Earnings Call Transcript - ATYR Q4 2021

Operator, Operator

Good afternoon, ladies and gentlemen and welcome to aTyr Pharma Fourth Quarter and Full Year 2021 Conference Call. As a reminder, this conference is being recorded for replay purposes. It is now my pleasure to hand the conference call over to Ashlee Dunston, aTyr’s Director of Investor Relations and Corporate Communications. Ms. Dunston, you may begin.

Ashlee Dunston, Director of Investor Relations and Corporate Communications

Thank you and good afternoon everyone. Thank you for joining us today to discuss aTyr’s fourth quarter and full year 2021 operating results and corporate update. We are joined today by Dr. Sanjay Shukla, our President and CEO; and Ms. Jill Broadfoot, our CFO. On the call, Sanjay will provide an update on our corporate strategy, including our clinical program for efzofitimod and our research and discovery programs in neuropilin-2, including our preclinical program for ATYR2810. Jill will review the financial results and our current financial position before handing it back to Sanjay to open up the call for any questions. Before we begin, I would like to remind everyone that except for statements of historical facts, the statements made by management and responses to questions on this conference call are forward-looking statements under the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that can cause actual results to differ materially from those in such forward-looking statements. Please see the forward-looking statement disclaimer in the company’s press release issued this afternoon as well as the risk factors in the company’s SEC filings and included in our most recent annual report on Form 10-K, quarterly reports on Form 10-Q and in other SEC filings. Undue reliance should not be placed on forward-looking statements which speak only as of the date they are made, as facts and circumstances underlying these forward-looking statements may change. Except as required by law, aTyr Pharma disclaims any obligation to update these forward-looking statements to reflect future information, events or circumstances. I will now turn the call over to Sanjay.

