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Edited Transcript of ARNA earnings conference call or presentation 7-Aug-19 8:30pm GMT

Q2 2019 Arena Pharmaceuticals Inc Earnings Call

San Diego Aug 8, 2019 (Thomson StreetEvents) -- Edited Transcript of Arena Pharmaceuticals Inc earnings conference call or presentation Wednesday, August 7, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Amit D. Munshi

Arena Pharmaceuticals, Inc. - President, CEO & Director

* Kevin R. Lind

Arena Pharmaceuticals, Inc. - Executive VP & CFO

* Preston S. Klassen

Arena Pharmaceuticals, Inc. - Executive VP of Research & Development and Chief Medical Officer

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Conference Call Participants

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* Alethia Rene Young

Cantor Fitzgerald & Co., Research Division - Head of Healthcare Research

* Ikechukwu Oji

* Jason Nicholas Butler

JMP Securities LLC, Research Division - MD and Senior Research Analyst

* Joel Lawrence Beatty

Citigroup Inc, Research Division - VP & Analyst

* Joseph Patrick Schwartz

SVB Leerink LLC, Research Division - MD of Rare Diseases & Senior Research Analyst

* Joseph Robert Stringer

Needham & Company, LLC, Research Division - Associate

* Patrick Trucchio

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Arena Pharmaceuticals' Second Quarter 2019 Update Conference Call. (Operator Instructions)

I would now like to turn the conference over to your host, Kevin Lind, Chief Financial Officer. You may begin, sir.

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Kevin R. Lind, Arena Pharmaceuticals, Inc. - Executive VP & CFO [2]

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Good afternoon, everyone, and thank you for joining us today. We hope you had a chance to review the news release we issued earlier today announcing our second quarter 2019 financial results. Joining me on today's call is Amit Munshi, our President and Chief Executive Officer; and Dr. Preston Klassen, our Head of Research and Development.

Before we begin, I'd like to remind you that we'll make forward-looking statements that involve risks and uncertainties, including statements about our focus, plan, goals, strategy, expectations, R&D programs, regulatory activities, products and operations and those of our collaborators and licensees, and other statements that are not historical facts.

These statements are made in the context of the risks and uncertainties that are discussed in our filings with the U.S. Securities and Exchange Commission, which can be found on the SEC website at www.sec.gov and include risks related to timing and outcomes of regulatory decisions and discussions; timing of preclinical and clinical trials, including patient recruitment for clinical trials, which is competitive and challenging and may take longer than we project; preclinical and clinical results and the timing of such results, which may not be as expected or sufficient for further development, regulatory approval or commercialization; collaboration and licensing activities; and the amount and allocation of our available financial and other resources. Our actual results may differ materially from our forward-looking statements.

Now I'd like to turn the call over to Amit.

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Amit D. Munshi, Arena Pharmaceuticals, Inc. - President, CEO & Director [3]

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Thanks, Kevin, and hi, everyone, and thanks for joining our call today. During our comments today, we will provide pipeline updates on etrasimod and olorinab clinical programs as we continue to advance our promising programs. We will then conclude with a financial review of the second quarter of 2019.

Arena continues to make strong progress on all fronts, clinical, operational and financial. 2019 is an important year of execution for the company, and thus far we have met, exceeded and continue to exceed all of our objectives for the clinical programs.

We've had a busy start to the year by delivering positive open-label extension data for etrasimod in UC; closing the United Therapeutics deal, which secured a strong cash position; initiating etrasimod's Phase 3 ELEVATE global program for ulcerative colitis, or UC, in June; and most recently initiating olorinab's Phase 3 CAPTIVATE trial for abdominal pain associated with irritable bowel syndrome in July. Across our pipeline, we anticipate initiating additional programs this year and delivering multiple clinical milestones next year. We believe we are uniquely well-positioned with our potential best-in-class later stage programs, world-class team and of course our strong balance sheet.

So let me start with etrasimod. Etrasimod is the only thoroughly characterized, in-house developed, next-generation, once-daily oral S1P modulator with unique receptor selectivity and pharmacodynamics. As a next-generation S1P modulator, etrasimod has the potential to be the preferred oral option for patients suffering from a broad range of grievous T-lymphocyte-mediated immune and inflammatory disorders. Our Phase 2 data suggest that etrasimod has the opportunity to be the best in disease oral option for patients suffering from ulcerative colitis.

