Talphera, Inc. Q3 FY2024 Earnings Call

Welcome to the Talphera Third Quarter 2024 Financial Results Conference Call. This call is being webcast live via the Events page of the Investors section of Talphera's website at www.talphera.com. You may listen to a replay of this webcast by going to the Investors section of Talphera's website. I would now like to turn the call over to Raffi Asadorian, Talphera's Chief Financial Officer. Please go ahead.

Thank you for joining us on the call today. Today, we announced our third quarter 2024 financial results and associated business updates in a press release. With me today are Vince Angotti, our Chief Executive Officer; and Dr. Shakil Aslam, Talphera's Chief Medical Officer. Before we begin, I want to remind listeners that during this call, we will likely make forward-looking statements within the meaning of the federal securities laws. These forward-looking statements involve risks and uncertainties regarding the operations and future results of Talphera. Please refer to our press release in addition to the company's periodic, current and annual reports filed with the Securities and Exchange Commission for a discussion of the risks associated with such forward-looking statements. These documents can be found on our website within the Investors section. I will now hand the call over to Vince.

Thank you, Raffi. Good afternoon, and thank you for joining us on the call. First, let me congratulate Dr. Palmer on her well-deserved retirement, and at the same time, welcome Dr. Aslam to his inaugural Talphera earnings call. Today, I'd like to provide an update on the progress we're seeing in our ongoing registrational chart for nafamostat and the NEPHRO CRRT study. Last quarter, we communicated that large academic institutions were being onboarded. In this quarter, I'm happy to share that we now have a total of five active clinical trial sites screening patients with multiple patients already completing the trial. We also expect two additional clinical sites to begin screening this quarter, bringing the total to seven active clinical sites by the end of the year. While we're not prepared to provide specific guidance on the study completion date, several initiatives are in place to improve enrollment at existing sites and to expeditiously onboard productive new sites. In August, we announced that the first patient was enrolled. Note that we don't plan on providing trial enrollment numbers each quarter, but with the execution of our plan to improve enrollment rates and activation of additional study sites, we anticipate the study to be completed next year. As a reminder, the primary endpoint of the mean activated clotting time is measured over the first 24 hours with the patient completing the trial after only 72 hours on CRRT regardless of how long the patient remains on CRRT in the hospital. While a 72-hour trial participation by the patient allows for rapid completion, it also helps reduce the time from trial completion to PMA submission as the study database can be cleaned and locked quickly instead of waiting for many months post-trial. Now to be clear, the activation of the original sites and early enrollment rates have not met our timing expectations. As a result, we've made changes to certain variables moving forward. I'd now like to turn it over to Dr. Aslam, who has many years of experience as a practicing nephrologist and in trial design and execution to talk about the status of the NEPHRO trial, his assessment and the opportunities he's identified for continuous improvement.

Thank you, Vince. So after engagement and discussion with numerous clinicians and nephro investigators, we identified opportunities and are working with our current sites to optimize the screening processes and improve patient enrollment. For example, in order to capture patients before they started on CRRT, we are working with the sites to implement automated text notifications sent to the study PI once the doctor enters CRRT orders for the policy. This allows for a window of 4 to 6 hours for the PIs to screen and consent the patient before CRRT is initiated. We are also implementing automated report generations from the electronic medical records to identify patients who might be heading towards requiring CRRT. For example, variables such as urine output, kidney function numbers, and certain electrolyte abnormalities, which are usually used as indicators to initiate CRRT. In addition to that, we are also in the process of identifying and contracting with the new potential sites, this time with emphasis on high-volume CRRT sites, that have access to a broader ICU population, such as those centers that have large medical ICUs. Based on our learnings from the current sites, we are prioritizing sites with historically short administrative timelines for activation. To further help us with this effort, we are working with a third-party that can validate these onboarding times with these clinical sites with additional confirmation from the site investigators and contracting officers. In addition, as part of our continuous improvement, we are consulting regulatory experts to leverage our breakthrough designation to implement potential changes to some study design elements to facilitate study enrollment and completion in the shortest possible time. We anticipate bringing on four additional sites by early 2025. As a reminder, last quarter, the FDA expanded the maximum number of trial sites from 10 to 14. Our engagement with additional potential clinical trial sites is occurring through targeted outreach inbound interest as well as our participation in industry events such as the American Society of Nephrology's Kidney Week 2024. I have always thought there was a clear unmatched need for an alternative anticoagulant for use in CRRT, and we continue to receive strong confirmation of this need during our discussions with the CRRT experts. I'll hand it back to Vince now.