Sanjay Shukla, President and CEO

Thank you, Ashlee. Good afternoon, everyone, and thank you for joining us for our fourth quarter and full year 2021 results conference call. 2021 was a milestone year for aTyr, which culminated in clinical proof of concept for our lead therapeutic candidate efzofitimod, which was formerly known as ATYR1923, and validation for our tRNA synthetase biology platform. The positive results reported from our Phase 1b/2a study on efzofitimod in pulmonary sarcoidosis suggests that this novel immunomodulator has the potential to be a transformative disease-modifying therapy for patients with this and other fibrotic lung diseases with high unmet need. We have carried this momentum into the start of 2022. The receipt of the U.S. Food and Drug Administration, or FDA, orphan drug designation for efzofitimod for sarcoidosis underscores the significant unmet need for new patient treatments for these patients. And our positive end of Phase 2 meeting with the FDA has provided a path forward to initiate a planned registrational study of efzofitimod that will incorporate their feedback. Preparations for this study are underway, and we are on track to initiate the study in the third quarter of this year. We also remain on track with the IND-enabling work for ATYR2810, or 2810, our lead anti-neuropilin-2, or NRP2, antibody, and we expect to initiate a Phase 1 study in cancer patients in the second half of this year. Importantly, the strength of the proof-of-concept data for efzofitimod provided the opportunity to generate the necessary capital to carry out the planned registrational trial, which we expect to be the highest value-driving catalyst for aTyr yet. We ended 2021 with approximately $108 million in cash and our strong balance sheet positions us well to advance our clinical programs and progress our pipeline in the year ahead. As we begin, I will summarize a few highlights since we last spoke in November. We will be proceeding with the advancement of efzofitimod in pulmonary sarcoidosis following a positive end of Phase 2 meeting with the FDA. We received orphan drug designation from the FDA for efzofitimod for the treatment of sarcoidosis. We announced an agreement with FUJIFILM Diosynth Biotechnologies, a leading contract development and manufacturing organization for biologics, for the manufacture of efzofitimod. And we had a poster accepted for presentation at the upcoming American Association for Cancer Research, or AACR, Annual Meeting that details additional preclinical data generated for 2810 in cancer. We’re very proud of all that we accomplished in 2021, and we’re off to a strong start thus far in 2022, which provides a solid foundation to execute on what we expect to be another highly productive year for aTyr. Let’s begin talking about our clinical program for efzofitimod. Efzofitimod is the potential first-in-class immunomodulator for fibrotic lung disease. Efzofitimod is a novel Fc fusion protein based on the naturally occurring splice variant of the lung-enriched tRNA synthetase HARS fragment that downregulates aberrant immune responses in inflammatory disease states. Efzofitimod has been shown preclinically to downregulate inflammatory cytokines and chemokine signaling and reduce inflammation and fibrosis. NRP2 is upregulated on key immune cells known to play a role in inflammation and is enriched in inflamed lung tissue. Efzofitimod binds selectively to NRP2 and therefore has the potential to normalize the immune system, serving to resolve inflammation, prevent progressive fibrosis and thereby stabilize lung function and alleviate morbidity and mortality for patients. We are developing efzofitimod as a potential treatment for patients with fibrotic lung disease, initially focusing on patients with interstitial lung disease, or ILD, a group of rare immune-mediated disorders that can cause progressive fibrosis. Our initial ILD indication for efzofitimod is pulmonary sarcoidosis. Sarcoidosis is an inflammatory disease characterized by the formation of granulomas, or clumps of immune cells, in one or more organs of the body. Sarcoidosis that affects the lungs is called pulmonary sarcoidosis, and the lungs are affected in more than 90% of sarcoidosis cases. The formation of these granulomas is driven by persistent aberrant inflammation, and left untreated, it can lead to irreversible scarring or fibrosis, diminished lung function, which may lead to respiratory failure or the need for a lung transplant. We estimate there are close to 200,000 patients in the U.S. with pulmonary sarcoidosis, although estimates do vary. About half of all patients will require some form of systemic therapy, and unfortunately, 30% of all patients will have chronic progressive disease despite available treatments. The current standard of care typically includes treating the inflammation with corticosteroids and other immunosuppressive therapies, which can help manage inflammation and alleviate symptoms such as cough and shortness of breath. However, they have no demonstrated efficacy on disease regression and can result in serious long-term toxicity. Additionally, many patients do not respond to currently available treatments. There is a substantial need for a safer, more effective treatment that could reduce or replace the requirement for chronic corticosteroid or other immunosuppressive therapy and prevent disease progression. Considering that pulmonary sarcoidosis is a rare disease with limited treatment options, we filed a request with the FDA to obtain orphan drug designation for efzofitimod. Orphan drug designation is granted to support the development of medicines for patients with unmet needs for disorders affecting fewer than 200,000 people in the U.S. This designation provides certain benefits, including the potential for seven years of market exclusivity following regulatory approval, exemption from FDA application fees and tax credits for qualified clinical trials. We are pleased to announce earlier this year that the FDA granted orphan drug designation for efzofitimod for sarcoidosis. This designation emphasizes the need for new treatment options for these patients and will help support our advancing clinical program and future commercial strategy. The orphan drug designation followed the positive results from our proof-of-concept study for efzofitimod in pulmonary sarcoidosis that we reported in September 2021. Let’s briefly recap some of the key findings from that important study. Regarding safety and tolerability, monthly dosing of efzofitimod was safe and well tolerated at all doses. There were no drug-related serious adverse events and no signals of immunogenicity. Regarding steroid reduction and some of the other exploratory assessments of efficacy, the study demonstrated a consistent dose response and improvements compared to placebo across all key efficacy endpoints. These included steroid reduction of 58% overall from baseline compared to placebo in steroid usage post taper in the 5-milligram per kilogram treatment group and a 49% overall from baseline reduction compared to placebo in the 3-milligram per kilogram treatment group. Complete steroid taper to 0 milligrams was achieved and maintained for 33% of patients in the 5-milligram per kilogram treatment group compared to no patients in any other group. Clinically meaningful improvement in forced vital capacity, or FVC, which is a measure of lung function, at week 24: 3.3% in the 5-milligram cohort and 2.8% in the 3-milligram cohort, both compared to placebo. Clinically meaningful improvement over placebo was observed for symptoms and sarcoidosis-specific quality of life indices in the 5-milligram and 3-milligram treatment groups. Finally, there were dose-dependent trends of improvement in key inflammatory biomarkers compared to placebo with control seen in all efzofitimod-treated groups. To the best of our knowledge, this is the first randomized, placebo-controlled trial of any therapy for pulmonary sarcoidosis that demonstrates effects on physiologic and quality of life measures concurrent with steroid