This quarter, we initiated the global Phase 3 ELEVATE UC registrational program, which aims to include over 40 countries and will consist of 2 trials to evaluate etrasimod 2 milligrams in subjects with moderate to severe active ulcerative colitis. Firstly, ELEVATE 52, a treat-through trial with a 12-week induction period followed by 40 weeks of maintenance in approximately 370 subjects, which we initiated in June. And secondly, ELEVATE UC 12, a 12-week induction trial with approximately 330 subjects, which is expected to initiate in a staggered manner to optimize time to market. Importantly, we are planning additional trials to provide evidence of differentiation for healthcare providers and critically for payers. We look forward to sharing more details on these trials over time.

For indications beyond ulcerative colitis, Preston will provide an update on our progress in Crohn's disease and atopic dermatitis. Beyond these initial indications, we are excited to further evaluate etrasimod in multiple indications going forward. We continue to believe that the program offers tremendous promise in the treatment of broad range of immune and inflammatory-mediated conditions, and we look forward to sharing our plans on additional new indications with you later in the year.

So with that, let me turn it over to Preston to discuss the Crohn's program, the atopic dermatitis program and the continued progress on olorinab. Preston?

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Preston S. Klassen, Arena Pharmaceuticals, Inc. - Executive VP of Research & Development and Chief Medical Officer [4]

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Thanks, Amit. I'll start with etrasimod and the status of additional indications beyond ulcerative colitis that we plan to initiate this year.

In parallel to executing on the ELEVATE UC program, we are rapidly progressing toward the startup of our Phase 2/3 program in Crohn's disease. We're working to get etrasimod rapidly to patients who can benefit, particularly in an area of large unmet medical need like Crohn's. We are in the process of finalizing protocols for these trials, after which additional details regarding study designs, startup plans and overall program timelines will be shared. We remain on track to initiate the program around the end of the year.

In addition to inflammatory bowel disease, we plan to begin testing etrasimod in dermatologic diseases, starting with a Phase 2b trial in atopic dermatitis. A strong body of experimental and experiential evidence from preclinical and clinical data give us confidence that etrasimod's highly selective profile at an S1P1 and S1P4 receptors has the potential to yield unique benefits to patients suffering from moderate to severe atopic dermatitis.

Current therapies for atopic dermatitis have efficacy in a limited set of patients and range from simple emollients to newer injectable biologics and other topical therapies. We believe that there is significant opportunity to move this field forward with a once-a-day oral regimen that may safely impact not only the dermatologic manifestations, but potentially systemic implications of atopic dermatitis as well.

For the program, which we have branded as the ADVISE trial, we are in study startup mode with the expectation of enrolling patients later this year. The study will be a multi-center, randomized, double-blind, placebo-controlled trial testing 2 doses of etrasimod in patients with moderate to severely active atopic dermatitis and inadequate response to topical steroids. Approximately 120 patients will be enrolled for a 12-week treatment period and a 4-week follow-up observation period will continue after that. The primary endpoint will be the percent change in eczema area and severity index, or EASI score, from baseline to week 12. And secondary endpoints will include the proportion of patients achieving an EASI 75 score and change in measures of pruritus, among others. We are excited to be initiating work with etrasimod in dermatology, and we look forward to updating you on our progress.

Now I'll switch gears to olorinab, our peripherally active, highly selective, full agonist to the cannabinoid type 2 or CB2 receptor. We believe that this product has the potential to be a significant advancement in the treatment of visceral pain. And in July, we initiated a Phase 2b clinical trial branded CAPTIVATE targeting the treatment of abdominal pain associated with irritable bowel syndrome, or IBS. Abdominal pain is a hallmark of IBS, and the majority of patients who suffer this disease describe frequent abdominal pain as their most problematic symptom, often significantly impacting quality of life. We believe that there is a high degree of unmet medical need for pain management in GI disorders such as IBS. Importantly, because current evidence suggests that olorinab's mechanism of action is directed to pain management rather than motility, this compound has potential to cross all facets of IBS: constipation predominant, diarrhea predominant and mixed.

The Phase 2b trial CAPTIVATE is a multi-center, randomized, double-blind, placebo-controlled 12-week study of olorinab in patients with IBS who experience frequent abdominal pain. We will include both patients with constipation predominant, or IBS-C, and diarrhea predominant, or IBS-D. The primary objective of this trial is to assess the safety and efficacy of 3 doses of olorinab administered 3 times daily compared to placebo, and the primary endpoint is improvement in the weekly Average Abdominal Pain Scale, or AAPS, from baseline. We will also be looking at some key secondary endpoints, including the proportion of patients who achieve at least a 30% or more improvement in AAPS and the mean change in number of pain-free days per week. The CAPTIVATE trial will enroll approximately 240 patients, and we are planning on the availability of data in second half of the next year. We look forward to updating you on the progress of this program as appropriate.