Thanks, Dr. Aslam. Having attended the Kidney Week meeting as well, I'll echo his thoughts on the feedback we received, confirming the need for an alternative anticoagulant and reinforcing our conviction in nafamostat's potential clinical utility. In summary, we're gaining momentum with the clinical trial and hope to have more information to share on its progress early next year. With nafamostat, we have a unique product in development and believe the related clinical, regulatory, and commercial risks are lower for a number of reasons. First, with the published evidence of nafamostat's use as an anticoagulant for CRRT for 30 years in Japan and South Korea, we know the product's track record of efficacy and safety, minimizing the clinical risk around nafamostat. The trial design has been agreed to with the FDA, and we're beginning to demonstrate execution of this trial now that sites are screening and enrolling patients. Second, we have a clear regulatory path, including a product candidate with breakthrough designation from the FDA, which provides us with quicker review and response times as well as increased access to the agency. Lastly, we know there's always commercial risk where we believe this is mitigated given the disadvantages of the products currently being used for anticoagulation during CRRT, namely heparin and citrate. As a result of the disadvantages of these anticoagulants, approximately one-third of the time, no anticoagulant is used during CRRT. This increases the risk of poor dialysis, blood transfusions, and additional harm to the patients. Anecdotally, many physicians continue to tell us that they may use heparin or citrate even though they would prefer not to, but they have no other alternative. I'll now hand the call over to Raffi to provide you some details of our third quarter financial results.

Thanks, Vince. Our cash operating expenses, or combined R&D and SG&A expenses, excluding non-cash stock-based compensation in the third quarter totaled $3.5 million compared to $3 million last year. The increase from last year is attributed to the NEPHRO CRRT clinical study, offset by lower SG&A expenses. Year-to-date, September cash operating expenses totaled $11.5 million. Full year 2024 cash operating expenses are expected to be in the $15 million to $17 million range, depending upon the rate of enrollment in the clinical study in the fourth quarter. Cash and investments totaled $11.1 million at the end of the third quarter. It is likely an additional capital injection will be required prior to the completion of the NEPHRO study. Our main investor, Nantahala, has expressed their continued financing support as we continue to progress the clinical study. I'll now turn it back to Vince.

Thank you, Raffi. I'd now like to turn the line open for any questions you might have. Constantine?

Thank you. We will now begin the question-and-answer session. Your first question comes from James Molloy from Alliance Global Partners. Please go ahead.

Good afternoon, everyone. Thank you for taking my questions. Could you explain the optimization process for the screening? Is there more detail on the screening optimization you are currently implementing to enhance enrollment? Congratulations on launching seven sites by the end of this year and aiming for a total of 11 by next year. What prompted the change? Were there new insights that influenced this decision? It would be helpful if you could elaborate on that.

Let me begin by addressing part of your question before I hand it over to Shakil. It seems you're inquiring about what we've learned and what has transpired with the current sites, specifically those involved since the program's initiation. These sites were part of the program we acquired and include well-known, world-renowned nephrologists among others; they were already established relationships. However, some of these sites are still trying to meet the projected enrollment targets. They provided us with feasibility forecasts, but they are currently falling short. We still believe these remaining sites will become significant contributors. With the expansion to 14 sites approved by the FDA and leveraging Shakil's experience and expertise, our focus is now on high-volume sites with a broader patient population to expedite study completion. It's essential, as you pointed out, to discuss the screening process and the broader patient demographic. Shakil, could you elaborate on that?

