messenger RNA therapeutic for cystic fibrosis, formulated with Arcturus' lunar delivery technology that differentiates us from our competitors. In September, we received clearance of an investigational new drug application to the U.S. Food and Drug Administration. The FDA clearance of the IND application enables Arcturus to initiate a Phase 2 multiple ascending dose study to evaluate the safety, tolerability, and efficacy of ARCT-032 in people with cystic fibrosis. Our team is actively engaged in onboarding a substantial number of clinical sites to help us in this effort. We are fortunate to be working closely with the CF Foundation in this process. The Phase 2 study is presently screening individuals with CF who do not qualify for or benefit from CFTR modulator medicines due to dysfunctional or absent CFTR protein and/or drug intolerance. This study will allow us to evaluate FEB lung function improvement in individuals with CF. And I'm very pleased to report that the company is on track to share in-term Phase 2 proof of concept data for our CF program in the first half of 2025. I'll now move on to our ARCT-810 program. This is our messenger RNA therapeutic candidate for Ornithine Transcarbamylase or OTC deficiency. Earlier this year, Arcturus announced the expansion of the Phase 2 clinical program of ARCT-810 into the United States. This open-label multiple-dose study evaluating pharmacodynamics and safety is currently enrolling adults and adolescents requiring clinical management for OTC deficiency. Our placebo-controlled Phase 2 European study has completed the dosing phase. So these concurrent Phase 2 studies in Europe and the U.S. will allow us to evaluate meaningful biomarker changes in individuals with OTC deficiency. And I'm happy to report that the company is on track to share in-term Phase 2 proof of concept data in the first half of 2025.

Thank you, Joe, and good afternoon, everyone. The press release issued earlier today includes financial statements for the third quarter of 2024 and provides a summary and analysis of year-over-year and sequential financial performance. Please also reference our most recent Form 10-Q for more details on financial performance. We are very pleased with the launch of KOSTAIVE, our COVID-19 vaccine candidate in Japan. This represents an important milestone for Arcturus as it is the first commercial product in the company's history. We believe that this product highlights the differentiating aspect of samRNA technology and how it can potentially represent an improved vaccine option for patients. I am also happy to announce that we have received a $25 million commercial milestone with the first KOSTAIVE sale in Japan. I also went to Tokyo last month to get the KOSTAIVE vaccine with 32 executives from Arcturus, Arcalis, CSL, and Meiji. Due to the early clinical success of our cystic fibrosis program, Arcalis has become a strategic manufacturing asset for Arcturus and therefore we have decided not to sell our stake in Arcalis at this point in time. The strategic review process conducted by JP Morgan generated interest from financial and strategic participants which will benefit Arcturus and Arcalis in the future. We decided to expand our manufacturing product line with Arcalis to include respiratory mRNA therapeutics and therefore we are planning to transfer our cystic fibrosis manufacturing process technology to Arcalis. I will now provide a summary of our financial results for the third quarter of 2024. For the three months ended September 30th, 2024, we reported revenues of $41.7 million, a slight decrease from the $45.1 million reported in the same period in 2023. This small decrease is attributable to a decrease in CSL revenue as we achieved a milestone of $35 million during Q3 of 2023 compared to a milestone of $25 million during Q3 of 2024. This was offset by an increased revenue from the BARDA agreement. Total operating expenses for Q3 2024 were $52.4 million compared with $64.5 million for Q3 2023. Total operating expenses for the nine months ended September 30th, 2024, were $191.8 million compared with $195.9 million for the nine months ended September 30th, 2023. Research and development expenses were $39.1 million for Q3 2024 compared with $51.1 million for Q3 2023. The decrease was primarily due to $15.9 million in manufacturing expenses incurred in Q3 2023 related to the Meiji supply agreement and other clinical trials manufacturing batches as well as decreased facilities and equipment expenses. The decreases were primarily offset by a $3.6 million increase in clinical trial-related expenses for the COVID and flu programs. For Q3 2024, our loss was approximately $6.9 million or $0.26 per diluted share compared with a loss of $16.2 million or $0.61 per diluted share for Q3 2023. Cash, cash equivalents, and restricted cash were $294.1 million as of September 30th, 2024, and $348.9 million as of December 31st, 2023. Arcturus achieved a total of approximately $462.1 million in upfront payments and milestones from CSL as of September 30th, 2024, and expects to continue to receive future milestone payments from CSL supporting the ongoing development of the COVID and flu programs and three additional vaccine programs by CSL. Based on the current pipeline and programs, the cash runway is expected to extend into the first quarter of fiscal year 2027 and does not include any contribution from the sale of KOSTAIVE vaccines in Japan. In summary, the company remains in a strong financial position and has the cash runway needed to achieve multiple near-term value-creating milestones for the vaccine and therapeutic program. Furthermore, with the recent launch of KOSTAIVE in Japan, we look forward to reporting potential commercial revenues in 2025.