So finally on the organizational front, we would like to discuss the reallocation of responsibilities within our R&D management team. As of this month, I will shift the chief medical officer function to Dr. Chris Cabell, who has served as a Senior Vice President and Head of Clinical Development at Arena since October of 2017. Dr. Cabell will continue to report to me, and I will continue to serve as the Head of Research and Development, overseeing global R&D strategy, portfolio prioritization and expansion of our pipeline, management of the functions within R&D and external interactions. Dr. Cabell is a Duke trained cardiologist with an MHS degree focused on clinical research. Prior to joining Arena, Chris spent 10 years at Quintiles, now IQVIA, and a variety of senior management positions including chief medical and scientific officer. As CMO at Arena, he will oversee the clinical development, the clinical operations, the bioinformatics and safety functions.

As Arena increases our programs, our clinical trials and patients enrolled, ultimately culminating in large patient populations that may be treated with our products, shifting the medical oversight responsibility to Dr. Cabell increases our bandwidth and flexibility across the R&D group. I am grateful to have partnered with Chris for almost 2 years now at Arena, and I'm confident that his clinical, operational and strategic expertise will continue to serve the company well and assure excellence and efficiency in the progression of our clinical programs.

And now I'd like to turn the call over to Kevin for a review of our financials. Kevin?

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Kevin R. Lind, Arena Pharmaceuticals, Inc. - Executive VP & CFO [5]

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Thank you, Preston. I'll provide a brief review of our second quarter 2019 financial results here while more detailed results are discussed in our press release from earlier today and in our 10-Q which will be filed this week. For the second quarter 2019, revenues for the second quarter were $1.0 million with $900,000 of royalty revenue.

In terms of cost, research and development expenses totaled $51.2 million, including $7.0 million related to non-cash share-based compensation. General and administrative expenses totaled $18.4 million of which $6.4 million was stock-based comp. We burned approximately $48 million in cash this quarter. Net loss for the quarter was $61.4 million, or $1.24 per share on a basic per share basis. At June 30, 2019, cash, cash equivalents and investments balance was over $1.2 billion and approximately 49.8 million shares of Arena common stock were outstanding.

Now I'll turn the call back over to Amit.

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Amit D. Munshi, Arena Pharmaceuticals, Inc. - President, CEO & Director [6]

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Thanks, Kevin. We're continuing to make significant progress across the board, delivering on several key milestones as we build a world-class company with best-in-class products, continue our relentless focus on execution in a team that has delivered and will continue to deliver. And of course with a strong balance sheet, we are uniquely positioned to deliver on building this company.

We're excited to share all the progress the team has made so far this year, most recently with the initiation of the ELEVATE UC Phase 3 global program for etrasimod in ulcerative colitis and the CAPTIVATE Phase 2 trial for olorinab in IBS pain. We look forward to sharing the exciting milestones ahead, including the initiation of the Crohn's disease and atopic dermatitis trials and continue to advance the remainder of our pipeline.

Finally, I'd like to take this opportunity to thank the entire Arena team for the fantastic work to date and to thank our investors for your continued support. So with that, I'll turn the call over to the operator to begin the Q&A session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And your first question comes from Alethia Young, Cantor Fitzgerald.

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Alethia Rene Young, Cantor Fitzgerald & Co., Research Division - Head of Healthcare Research [2]

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Thanks for taking my question, and congrats on all the progress in getting some of these trials underway. I guess 2 questions for me. One, from a macro standpoint, there's been a lot going on with JAK inhibitors, whether it be ones in the pipeline or ones that are on the market. And I just wanted to get your perspective as you think about the landscape and the positioning of etrasimod. And my second question is a little bit more around the R&D, which is I'm just curious kind of how you guys think about leveraging the decoupled protein receptor platform as you go forward, and what targets and maybe what indications might be particularly interesting from you from here. Thanks.