Absolutely. So we have taken several initiatives to improve our screening. And number one has been site engagement. So we have visited all the sites and we are constantly in communication with the site, the PIs and the other site staff to review their screening activities. And during this process, we also recognized that sometimes these PIs are not always present in the medical ICUs. They are not around 24 hours a day, and some of these patients are missed during the time when orders are put in the pharmacy to start CRRT and the actual CRRT procedure begins. So that's about a window of 4 to 6 hours. So what we're doing with these institutions is that work with their IT departments and do an automated text notification to the PI that goes off once the doctor enters the pharmacy orders for CRRT. So that gives them a 4 to 6 hour window during which they can talk to the primary team as well as patients' families and consent the patient. So this way, the patient is actually captured before the CRRT procedure begins instead of having somebody already on CRRT and then trying to talk to the family and physician for study enrollment, which becomes a little bit difficult. The other thing is to help these physicians identify patients with kidney function is less than normal and they're not really requiring CRRT at that particular moment, but they had numbers over subsequent days are shown to be deteriorating to the point where you think that they're going to need CRRT in a few days or a couple of days after their kidney injury started. So I think those are at least two examples which help us optimize the screening process. So I don't know if that answers your question.

Shakil, I'm going to ask you to take it a step further. Why don't we provide to Jim, a little more granularity. Maybe on where we've seen now and learned about screening failures, what are the two most common and how do we navigate those and believe those are going to be on affecting the commercialization of it moving forward. I think that additional information would be helpful.

Absolutely. Thanks, Vince. So our current sites, they have a little bit heavy emphasis or maybe tilt towards cardiothoracic ICUs, and as well as cardiac ICUs. And so there's a lot of patients who require CRRT in those ICUs. However, the challenge is in many of these patients, their kidneys fail because their heart function is very poor and they end up requiring some kind of heart function support, and that typically is done with ECMO or it's done with the left ventricular assist devices. And those patients are actually treated with heparin. And once they are on heparin, which is a systemic anticoagulant, there is really no reason for them to be on nafamostat. The second problem in this patient population that we have noticed is there are a lot of patients who have postoperative bleeding issues. Now these are the patients who have active bleeding and physicians would obviously not want them on any blood thinner. But at the same time, these are the patients who will be perfect candidates for nafamostat once it's approved because it's a regional anticoagulant and you actually want to give it to patients who cannot be treated with systemic anticoagulant such as heparin. So although this is because of safety reasons and because we are in the process of proving to the FDA that nafamostat will not impact your systemic coagulation parameters, those patients currently are being excluded from the study. And that represents one of the biggest chunks of patients who are actively bleeding who cannot be enrolled in the trial. But in fact, that's a big commercial opportunity for us because those are the patients who will be perfect to get nafamostat.

So Jim, while it's been proven overseas, to Shakil's point, and all the data, they want to see it in the U.S. patients that it has that short half-life in that it's regional in nature. And so that was a limitation in the study that won't be a limitation once approved.

Thank you. I have two quick follow-ups before I return to the queue. It has been approved in Japan for over 30 years. How much of that learning and safety data can be considered by the FDA moving forward, and what is their perspective on it? Regarding the end of the trial with 166, there will be 11 sites next year, with a maximum of 14, and approximately 10 to 15 patients per site. Will these patients be distributed evenly across all sites, or will a few sites contribute the majority of patients while others have a more equal distribution among the 11 to 14 sites, assuming that we successfully recruit the necessary participants?

Yeah. Why don't we start with your first question on the ex-U.S. data. So they did take that into consideration when the study design and the end, etc., was developed. As it relates to submitting it with the package moving forward, I'll defer to Shakil on that.

Right. Absolutely. So we submitted previously the data from the Japanese adverse events database. And so there aren't really any significant safety concerns with nafamostat. Some of them, which have been reported, they were really for systemic indications because in those countries, it's also approved for acute pancreatitis as well as DIC. And in those cases, it's given systemically, not in a circuit like CRRT. So based on that data, the overall adverse event rate was close to 1%. And none of them were really serious other than a very, very low incidence of hypersensitivity reactions. So the FDA understands that there is a long track record of some safety in humans on this compound. In addition to that, they also wanted us to do studies, animal studies, preclinical work because previous work was done a while back and they wanted a fresh look at multiple exposure levels in at least two species, which are very typical for early drug development. Those studies have been done as well, and we'll be submitting that data to the FDA as well. So overall, I think the safety package would be quite convincing. We will have more human safety data than most of the compounds that are submitted for approval.