reduction. These findings confirm the potential of efzofitimod to be a tremendously impactful therapy. We plan to present some of these findings in more detail in several posters that have been accepted for presentation at the upcoming American Thoracic Society, or ATS, International Conference, which is scheduled to take place May 13 through 18 in San Francisco this year. We have also submitted a manuscript with full results to a major medical journal to be considered for publication in the near future. Following the proof-of-concept results, we met with the FDA in a Type B end of Phase 2 meeting to discuss these data and subsequent clinical development and path to registration for efzofitimod for pulmonary sarcoidosis. We are very pleased with the productive feedback we received. As a result, we intend to initiate a planned registrational study of efzofitimod in the third quarter of this year, following the FDA’s review of the data package including data from the nonclinical program, early clinical trials and the recently completed Phase 1b/2a study. We are proceeding with the advancement of efzofitimod. The FDA discussed endpoints that we detailed in our proposed registrational study and the prioritization of outcome measurements that would best support the evaluation of efzofitimod efficacy, including a combination of both objective and subjective clinically meaningful outcomes, as the assessment of these outcomes is what is most meaningful to providers and patients. The FDA advised the continued evaluation of multiple doses of efzofitimod in a longer duration study to establish a controlled safety database that supports the determination of the optimal dose for chronic use. While we saw the strongest efficacy effects in the 5-milligram per kilogram treatment group in the Phase 1b/2a study, signals of efficacy demonstrated in the 3-milligram per kilogram treatment group also warrant further exploration in order to assess the safest, most effective dose rather than only a maximum effective dose. In addition, the FDA determined that the completed, ongoing and planned nonclinical studies were considered supportive of clinical development, and a waiver of the carcinogenicity study requirement was granted. Based on the weight of evidence from the nonclinical studies, no additional animal safety studies are required for this novel biologic. We were fortunate to be joined in this meeting by some very strong supporters. This included Dr. Robert Baughman, Professor of Medicine and pulmonology at the University of Cincinnati Medical Center. Dr. Baughman is the world-leading authority on sarcoidosis, and he came away from the meeting impressed with the FDA's appreciation of the need for a therapeutic that demonstrates a steroid-sparing effect in these patients. We were also joined by Mary McGowan, CEO of the Foundation for Sarcoidosis Research, or FSR, who is our partner for the Phase 1b/2a study. The FSR is a strong advocate regarding the need for safer, effective treatments including those that focus on patient-centered outcomes and serve as a critical and much needed voice on behalf of the sarcoidosis community. This positive end of Phase 2 meeting is an important milestone for aTyr, and we now have a path forward to initiate a planned registrational study of efzofitimod that will incorporate the feedback we received from the FDA. As the most advanced clinical development program for pulmonary sarcoidosis, we have an opportunity to establish efficacy endpoints that demonstrate clinically meaningful treatment effect, which will serve as the basis for future FDA review of other therapies in this significantly underserved disease. Preparations for the study are underway, and we are on track to initiate this study in the third quarter of this year. We are working to finalize the protocol, incorporating feedback from the FDA for an IND submission. We’re planning for this study to be a large worldwide trial spanning multiple centers throughout the U.S. and other countries. In response to our proof-of-concept data, we’ve received excellent interest from physicians who may want to serve as investigators, and we intend to implement a robust clinical operations plan that will permit us to open numerous clinical trial sites to support timely completion of this next study. Kyorin Pharmaceuticals, our partner for efzofitimod for ILD in Japan, will be an important part of the study, having successfully completed a required Phase 1 safety study of efzofitimod in healthy Japanese volunteers, which permits Kyorin to join this late-stage study in pulmonary sarcoidosis patients. Kyorin will manage all operations and enrollment in Japan and may intend to use this data to support their own filing of efzofitimod in Japan. As we’ve mentioned before, we plan to be active at the upcoming ATS conference in mid-May and anticipate being able to provide additional updates on this program at that time. Now let’s take a few minutes to discuss our preclinical programs. Through a broad receptor screen for efzofitimod, which is derived from the tRNA synthetase HARS, we discovered its binding partner, NRP2, as a target. NRP2 is a cell surface receptor that plays a key role in lymphatic development and in regulating inflammatory responses. NRP2 binds to multiple ligands and co-receptors to influence various cellular functions, and we believe it’s a compelling therapeutic target, not only in inflammation and fibrosis, but also in cancer. To approach this target in a manner distinct from efzofitimod, we developed a panel of blocking antibodies to selectively target distinct domains of this untapped target, including those interacting with semaphorins, VEGF and certain chemokines, such as CCL21. One of the blocking antibodies we developed, 2810, is a fully humanized monoclonal antibody that selectively and functionally blocks the interaction between NRP2 and VEGF. This novel antibody is our lead candidate to advance the clinical development for cancer, including aggressive solid tumors with increased NRP2 expression, which is linked to worsened patient outcomes and promotion of resistance to certain current therapies in cancer. We have generated a body of compelling preclinical data in multiple aggressive solid tumor models, including triple-negative breast and non-small cell lung cancers, demonstrating significant effects on tumor growth with the treatment of 2810, including when administered in combination with widely used anticancer therapeutics, such as chemotherapeutic agents like cisplatin or the targeted VEGF antibody bevacizumab. We have gained key mechanistic insights regarding the ways in which 2810 may mediate its anti-tumor effects, and as we continue to generate valuable data for 2810 to determine tumor types and the exact treatment settings in which this novel antibody may demonstrate the most beneficial treatment effects. We plan to present some of these new findings in a poster at the upcoming AACR Annual Meeting on Monday, April 11 in New Orleans. The presentation will further characterize the shared elements that render certain solid tumor types responsive to 2810 treatment. We are in the process of completing the required work for 2810 to support its planned clinical development in oncology. We’re currently finishing up some remaining IND-enabling activity and honing in on selection of an indication. Manufacturing activities with our partner, Lonza, remain on track, and we expect to initiate a Phase 1 study of 2810 in cancer patients in the second half of this year. Finally, we continue to mine our tRNA synthetase biology platform, which is the foundation for aTyr’s science and approach to drug development, to discover new targets and signaling pathways affected by these extracellular fragments in order to yield new pipeline candidates. There are 20 tRNA synthetase gene families and our intellectual property portfolio covers protein derivatives from all of these with over 300 protein compositions patented. I’ll now turn it over to our Chief Financial Officer, Jill Broadfoot, to review our financial results.