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Amit D. Munshi, Arena Pharmaceuticals, Inc. - President, CEO & Director [3]

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Great. Alethia, this is Amit. Let me start with the JAK inhibitor question. The landscape is absolutely fascinating, and we've shared some of this in the past. It's important to understand that 2 out of 3 moderate to severe ulcerative colitis patients have never received a biologic, and they're sort of sitting out there on conventional meds, flaring, increasing steroids and in and out of [5 ESA], for example. So there's a wide open market opportunity here for a novel agent to enter the field. And as you've seen from multiple pieces of research, patients routinely select oral agents over injectable agents. In the oral category, the JAK inhibitors have made an initial push. I think it's important to understand that all the end market JAK inhibitors have a class warning for increased risk of malignancy, serious infection events, opportunistic infections, herpes zoster, tuberculosis and importantly GI perforations. And of course we've not seen any of those things with the S1P modulators to date. They also have on-labelly increased thrombotic events, again, both shown on the U.S. and E.U. We've seen this across really the entire class of agents. So in terms of the risk-benefit profile, as you know, we've demonstrated best-in-class efficacy with an oral agent with etrasimod in our Phase 2 study. We look forward to confirming that in the Phase 3 study, and we look forward to confirming the strong safety profile of the product. So we think given the fact that orals are routinely selected over biologics, we've seen a best-in-class, best-in-disease type activity out of the Phase 2 program, and the fact that 2 out of 3 patients with moderate to severe disease have never even received a biologic, we think this market is prime for etrasimod. I hope that answered your first question.

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Alethia Rene Young, Cantor Fitzgerald & Co., Research Division - Head of Healthcare Research [4]

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Yes, that's very helpful.

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Amit D. Munshi, Arena Pharmaceuticals, Inc. - President, CEO & Director [5]

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Moving to your second question on the GPCR platform. We haven't disclosed the specific targets that we're looking at. The historical platform is at Beacon Discovery. We have certain right of refusals from Beacon Discovery in therapeutic areas in which we participate, including gastroenterology. And we continue to work very closely. They remain on our campus. They continue to do contract work for us not only on our existing programs, but on future compounds as well. And as we continue to prosecute against [reesho's] target, we'll come back and disclose some of those when the time is right.

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Operator [6]

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And your next question comes from Martin Auster from Credit Suisse.

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Ikechukwu Oji, [7]

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This is Ike on for Marty. Thanks for taking our question. Actually, I have a couple of quick questions. One is going to be for the CD trial. First off, congrats on that progress there. In terms of getting that initiated, I know you've mentioned before that you've been applying your proprietary enrollment strategy so much what you've done in UC. Can you kind of provide some more color on some of the gating steps into initiating this trial by the end of the year? In addition to that, can you speak to the regulatory perspective on the trial? Did they go ahead and give you the go ahead on the design? Because I know you again want to be aggressive and kind of beat the historical timelines for CD trial, so additional insight on that would be very helpful for us.

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Preston S. Klassen, Arena Pharmaceuticals, Inc. - Executive VP of Research & Development and Chief Medical Officer [8]

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Yes, sure. This is Preston. I can take that. Essentially we're finalizing the protocols now and then doing all of the activities you commonly consider part of starting study startup activity to get going by the end of the year. Now we won't comment directly on regulatory interactions. If at the time that we're ready to begin everything and have locked down the protocols, we may provide a little more color on the flavor of our discussions with the regulators. But we're very satisfied with the progress of the program as we have been for the progress of the UC program. And just to your point about what we consider to be a very cross-functional and hopefully innovative approach to trial enrollment that we are conducting with ulcerative colitis with the ELEVATE UC program, we of course will be leveraging all of that, including a global trial network of over 450 sites for the UC program, into the Crohn's disease program. So there's going to be a lot of synergy in terms of the work that we need to do with Crohn's, and so I'm happy that we're getting started in a strong fashion on the UC front.

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Operator [9]

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And your next question comes from Kennen MacKay from RBC Capital Markets.

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Unidentified Analyst [10]

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This is Justin on for Kennen. Thanks for taking the question. Couple from us on the olorinab trial. Wondering sort of more broadly what you see as the appropriate treatment comparisons there currently used to treat IBS-associated pain. And then specifically for the trial, could you talk a little bit more about some of the baseline screening criteria that's being utilized there?

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Amit D. Munshi, Arena Pharmaceuticals, Inc. - President, CEO & Director [11]

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Sure. Let me -- this is Amit. Let me take the first part of that and I'll hand off the second part to Preston. Most patients with IBS-C today, as you might know, are treated with agents that affect motility. Some of these agents have secondary activity on pain and bloating. And that's really how they're handled, and it's really just IBS-C. In our study, we're going to be enrolling both IBS-C and IBS-D patients, so expands that universe quite considerably. Important for this compound is that we don't believe at this juncture that there's any activity on motility, nor have we seen any from the previous work that we've done. We do believe that the CB2 receptor is involved with visceral pain broadly, and so we think IBS is a great place to start with both the C and D patients. So, just to give you a sense, approximately the market is broken up into 1/3, 1/3, 1/3. 1/3 of the market is IBS-C, 1/3 is IBS-D and 1/3 is IBS mixed. And so we're going to be addressing about 2/3 of the market with this trial. Most of these patients can be handled with over the counter agents in terms of motility dysfunction. It's the pain that's the significant issue for these patients, and that's what we're hoping to address with the program. Preston, do you want to take the inclusion question?