And I think the second part of your question, Jim, was on the end of 166 and how that would potentially skew as it relates to the distribution across sites. So some of the initial sites we expect to be lower, while the more recent sites that are coming on board or have recently come on board, and the additional sites we're anticipating in the first half of next year expected to contribute more than the first few. And they're just, again, as Dr. Aslam mentioned, they have different patient profiles and ICUs they're pulling from. And that's why medical ICUs, the large ones will produce more patients for the CRRT.

Great. Thank you for taking the questions.

You’re welcome. Thank you, Jim.

Your next question comes from the line of Ed Arce from H.C. Wainwright. Please go ahead.

Hi. Good afternoon, everyone. This is Thomas Yip, asking a couple of questions for Ed. Thank you for taking my questions. So for the NEPHRO CRRT study, can you discuss the percentage of patients who are screened and subsequently successfully enrolled? And then can you discuss any initial feedback from either patients or physicians?

I'm sorry, can you repeat the second portion of the question, Thomas?

Sure. Just wondering if you can share any feedback from patients who are enrolled or physicians who are on site with experience in the studies?

Absolutely. As for the first part of your question regarding percentages versus screening, it varies constantly based on the specific site. Therefore, it's challenging to provide a consistent pattern on that. Concerning your question about feedback from physicians, Shakil, could you share your insights on the completers and their experiences, keeping in mind that we can't determine whether they were part of the placebo group or the nafamostat group?

Yes. So all-in-all patients completed uneventfully and the titration, again, was not a problem. Physicians really had a very easy time titrating it to target ACT, at least in patients whose ACT did change. So far, the feedback from physicians has been very positive. But it's a blinded study, so there's only so much we know or can reveal.

And I think I'll just, again, reiterate one more time, Thomas, about when you're asking about the screening, again, really, there's two things we've learned. And again, it's the patients who are actively bleeding are excluded. Well, in the real world, we expect those patients to be our ideal candidates because of our regional nature and remaining in the system or the device. And secondly, many of the patients today are coming from the cardiothoracic ICUs or the surgical ICUs where they're required to be on systemic heparin, and that's an exclusion criteria for us. Obviously, you don't want them on two different blood centers.

Understood. And then also for the NEPHRO CRRT study. Just wondering, given the guidance to complete the study in 2025 and very short treatment duration, can we also expect data also next year as well?

So you're asking about our goal. When considering a 72-hour completer and a 24-hour average mean ACT reading with these patients, it's important to note that the time from completion of the study to submission of the PMA will be brief. We anticipate it will be a maximum of two to three months, as we will have the data throughout the process. It will be cleansed, organized, and analyzed, and the database will be locked. That is certainly our aim.

Got it. And then perhaps one more question from us. In the press release, it was mentioned that there are opportunities to further improve patient screening and enrollment. So just wonder what measures plan to accelerate enrollment.

Yeah. I think those further opportunities are the ones we mentioned. As it relates to Shakil's description on the alert he's having for the physicians on sites to get the patients early and to identify the patients early, the further consideration of the new sites we're putting on with the larger general medical ICUs.

And I think just to add, there's other activity that we're currently evaluating in the study design and things like that, that we're not prepared yet to disclose. But there are some other things we're looking at, as we mentioned in that press release. We're just not ready to disclose what those are yet at this point.

Okay. Understood. Thank you for taking our questions. Looking forward to progress for the NEPHRO study in the coming months.

Thanks, Thomas.

There are no further questions at this time. So I'd like to turn the call over to Vince Angotti for closing remarks. Sir, please go ahead.

Thank you, operator, and we continue to be excited about the opportunity with nafamostat and its impact in CRRT moving forward. We remain committed to driving long-term shareholder value, specifically through the execution of the NEPHRO trial. And importantly, we remain hyper-focused on our cash spend. So please feel free to contact us after the call if you have any additional questions, and we certainly look forward to sharing our future developments and progress. Thank you.

Ladies and gentlemen, this concludes today's conference. Thank you very much for your participation. You may now disconnect.