Thanks, Andy. We've continued to make exceptional progress on our mRNA vaccines and therapeutics pipeline. We are particularly excited about the launch of KOSTAIVE, the first commercial product in the company's history. And we're also pleased that both of our flagship mRNA therapeutic programs, ARCT-032 and ARCT-810 are on track for interim Phase 2 POC clinical data in the first half of 2025. I will now turn the call to the operator for Q&A.

Thank you. We will now go to Lili Nsongo with Leerink.

Hi. Good afternoon, and thank you for taking the question. I guess two questions from my side. So, first question regarding the commercial launch of KOSTAIVE in Japan. Anything you could give us maybe a little more granularity. So you had mentioned that 4 million doses had been delivered to Japan through partner Meiji, that they are also upping production. I was wondering if you could give maybe a little more color on the launch trajectory in Japan and expectations for the winter season going into 2025. Secondly, so for the OTC deficiency study, so the European study has completed for a while now, and so the U.S. study is ongoing. Would you mind giving maybe a little more color on the number of patients and type of data we should expect in the upcoming readout in the first half of 2025?

Thanks, Lili, for the question. Andy, with respect to the additional nuance on the commercialization process in Japan, do you want to handle that question?

Sure. Thanks, Lili. We're pretty excited about working with Meiji in Japan because, as you know, they're the number one flu vaccine company, and so they're in a very strong position to be able to launch the product very effectively. And if you may have paid attention to a recent press release, they've actually articulated that they were planning to sell roughly 4.5 million vaccines during the season with their guidance. Of course, we only shipped 4 million. The remaining vaccine must have come from the opportunity to produce them in ARCALIS in Japan. So we're all awaiting the announcement of that approval by the PMDA shortly, which should enable Meiji to have a full launch probably by December or so, with a vaccine that's actually made in Japan, which is pretty exciting for not only Meiji and CSL but the Japanese people overall. So we're not really pretty to give specific guidelines other than what they've been able to articulate publicly, but I would closely pay attention to any communications coming from Meiji and CSL regarding the launch and progress of the vaccine sales in Japan.

And pertaining to the OTC question, Lili, the U.S. expansion is going to be similar in size relative to what we did in Europe. We are enrolling younger and more advanced disease subjects. We did see some early signals that were encouraging in the European trial, but we plan to combine this data in what we share in the first half of next year.

Thank you.

We'll go next to Yasmeen Rahimi with Piper Sandler.

Good afternoon, team. This is Yasmeen for Yas. Thanks for taking our questions. First, regarding the Phase 2 cystic fibrosis study, could you share details on the size and cohorts you are considering? What doses are you planning to proceed with? For my second question, what do you believe is necessary to demonstrate proof of concept?

Pad, do you want to address that question, the CF study?

Yes, we will be examining what many of our competitors are doing regarding various biomarkers. Unfortunately, we cannot share much about the specific study design. Our plan is to recruit participants. We have completed our Phase 2 study and intend to start our study in the U.S. We will provide more data on our CF study later this year or early next year.