Jill Broadfoot, Chief Financial Officer

Thank you, Sanjay. I’m happy to report that we ended 2021 with $107.9 million in cash, cash equivalents and investments. This includes net proceeds of approximately $80.6 million raised through a public offering in September 2021, a milestone payment received from our partner, Kyorin, and use of our equity vehicles. On the expense side, research and development expenses were $23.3 million for the year ended 2021, which consisted primarily of product development costs for the efzofitimod and 2810 programs. Program costs for efzofitimod included preparation for the upcoming planned registrational trial in pulmonary sarcoidosis, which included manufacturing of clinical trial material and initiation of technology transfer activities with FUJIFILM Diosynth Biotechnologies. Program costs for 2810 included costs related to IND-enabling activities and the initiation of manufacturing activities with Lonza. General and administrative expenses were $10.8 million for the year ended 2021. This included an increase in the number of employees as we prepare for the efzofitimod planned registrational trial in pulmonary sarcoidosis and a Phase 1 clinical trial of 2810 in cancer. Common shares outstanding were 27.8 million and fully diluted shares were 29.2 million as of December 31, 2021. For 2022, we expect an increase in expenses as we prepare to initiate two clinical trials. In addition to clinical trial costs, we will continue to incur manufacturing expenses for the tech transfer to FUJIFILM and additional clinical trial material manufacturing costs for both efzofitimod and 2810. We expect some of those expenses to be offset by a potential double-digit milestone payment from Kyorin, which is based on certain clinical development goals that we expect to achieve this year. With our current and projected year-end cash position, along with a clean balance sheet, we feel like we’re in a strong position to carry out our key catalysts for this year. Now I’d like to turn the call back over to Sanjay before we open it up to Q&A.

Sanjay Shukla, President and CEO

Thanks, Jill. Overall, we’re delighted with all that we achieved in the past year, generating clinical proof of concept for a lead therapeutic candidate, efzofitimod, which also validated our tRNA synthetase platform and NRP2 as a target. We progressed IND-enabling activities for 2810 and continue to use our tRNA synthetase engine to generate new targets and signaling pathways that warrant further exploration as potential pipeline candidates. We invested in manufacturing for both efzofitimod and 2810 to assure the necessary clinical trial material to support future studies, and we raised valuable capital that shored up our balance sheet and puts us in good position to continue to advance our programs. With the receipt of the orphan drug designation for efzofitimod for sarcoidosis and the positive end of Phase 2 meeting with the FDA, we’re intending to initiate a planned registrational study in the third quarter of this year. Our partner, Kyorin, in Japan, will join the study, and we expect upcoming clinical development activities for efzofitimod this year to yield a milestone payment, adding to the $10 million received thus far under this licensing agreement. We’re also on track to initiate our Phase 1 study for 2810 in cancer in the second half of this year, which will put us with two newly initiated clinical trials for this year, which we expect to serve as key value drivers for aTyr in the years ahead. We appreciate your interest and continued support. At this time, Jill and I will be happy to take your questions.