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Preston S. Klassen, Arena Pharmaceuticals, Inc. - Executive VP of Research & Development and Chief Medical Officer [12]

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Yes, just in terms of inclusion, kind of first and foremost, the patients have to have enough abdominal pain on a daily or weekly basis using that AAPS, Average Abdominal Pain Scale, to have an opportunity to benefit, since I would classify that in the moderate to severe abdominal pain. The vast majority have daily pain. And then the study is placebo-controlled using essentially 3 doses, and essentially taking all comers, basically, with the requisite amount of abdominal pain.

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Operator [13]

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And your next question comes from Joel Beatty from Citi.

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Joel Lawrence Beatty, Citigroup Inc, Research Division - VP & Analyst [14]

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First one is on the ELEVATE Phase 3 program, are you able to provide any details on just general enrollment or just sites up and running? And the second question is obviously there's lots of potential indications for etrasimod beyond UC and even beyond Crohn's disease and atopic dermatitis too. Are you able to discuss maybe just some high level thoughts on expanding to additional indications for etrasimod?

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Amit D. Munshi, Arena Pharmaceuticals, Inc. - President, CEO & Director [15]

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I'll have Preston take the first part and I'll take the second part.

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Preston S. Klassen, Arena Pharmaceuticals, Inc. - Executive VP of Research & Development and Chief Medical Officer [16]

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Yes, sure. The quick answer is it's early days, but we're on track. We're not going to be giving weekly or monthly or even quarterly necessarily updates specifically on enrollment, that kind of thing. But as you well know, these are large global programs, require a lot of infrastructure to get things up and running, and it is a competitive landscape. So we've taken I believe a fairly conservative approach in our planning, and I'm very pleased with the progress that we've shown to date.

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Amit D. Munshi, Arena Pharmaceuticals, Inc. - President, CEO & Director [17]

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So Joel, thinking about new indications, we've had teams here looking internally both from a desk research point of view as well as from a translational medicine point of view in thinking about additional indications and therapeutic areas. As you know, S1P modulation, specifically etrasimod with activity on the 1 and 4 receptor, allows us to go into lots of different directions. As Preston mentioned, dermatology remains really interesting to us. Of course gastroenterology remains interesting to us. And there's a whole slew of indications in just those 2 therapeutic areas. So you can anticipate us thinking sort of therapeutically focused initially, and then beyond that thinking about other immune conditions which lend themselves to the same kind of markets we'd be going after. So with a long-term perspective on how we eventually commercialize these indications and how we build out the franchise. So that's kind of how we're thinking about it, and we're excited to be in a position that perhaps later this year we'll be talking a little bit about some of these newer indications that we'll be kick starting in 2020.

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Operator [18]

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And your next question comes from Jason Butler from JMP Securities.

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Jason Nicholas Butler, JMP Securities LLC, Research Division - MD and Senior Research Analyst [19]

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Just a couple on trial design. For the ADVISE trial, could you speak to enrollment criteria in terms of prior treatment with biologics? And then on CAPTIVATE, are you stratifying by IBS-C versus D, and are you powered to show differences in the two populations? Thanks.

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Preston S. Klassen, Arena Pharmaceuticals, Inc. - Executive VP of Research & Development and Chief Medical Officer [20]

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Yes, sure. Thanks. This is Preston, and I'll take the question, Jason. So first in terms of olorinab and the 2 IBS-C and IBS-D, we'll definitely be stratifying. We anticipate, as you would expect, a 50/50 split overall in terms of the population and then randomize accordingly within each of those. Won't necessarily be powered for each individually as the Phase 2 study, this is to give us a directional confidence that we can go into a Phase 3 study. So I'm comfortable with the overall powering of the study as it exists right now and the ability to tell us directionally is this a drug that, as we suspect, has equal play across all of the different types of motility categories within IBS. Obviously we're just looking at C and D right now. We may go ahead and use these data then to give us confidence to add in mixed, or we may end up doing another small study related to mixed prior to going into Phase 3. But as Amit said, across these populations it's about 1/3, 1/3, 1/3 for the different types. And what I'm really excited about is that my belief is we just need to bear that out with data that olorinab should have potential across all of these. And then I'm sorry, your other question? Oh, it was in atopic dermatitis. So predominantly -- well first of all, all patients have to have moderate to severely active AD and have to be inadequate response to topical steroids. We will allow prior biologic therapies -- obviously not concurrent -- with the use of the compound. We generally anticipate that most of the patients will not necessarily be on prior biologics. We'll have to see how that shakes out as we begin enrollment.