Yes, multiple doses are going to be evaluated in the CF study. It's an open-label study. There's no bronchoscopy included in this study. And FEV will be measured throughout the study. But with respect to specific time points and additional details, there'll be an appropriate time for us to share that. And that'll be at a later time.

All right. Thank you.

Thanks.

We'll move next to Whitney Ijem with Canaccord Genuity.

Hey, guys, thanks for taking the question. First, I just wanted to follow up on the commentary around vaccines in Japan and the switch to ARCALIS once it's approved. Is the idea that when ARCALIS is approved and it's manufactured domestically in Japan that there will be kind of a step up or an acceleration, just as we think about modeling quarter-over-quarter next year? And then the second question, to follow up on OTC, I think looking back, the interim Phase 2 data had originally been expected in the fourth quarter. So maybe I missed it. But what drove the shift to the first half of next year? Thanks.

Andy, do you want to address the first question?

Sure, Whitney. No, I think you were spot on there with that assessment. Meiji and ARCALIS are very proud to manufacture the first samRNA vaccine in Japan. It was evident by the response and the press that were all in attendance. They had over 30 press officials there. It was a well-attended press conference. Certainly, I think they would probably prefer to launch and articulate that this vaccine is made in Japan. Having shipments from ARCALIS in December will enable them to articulate that more clearly. So with respect to a more aggressive commercial launch, you could probably anticipate it would happen in the December-January timeframe, in my opinion. If you're looking at the timing of the revenue, it probably would happen in the first two quarters of next year.

And with respect to the OTC data, we completed dosing in Europe, and there was early evaluation of some of that data. The data is not locked, and we initiated the enrolling process in the U.S. prior to that. We thought it was wise to couple these together and provide the interim data update in the first half of next year.

Understood. Thanks.

Thanks.

We'll move next to Evan Wang with Guggenheim Securities.

Hi, guys. Thanks for the question. Just a few from me. Firstly, on KOSTAIVE, anything you can share on broader vaccination trends in Japan? So not just KOSTAIVE-specific. I know the Japanese season starts later, but has this been in line with Meiji's estimate to support the dose totals for the season? And also on KOSTAIVE, you highlighted kind of recognizing revenue in 2025. Can you remind us some of the reporting here and how Arcturus recognizes some of this revenue? And then third, on OTC and specific viruses, I'm just wondering, it's great to see some timelines for proof of concept in the first half of 2025. I'm just wondering what gives confidence in some of these timelines. Is dosing and recruitment thus far better than expected? Any additional color there would be helpful. Thanks.

Sure. Let's see, you had a question about revenues. Do you want to address that one first, Andy?

Sure. As you can see, when Meiji sells the vaccines in Japan, they will be reporting those sales to CSL on a quarterly basis. CSL will then in turn determine the allocation of the profit share between CSL, Meiji, and Arcturus. At that point in time, we'll be able to recognize these revenues once that allocation is completed. Keep in mind that we do have to offset the initial revenue by the 40% of the production cost that we are responsible for in the development of the program. That amount has not been communicated officially, but you can assume that it would probably incur at least a few million doses before you're able to offset those initial 40% of the development and production costs for the KOSTAIVE vaccine. I hope that was helpful.

And addressing your second questions about the KOSTAIVE trend and the CF timeline. I can comment that the team was in Japan and we got a really good feel for Meiji's presence in Japan in the vaccine industry. They have a large sales force. They have approximately 40% of the flu shot business in Japan. It was really good to see the kind of materials they're providing to a large number of physicians in Japan, as you can imagine. Clearly, there's an educational phase of the launch teaching people about this next-generation technology, but any additional details than that, it would be more appropriate for them to provide in their regular updates with respect to commercial guidance. I can say that I was very impressed with the management team and the commercial staff; they really know what they're doing. Regarding the CF timeline, the reason we're very comfortable is, first of all, the design of our trial is open label. It's not placebo controlled. There's no bronchoscopy involved or lung brushing, which can deter participation. We also have some early data that we've already shared in Phase 1B, including a Class 1 subject that had some early promising data. This data collection is helping us. We're also working with the CF Foundation, and, as we're onboarding a substantial number of sites, I think it's given us encouragement with these preliminary conversations that we should be well on track to deliver some data in the first half of next year.