Operator, Operator

Thank you, sir. Your first question comes from the line of Ken MacKay with RBC Capital Markets. Please go ahead.

Ken MacKay, Analyst, RBC Capital Markets

Hi, thanks for taking my question and congrats on the progress. First question is on 2810. As you’re moving that into the clinic, are there any indications or sort of broad classes of oncologic indications that stand out as potentially the most amenable to treatment, whether solid or liquid tumors, or are there any biomarkers that could potentially be indicative of a higher likelihood of response based on your preclinical data? And then second question is on efzofitimod, and just wondering what the final steps are towards a Phase 3 design finalized and implemented as we get a little bit closer to Q3? Thanks, and congrats again.

Sanjay Shukla, President and CEO

Great. Thanks, Ken, for the question. So your first question about 2810: we’re very much anchored to solid tumors. There was quite a bit of literature early on, which is why we targeted neuropilin here, that neuropilin-2 was associated with some poor prognosis in some aggressive forms of cancer, including triple-negative breast cancer, lung cancer, renal cell and certain neuroendocrine phenotypes. So we really focused on solid tumors first and foremost, and we are now looking at those particular tumors where we’ve seen 2810 most effective in our preclinical animal models. When resistance starts to develop for many of these cancers to current agents, we may be able to look at how neuropilin expression is increased, perhaps as a resistance mechanism. This is the sort of work that we’re currently going to be highlighting at AACR coming up next month. So I would say stay tuned as we get closer to an indication. But based on historical data, we see some strong effects of 2810 in solid tumors; we expect the initial indication to be a solid tumor that is enriched with a neuropilin signature. We continue to look at other biomarkers right now to hone in on which tumor types are most responsive, and we’re doing so in a systematic, data-driven manner so that once we launch the Phase 1 trial, we expect 2810 to demonstrate objective responses in the subclasses of solid tumors we pursue. To your second question around efzofitimod: at this point, Ken, we’ve taken the feedback from the FDA. There was a significant amount of feedback. It was a very productive meeting—very collegiate and collaborative. We now have a clear understanding of how to prioritize endpoints, the design of this trial, the statistical modeling and the assumptions. This will be submitted as part of an IND package. Once we actually receive IND clearance, that’s the time for us to get into all of the operational details. We want to follow the path the FDA has mapped out for us and incorporate their guidance. I expect a successful IND in the near future.

Ken MacKay, Analyst, RBC Capital Markets

Perfect. Thank you.

Operator, Operator

Thank you. Your next question comes from the line of Ted Tenthoff with Piper Sandler. Please go ahead.

Ted Tenthoff, Analyst, Piper Sandler

Great. Thanks very much for the update. Appreciating what you were just saying and that there is still a little bit of follow-up to have with the FDA for the Phase 3 trial design. I’m wondering if you can give us a sense for what the doses or how many doses might be included in the registrational study. Would this go back to doses that were evaluated in the Phase 1b/2a? Or could this even look at potentially higher doses? Thanks.

Sanjay Shukla, President and CEO

Hi, Ted, good question. We are thrilled with the efficacy that we observed, particularly with 5 milligrams per kilogram, but also with our 3-milligram per kilogram cohort. This was discussed with the FDA. The agency felt that we saw robust clinical efficacy in 3 milligrams as well. So the guidance was to not give up too soon on 3 milligrams. This will allow us to look at both 3 and 5 milligrams in the next study. One thing to remember with biologics is the concern that if you keep pushing the dose higher, you may find off-target effects. Preclinically, and in healthy volunteers, we have seen very good, consistent tolerability and no safety signals. But in larger trials there is always potential for unforeseen effects. We think adding a 3-milligram arm in addition to 5 milligrams will de-risk the program because it gives us another shot on goal. If anything were to develop at 5 milligrams, 3 milligrams may still be effective. Regarding going higher, we have done post-hoc modeling with a well-known clinical pharmacology group and are confident we have achieved EMAX. The 5-milligram effects are beyond the threshold of clinical importance, and the 3-milligram data is also beyond clinically meaningful improvement. So we plan to move forward with both doses.