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Operator [21]

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And your next question comes from Joseph Stringer from Needham.

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Joseph Robert Stringer, Needham & Company, LLC, Research Division - Associate [22]

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This is Joey on for Alan. Thanks for taking our questions. Couple more on CAPTIVATE. I was curious in the Phase 2a trial, you had the 25 mg and the 100 mg dose, and you're going with 3 doses for the Phase 2b. Maybe sort of give a background on sort of the dose selection there, and also what you would expect in terms of a drug response versus a placebo response in the Phase 2b. I understand Phase 2a was not placebo-controlled and it was 8 weeks versus 12 weeks in the Phase 2b. So maybe some additional color on that would be great. Thank you.

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Preston S. Klassen, Arena Pharmaceuticals, Inc. - Executive VP of Research & Development and Chief Medical Officer [23]

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Sure. I'll start off by saying that we're not going to be disclosing the specific 3 doses at this point related to some intellectual property, but I can speak to what we've done before and then just high level how we're thinking about the dose ranging. So as you stated in the initial Phase 2a kind of early read study, we had a small number of subjects who were on either 25 or 100. And what we saw in that -- and as you pointed out not placebo-controlled. So at a high level when you look at the literature for AAPS kinds of scoring system, you generally think that about a 30% response at least could be considered placebo in nature. And so when we were thinking about the Phase 2a study and what it would take to essentially convince us internally that it was worth moving forward with additional robust Phase 2b dosing work, we said, well, that the result better be a lot more than 30%. And what we in fact saw was 100%. So all responders -- I'm sorry, all patients at 8 weeks in both the 25 and the 100 mg dose showed a response, and this was defined as the FDA categorical endpoint of at least a 30% or more reduction in AAPS score from baseline. And so that was great to see. Now you can say, well, what about that dose in terms of 25 and 100? Very specifically, we had targeted 25 milligrams as a dose that we believe, based on receptor occupancy studies, essentially covered the receptor. We thought 25 milligrams was pretty much a full-on dose. And then we decided to quadruple that just to see. So this, again, this is a very small, early study to give us reason to move forward with more robust Phase 2 testing. And so as I said, it looks great in terms of literally 100% response and -- but now we have to move into an actual placebo-controlled real dose ranging study. And so again, without going to specifics about the dose that's selected, we are targeting around that lower end dose, both on the low and the higher side, and obviously with the placebo group. And it's well-powered at about 240 subjects overall. We will be able to distinguish that dose response that we expect and obviously changes over placebo to give us confidence to move into Phase 3. So, the Phase 2 study is absolutely designed to lead into a pivotal Phase 3 program.

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Operator [24]

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And your next question comes from Jessica Fye from JP Morgan.

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Unidentified Analyst [25]

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This is Danielle. Thanks for taking our question. What are your thoughts on increased blood clot reported with Xeljanz in UC and what it means for enrollment for ELEVATE? Thank you very much.

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Amit D. Munshi, Arena Pharmaceuticals, Inc. - President, CEO & Director [26]

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So it's a great question. Let me start with that. I think it's important to remember that unlike RA or other autoimmune conditions, patients have an increased risk of VTEs in ulcerative colitis, almost a 2x increased risk over a normal population. So the risk is already there. We think that this makes S1P modulation a potentially preferred option over the long term in the IBD category. It's also not just the VTEs; there's things like GI perforations as well. Tough to know right now what it's going to look like from an enrollment perspective. It's early days in our clinical trial startup, and as Preston said, we're very, very pleased and on track with all of the parameters in terms of our study start. So we'll be watching and monitoring that carefully in terms of the impact. We think long term from a commercial perspective, all of the JAK inhibitors have a series of liabilities that the S1P modulators do not, and specifically etrasimod has what could end up being potentially the best-in-disease profile. So we're very excited about where this ends up. As to where it plays out on the enrollment, we'll let time tell.

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Operator [27]

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And your next question comes from Joseph Schwartz from SVB Leerink.

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Joseph Patrick Schwartz, SVB Leerink LLC, Research Division - MD of Rare Diseases & Senior Research Analyst [28]

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I was wondering first of all on olorinab, how does the etiology of visceral pain associated with IBS-C and D compare to that in IBD? And what gives you confidence that the benefit that olorinab demonstrated in the IBD patients you treated is translatable to the IBS patients you're targeting now?