We'll move next to Myles Minter with William Blair.

Hey, thanks for taking the questions. Three quick ones if I may. The first one is just on the guidance that you'd get the EMA approval milestone from CSL for potential approval of KOSTAIVE in the first quarter of '25. Does that imply that you'd expect to see a CHMP opinion issued at either the November or December meeting by the end of this quarter? First one. The second one is on the decision to keep the ARCALIS equity stake. Does that mean if Meiji does give additional manufacturing orders of KOSTAIVE to ARCALIS, that's something you could actually report on rather than just pushing back to Meiji for commercial guidance? And the third question is moving the CF program manufacturing to ARCALIS and having a U.S. focus Phase 2 clinical trial, does that mean you have to get FDA inspection of that facility? Thanks very much.

Andy, do you want to provide a first half?

Sure. We're obviously very encouraged by the opportunity with the early progress we've had in cystic fibrosis. Manufacturing and trying to plan strategically around a global production base is quite daunting, as addressing the Class 1 population requires roughly 17 kilograms per year. You need a well-orchestrated manufacturing base to address all that. ARCALIS has now become strategic because of that opportunity. They're a very low-cost and efficient operation, as you know. The drug substance, drug product, and DNA is all made there. By having it all in one location, we reduce substantial transportation logistical risks. There are many implications and opportunities. We've had to reevaluate our global supply base and are working closely with Aldevron, Danaher, Catalent, Recipharm, and Polymun. This has taken on a concerted effort. It's exciting but will take some work. Certainly, it makes ARCALIS a much more valuable partner right now, and we're looking forward to working more closely with them on the CF program.

And pertaining to EMA approval, we've clearly guided today that we're anticipating a CHMP decision in December. That obviously precedes a formal approval shortly thereafter that takes us into Q1. I think your assumption is fair. Did we address all your questions, Myles?

Just a quick one on the second one. Just with the manufacturing orders that could come to Meiji when the PMDA issues approval in December, if they do that, is that something you, as Arcturus, would be able to report on if they do indeed receive a bulk manufacturing order for KOSTAIVE? Thanks.

The short answer is no. But Andy, yes, go ahead.

We really can't comment on those, because that'll be up to Meiji and CSL to articulate that. Of course, we'll give you as much color as we can post-quarter, and hopefully that will enable you to have a better insight as to the ramp-up and the success of the Arcalis production on a quarterly basis.

Awesome. Appreciate you taking all the questions. Thanks.

Thanks, Myles.

We'll move next to Yanan Zhu with Wells Fargo.

Hi, thanks for taking our question. This is Quan for Yanan. So, I have a question on your CF program. Can you share with us your barcode for success on FEV1? And also, Vertex Moderna will report their VX-522 phase 1 with data also in the first half '25. So can you remind us of the differentiation of 032 versus VX-522? Thank you.

Yes, it's a wonderfully competitive area. This is great for patients in general in the CF community. We have key differentiation elements to our program and technology compared to our competitive peers. The first and foremost is we have a different delivery technology that we call Lunar. It's a chemically different lipid nanoparticle that is biodegradable, non-accumulating. We believe these chemical differences have proven to provide differentiated data pre-clinically. We have pre-clinical data in the ferret model that has shown a significant response after a single administration. I think that represents the differentiation I'm speaking to. We're also sharing data more visibly. We've already provided some phase 1B data demonstrating promising early response after just two administrations. Lastly, our purification IP is another differentiator. When dosing chronically and larger amounts of mRNA, it's particularly important in compromised lungs like the CF patient population, so having substantially pure mRNA molecules gives us a leading position here. I'll stop there, as I could talk for a while, but those are the key differentiators.

Right. Thanks for the colors. And would you mind sharing your barcode success on FEV1?