Ted Tenthoff, Analyst, Piper Sandler

Yes, really helpful. I appreciate that color. And maybe just a quick follow-up. So how big of a safety database is the FDA looking for or how many patients do you think you might need to enroll per arm with the control? Thanks.

Sanjay Shukla, President and CEO

That’s another great question. My general view is the FDA typically likes to see around 200 patients with long-term exposure in a safety database for many indications. In rare diseases it can be challenging to reach that number. Thus far, we have experience in humans north of 30 to 40 patients when you include the healthy volunteer trial. In the next study, if we include two doses, you might have closer to 150 patients exposed in a trial that might extend to a year. Adding that to the prior 30 or 40 patients gets us closer to the safety database goal. This is another reason why including another dose in the next study is helpful; it adds to the body of evidence that the drug is safe and well tolerated, while allowing us to compare efficacy between 3 and 5 milligrams.

Ted Tenthoff, Analyst, Piper Sandler

That’s really helpful. Thanks, Sanjay.

Operator, Operator

Thank you. Your next question comes from the line of Zegbeh Jallah with ROTH Capital. Please go ahead.

Zegbeh Jallah, Analyst, ROTH Capital

Yes. Thanks for taking my question. Just had a couple of ones here for you. I think the first is just about whether or not for efzofitimod, you will need to go lower than 3 milligrams just because you mentioned needing to determine whether 3 milligrams was the minimum efficacious dose. So could you maybe have to explore 2 milligrams, for example?

Sanjay Shukla, President and CEO

No, I think at this point, having tested 3 and 5 milligrams, both were observed as safe and both showed really nice activity in our previous trial, so we’re going to go with what works. I think that was primarily what the discussion was with the FDA: those are the two doses to anchor on as we think about the next trial.

Zegbeh Jallah, Analyst, ROTH Capital

Thanks, Sanjay. I asked this one before, but I'm wondering if there was any change to the strategy around the patient population being enrolled into the study, meaning disease severity, because one of the key things you wanted to do with the last study was make sure the patients weren’t too far gone, meaning too fibrotic. So is that the same intent here to go after that same patient population and use very similar enrollment criteria for the next study?

Sanjay Shukla, President and CEO

Yes, that’s a great question. We want to stick to what’s working and not tinker too much with criteria given the strong results we saw previously. From a rationale perspective, patients who have more inflammation and less established fibrosis are more likely to be disease-modifiable, so we will put criteria similar to what we had in our last trial. You might see a few more patients come in. One of the things we’re discussing is potentially lowering the threshold of entry in certain regions where practice patterns differ; for example, in Japan a heavier dose of prednisone might be 7.5 milligrams. This could be something we consider for certain regions. Another point to remember is that we saw a signal of patients getting to zero steroids, which has generated a lot of interest. If patients have been on, say, 8 milligrams a day for many years, they may want the opportunity to try to get off steroids. That is the kind of patient population that may seek to be included in our trial. On the whole, we will be looking for a phenotype that is highly inflamed, not yet very heavily scarred or end-stage sarcoidosis. In a worldwide trial, we also must account for differences in treatment practices across regions. Stay tuned for details as soon as we get the green light post-IND approval.

Zegbeh Jallah, Analyst, ROTH Capital

Thank you. I’ll just double my last questions here. The next one is for Jill. You have a strong cash balance, but I was wondering in terms of the milestones from Kyorin — do you expect to receive another milestone payment when you start the Phase 3 study, and apologies if you’ve already mentioned this? And then will Kyorin, which is covering expenses associated with Japan, be helping with additional expenses and thereby de-leveraging some of the costs in the U.S. or elsewhere as well? And then lastly for 2810 I wanted to clarify what’s needed to pin down the timing of the IND. Is it a matter of indication selection, manufacturing, or other factors driving the timing into the second half of the year? Thanks again and congrats on the progress.