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Preston S. Klassen, Arena Pharmaceuticals, Inc. - Executive VP of Research & Development and Chief Medical Officer [29]

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Yes, so that's a really great question. Thanks. This is Preston. So, the CB2 receptor is predominantly expressed in the GI tract and in other visceral areas, essentially, and it's specifically upregulated when there is inflammation in the system. And in particular, one of the reasons why we chose quiescent Crohn's disease to have that first initial Phase 2a look is because the literature reports showing specifically upregulation of the CB2 receptor in the margin of lesions in patients with Crohn's disease. Now we know that IBS and the pain associated with Crohn's disease is actually -- or the model from a preclinical perspective is actually very similar. The way you generate an animal model of IBS is you initiate essentially an IBD-like picture with an inflammatory insult, and then you remove that macro inflammation and what you are left with is a hypersensitive colon. And there is still, at a micro tissue level, an inflammatory milieu present. And so we think there's plenty -- and there's also been a variety of scientific papers showing upregulation of the CB2 receptor in IBS. So basically, IBS looks an awful lot like IBD from a pain perspective without necessarily the intensity of the macro inflammation. So it's more like a quiescent Crohn's. It's very similar to IBS. And that's -- it's very similar from an animal perspective. We believe there's enough similarities from a patient perspective for us to move into IBS as a Phase 2. There's no question that the unmet need in terms of pain control in IBS is large. We believe that enrollment will be something we can readily accomplish, and we're looking forward to it. Now down the line, should we show solid efficacy in Phase 2 with olorinab in IBS, I think it would stand to reason that we could go back and think about getting back into IBD, or specifically Crohn's disease, and figuring out how a pain-specific therapy would work in combination with other therapies that are actually disease modifying or focusing on that macro inflammation. So that all has to get worked out. It's a little more complicated in terms of IBD and Crohn's, but we'll start here with IBS.

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Joseph Patrick Schwartz, SVB Leerink LLC, Research Division - MD of Rare Diseases & Senior Research Analyst [30]

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Okay, that's helpful. Thanks. And then on AD, given Dupixent uptake has been very strong and etrasimod won't be on the market for several years, when comfort with Dupixent should be even stronger, I was wondering how you see the opportunity when you hope to come on the scene and the quantum of data or product profile that you need to make a significant impact on the future AD market.

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Amit D. Munshi, Arena Pharmaceuticals, Inc. - President, CEO & Director [31]

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Sure. So AD, like a lot of other conditions, even the top end of the efficacy leaves a lot of patients without complete resolution. So the market will continue to evolve over time. There's not that many therapeutics in there today. The market is approximately 6x to 7x in terms of patient population, the IBD landscape. So you have a huge disease burden across a broad range of patients, and you only have a limited amount of therapeutics. And Dupixent's a great drug. And the challenge of Dupixent, of course, it's a biologic, and oral options are always preferred in terms of being able to [enroll this]. Specifically oral options that have the safety profile that we so far see with etrasimod. So we think that the landscape will continue to shift, the landscape will continue to grow. The making sure these patients are getting into the clinic, making sure dermatologists are aware of new treatment options is really going to drive this market over the next decade. So very early days in the market. One biologic on the market with efficacy, that's good. But again, there's a long way to go both in terms of a magnitude of effect, the safety profile and of course having an oral option.

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Joseph Patrick Schwartz, SVB Leerink LLC, Research Division - MD of Rare Diseases & Senior Research Analyst [32]

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Makes sense. Thank you very much.

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Operator [33]

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And your next question comes from Jim Birchenough from Wells Fargo.

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Unidentified Analyst [34]

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It's Joe on for Jim. Thanks for taking the questions and congrats on all the progress this quarter. Just a couple from us on the UC program. Maybe first how you're thinking about the timing of the 12-week trial, if the staggering is intended to time the readouts for both simultaneously and any insight you can provide us there. And second, knowing that the 3-domain score is an FDA required endpoint for UC, if at this point you could provide us any insight on the powering of the trial and maybe how you define success even at a high level.

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Preston S. Klassen, Arena Pharmaceuticals, Inc. - Executive VP of Research & Development and Chief Medical Officer [35]

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Yes, sure. This is Preston. I'll take the first question just related to staggering of getting the ELEVATE UC 12 study underway. More than thinking about the data readout on the back end, we do believe that UC 12 and UC 52 will ultimately kind of read out around the same time, that wasn't necessarily the driver. The driver was that we're developing a global network of sites to engage with in enrollment, and the 52-week study obviously by definition is kind of the long pole in the tent. And so we wanted to get that started first and get enrollment either completed or the vast majority of the way forward prior to beginning the UC 12, the shorter study. So that's more a matter of trying to stagger enrollment so that we are covering our sites across the globe adequately. And then again, on the back end, it will make things probably read out around the same time, but that was not the big driver. And then I'm sorry, could you repeat your second question?