Because we're addressing a patient population with substantial unmet medical needs, these are the non-modulator responders, about 15% to 18% of the CF population. We're going after these individuals who lack excellent treatment options. The barrier for entry we need to establish for lung function improvement is, therefore, very small. We haven't provided any details on that yet. Our conversations with regulatory agencies mean we will keep those cards close to our chest. Any measurable improvement would be quite significant for this patient population, but we haven't shared a specific number yet. There will be an appropriate time to do that later on.

Yes, thank you for that. One quick question on 2303. Congrats on the data. Can you share with us what's the next step for the program? Are you ready to file, or what's your strategy? Thank you.

2303. The strategic purpose for these Phase III trials is to showcase the breadth of the platform, that the technology can be multi-antigenic, for example, in the bivalent trials we're doing. We're conducting these trials to collect an expanded safety database in multiple ethnicities around the world. All this supports a strong BLA application in the first half of next year. I don't foresee us marketing these products. The data is used to support the platform of KOSTAIVE in the United States.

Got it. Thank you for the colors.

Thank you, Quan.

We will move next to Pete Stavropoulos with Cantor Fitzgerald.

Hi, this is Samantha Schaeffer on the line for Pete. Thanks for taking our question. Can you touch on the H5N1 pandemic flu program? If you could remind us on key details for this non-CSL partner program and what to expect. Thanks.

Thank you. The short answer is we remain on track to get into the clinic this year. H5N1 is definitely important to BARDA. We're elevating our relationship with them, as you'll see in our filing documents, press release, and script. We're going to be getting into the clinic shortly.

Thank you.

We'll move next to Ed Arce with H.C. Wainwright.

Hi, everyone. This is Thomas. Congratulations on your progress today. First question, I would like to know what the Phase 2 data readout for the upcoming study and OTC is expected in the first half of next year. Which efficacy measurement do you think has the potential to support approval endpoints, or which efficacy endpoints should investors focus on?

That's actually a really good question. The data we're collecting is not only important to establish proof of concept for intravenously dosed mRNA in our platform, but a key part of the OTC strategy is identifying the appropriate biomarker if we choose to advance this into a pivotal trial or phase three trial. The data is important in the first half of 2025, but understanding which biomarkers we're collecting will inform our strategy for a phase three or pivotal trial. We won't communicate specifically what that biomarker strategy is today, but we can do so concurrently with the interim data sharing in the first half of next year.

Got it. And regarding the program, I have a partnership with CSL. Are there any updates on the Lunar flu program? I believe the last we heard was about the Phase 1 stage.

Yes, good question. Our CSL collaboration in the flu is very active. Multiple programs are involved, and funding for these has been increasing. We're meeting regularly with CSL. With respect to data sharing and any commercial strategy on these, we respectfully agree with CSL to provide that information. All we can say is that the flu program is very active with multiple programs, and the funding is increasing. This is a priority for our collaboration.

Got it. One more question from us, this one first, Andy. Just wonder, what's the 25 million milestone from UG? Was that entire amount recognized in the third quarter or is it going to be spread over several quarters?

Yes, the 25 million when it's recognized, go ahead, Andy.

Yes, thank you, Joe. The 25 million is going to be reported just like all of our other development milestones at this point. The SC-606 requires that we probably amortize around 90% to 93% of the milestone in the quarter that it was earned. The remaining amount is amortized over a production-completion method. That's why you see the accruals on some of the CSL revenues that occur regularly in our quarters. Hopefully that gives you a perspective on what we've recorded in the quarter.

Got it. Thank you for taking all the questions. Looking forward to the upcoming progress with KOSTAIVE in Japan.

Thank you.

Thank you.

And with no further questions holding at this time, I'll turn the conference back to Joe Payne for any additional or closing remarks.

Hey, thanks everyone for participating on the call. If there are any remaining questions, please don't hesitate to reach out to our team, and we'll get back to you as soon as we can. Thanks and good night.

Thank you, ladies and gentlemen, that will conclude today's program. We thank you for your participation. You may disconnect at any time.