Jill Broadfoot, Chief Financial Officer

Zegbeh, I’ll take the Kyorin questions. With regards to the milestone, we received $10 million so far. We aren’t able to discuss specific milestone triggers per se, but they will be related to initiation of the Phase 3 trial in their territory. We are looking forward to that, and hopefully they’ll be joining the trial soon after we initiate in the third quarter. When Kyorin initiates their trial, they will pay for all of their trial costs in Japan; they are not paying for anything in the U.S. So those costs are completely separate. We have structured the clinical trial to maintain a clear distinction between the two territories. What they are also paying for is the clinical trial material that they will be using in Japan, on a cost-plus basis with a small markup. That will be another way we will be able to generate a bit of income in the third or fourth quarter of this year.

Sanjay Shukla, President and CEO

I’ll take your 2810 questions, Zegbeh. We want to get the efzofitimod trial launched first and prioritized. Then we will start 2810 shortly thereafter. Right now, we are coalescing on indication selection and the academic work we will present at AACR will help indicate which types of solid tumors to target. We expect to have two clinical trials launched this year, which should be key value drivers for aTyr.

Zegbeh Jallah, Analyst, ROTH Capital

Thanks, Sanjay. Looking forward to the data at AACR?

Sanjay Shukla, President and CEO

Me too. Thanks for the question.

Operator, Operator

Thank you. Your next question comes from the line of Yale Jen with Laidlaw & Company. Please go ahead.

Yale Jen, Analyst, Laidlaw & Company

Good afternoon. Thanks for taking the questions and my congrats to you guys as well. Just got two here. The first one is for Sanjay: you did mention about the functional endpoint during your prepared remarks. Are you suggesting or potentially that will be the primary endpoint to be considered for the Phase 3 study or are we reading into too much of that and still to be determined?

Sanjay Shukla, President and CEO

No, what I can tell you from the feedback from the FDA is that steroid reduction was a major topic of discussion and it was well received. There was recognition that steroid reduction may be among the most meaningful endpoints for patients and providers. We also know FVC has been used for IPF drugs, though FVC may not capture benefit in all forms of ILD. The agency provided guidance on a combination of endpoints—steroid reduction, FVC and symptom improvement—and how to prioritize them. We have taken that guidance and written a protocol. As I mentioned earlier, stay tuned. What I can highlight is how impressed experts have been with the ability to reduce and potentially eliminate steroids. That could really change the treatment paradigm for patients with fibrotic lung disease. We are the first therapy, to my knowledge, to show physiologic and quality-of-life effects while reducing steroids, which has excited the medical community.

Yale Jen, Analyst, Laidlaw & Company

Okay, great. That’s very helpful. One more follow-up: earlier this year you suggested wanting to explore other ILDs. What are your thoughts on timing for potential expansion into other ILDs and any preferences on which ILDs might be most relevant at this moment?

Sanjay Shukla, President and CEO

We have demonstrated strong preclinical efficacy in models of scleroderma-associated ILD and pneumonitis. We believe efzofitimod could be useful in those indications as well. As a smaller company, we are prioritizing pulmonary sarcoidosis for now. Those other ILD indications are opportunities we may pursue in the future, but for this year our priority is the registrational trial for pulmonary sarcoidosis and launching 2810 in oncology.

Yale Jen, Analyst, Laidlaw & Company

Okay, great. That’s very helpful. Again congrats on the progress.

Operator, Operator

Thank you. Your next question comes from the line of Joe Pantginis with H.C. Wainwright. Please go ahead.

Joe Pantginis, Analyst, H.C. Wainwright

Hi guys. Good afternoon. A couple of questions. Sanjay, you have gotten this question already in a few iterations and about the design of the pivotal study. I certainly agree with you that many biotechs in the past have jumped the gun regarding discussions with the FDA. But based on your experience, I would think you wouldn’t have put up that press release unless you already had the minutes in hand. So based on the minutes, are there any open discussions about the endpoints—what might be the primary endpoint?

Sanjay Shukla, President and CEO

Endpoint selection was a major part of our discussion. We received clear guidance and have prioritized endpoints and study duration. I will let the FDA provide the formal clearance, but I can say the trial will be properly powered and statistically rigorous. We expect to include both 3- and 5-milligram arms, it will be placebo controlled worldwide, and we will use entrance criteria similar to what worked in our previous trial. We want to replicate and confirm those findings in a larger study.

Joe Pantginis, Analyst, H.C. Wainwright

I understand. Thanks. And then what is Kyorin doing in the background besides manufacturing ramp-up or their own clinical trial preparedness ahead of the pivotal study?

Sanjay Shukla, President and CEO

Kyorin will have discussions with the Japanese regulatory authority, the PMDA, and that will follow prior to them launching in Japan. They will purchase material from us at a small premium. Unlike many biotechs, we invested in manufacturing during the pandemic to avoid long CDMO lead times, and that has helped us avoid delays. Once they receive regulatory clearance, they will open centers in Japan and begin enrolling patients in a staggered manner.

Joe Pantginis, Analyst, H.C. Wainwright

Got it. And then on 2810, is the initial Phase 1 intended to be an all-comers solid tumor study with target expression, like a basket trial, or are you narrowing to one or two tumor types for the initial trial?

Sanjay Shukla, President and CEO

That’s the key question. When we submit the IND, the design will reflect our selection of indications. We are deciding whether to run a basket trial including multiple neuropilin-enriched solid tumors or to focus on one or two tumor types. The AACR data and our ongoing preclinical work will inform that selection. We’re a data-driven company, and the data will guide which indications to include.

Joe Pantginis, Analyst, H.C. Wainwright

Got it. Okay. Thank you.

Operator, Operator

Thank you. Your next question comes from the line of Hartaj Singh with Oppenheimer & Company. Please go ahead.

Hartaj Singh, Analyst, Oppenheimer & Company

Great. Thank you. Sanjay, Jill, everyone, really nice update. I just have a few questions. Sanjay, on the pivotal study, would it be possible to have a primary endpoint analysis where you have steroid reduction over 24 weeks and then FVC for the full readout—meaning you could show steroid reduction over 24 weeks versus placebo and potentially seek an interim outcome, followed by the full FVC readout? Is something like that even possible in pulmonary sarcoidosis? And then I have a couple of follow-ups.

Sanjay Shukla, President and CEO

I like the way you’re thinking. Interim analyses can reduce alpha and require careful statistical planning. A DSMB could certainly review results, and if there are meaningful steroid reductions and safety benefits, that could be considered in an interim context. However, we need to be careful about the statistical ramifications. Our trial will consider both objective and subjective endpoints in the hierarchy, and steroid reduction and FVC will play key roles. We are fortunate to have observed large steroid reductions and FVC improvements in our prior trial, and the next trial will be designed to test those effects robustly.

Hartaj Singh, Analyst, Oppenheimer & Company

That’s great. One follow-up on commercial: I know it’s early, but given your outreach to patients and physicians around steroid reduction and pulmonary sarcoidosis, can we expect those activities to ramp up over the next 12 to 24 months as you prepare for the registrational trial? And one last question after that.

Sanjay Shukla, President and CEO

Absolutely. We’ve thought of this market as a multi-billion dollar global opportunity for efzofitimod, including sarcoidosis and other fibrotic lung diseases. Steroid reduction is a major unmet need. We will continue outreach to the medical community and patient groups, and expect commercial planning and education to ramp up as we get closer to the market over the next one to two years. We believe efzofitimod could play an important role, and we will communicate more as we approach regulatory milestones.

Hartaj Singh, Analyst, Oppenheimer & Company

Great. Last question: without front-running ATS data, between last year’s readout and now you’ve had meetings with the FDA and discussions with patient groups and clinicians. What should we pay particular attention to at ATS in terms of clinical or mechanistic insights that might be most important as you head into the registrational study?

Sanjay Shukla, President and CEO

At ATS, the key takeaway will be the consistency and breadth of response we’ve observed—steroid reduction, FVC improvement, symptom improvement and inflammatory biomarker control—with both 3 and 5 milligram doses. The medical community will be focused on the durability of responses and the potential for efzofitimod to be a frontline therapy that reduces reliance on steroids, which have significant adverse effects and poor long-term outcomes. We expect strong interest and discussion in the field about how efzofitimod could change the treatment paradigm for fibrotic lung diseases.

Hartaj Singh, Analyst, Oppenheimer & Company

Great. Thank you, Sanjay. I appreciate it.

Operator, Operator

And we have no further questions at this time. I will now turn the call over back to Mr. Sanjay Shukla for closing remarks.

Sanjay Shukla, President and CEO

Great. Well, great questions today. I know there is a lot of interest. We are right around the corner here from getting this trial on track to initiate in the third quarter. There are just a few more items to accomplish with our friends at the FDA, but great questions today. I appreciate the interest, and we really look forward to keeping you up-to-date in the coming months. Thanks again, everyone.

Operator, Operator

And this concludes today’s conference call. Thank you for participating. You may now disconnect.