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Unidentified Analyst [36]

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Yes. Just on kind of the powering of the trial, if you could provide any insight there. And maybe how you define success at a high level in terms of endpoints and what you'll be looking for.

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Preston S. Klassen, Arena Pharmaceuticals, Inc. - Executive VP of Research & Development and Chief Medical Officer [37]

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Yes. I'll just cover that at a high level. Look, it's a Phase 3 program. We're not going to under power anything. I think as we've talked about in our discussions with the FDA, we're taking a look at both clinical remission at the 12-week time point and the 52-week time point as the co-primary. And so that as a 2 endpoint combination needs to have a high degree of power and we do have that. And then in terms of other, just the other aspect around the endpoint, just to be really clear, this is using the 3-domain definition of remission as defined by the Mayo Clinic score domains of stool frequency, rectal bleeding and then endoscopy scores. So this is unlike the previously approved products that have used a total Mayo 4-domain score. So we've been very disclosive in terms of our Phase 2 data, which was based on what is now the Phase 3 standard based on the FDA definition from 2016. So we've shown our Phase 3 -- I'm sorry, Phase 2 3-domain remission data, and that has been used in a conservative fashion to help power the underlying assumptions for the Phase 3 program. So really comfortable with where we sit in our overall plans. I think it's, as we've talked about in the past, the program itself is really streamlined, focusing on speed to market in that we got a treat-through design. That ends up saving us several hundred patients in terms of the overall size of the program. And so we're doing everything we can to really expedite the progress of this program and get the patient -- get the drug to patients as quickly as possible.

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Amit D. Munshi, Arena Pharmaceuticals, Inc. - President, CEO & Director [38]

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I think it's also important just to understand that unlike other programs where we've never seen 3-domain data from their Phase 2 and then Phase 3 gets started with the 3-domain information, we -- (inaudible). Not only that, but we had a very significant, almost a 26-point delta on 3-domain remission from our OASIS Phase 2 study, and it's a direct read-through to the Phase 3. So we think that's really an important point in terms of our confidence in the Phase 3 study design, the power and the assumptions, et cetera, that we have very clear read-through from our Phase 2 study to our Phase 3.

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Operator [39]

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And your last question comes from Patrick Trucchio from Berenberg Capital Markets.

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Patrick Trucchio, [40]

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My first question is regarding olorinab. Can you discuss what the advantages of CB2 MOA could be as compared to delayed release linaclotide? Or how we should expect olorinab to compare to delayed release linaclotide from an efficacy perspective on the abdominal pain scale in IBS patients compared to what we've seen demonstrated from that compound, which may enter the market ahead of olorinab?

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Amit D. Munshi, Arena Pharmaceuticals, Inc. - President, CEO & Director [41]

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Patrick, let me -- this is Amit -- let me start with that. I think one of the critical areas is we just need to get through the study to look at the actual impact. We think the mechanism's different. We think CB2 has a broad range of application across lots of visceral pain indications. We started in GI in IBS just simply because it's a nice fit in our overall portfolio, as Preston mentioned. We'll also be taking hard look at IBD indications like Crohn's. So it has multiple applications beyond just an IBS-C. Initially, we're already going from IBS-C and adding IBS-D, so we're expanding that potential marketplace. So just from a broad clinical utility, we think olorinab looks very different than Linzess or the delayed acting or [some of] Linzess. So again, mechanistically totally different, and again, a broader set of clinical utility applications for olorinab. Do you want to add anything?

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Preston S. Klassen, Arena Pharmaceuticals, Inc. - Executive VP of Research & Development and Chief Medical Officer [42]

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Yes, sure. I'll just also say that of course it's too early to really be able to make any kinds of comparisons. I think the unmet need is large enough that it's -- that the market can certainly handle several entrants. When we did our Phase 2a study looking at a small number of subjects, there was a 4.6 decrease from baseline in the 10-point scale. And again, while that is early and not placebo-controlled, if you look at the change from baseline for other therapies including Linzess, you'll see that it does not come near 4.6. Again, whether that is replicated in larger programs and how that bears against placebo is something we need to figure out over time. But we're really satisfied that there's enough evidence here of efficacy to go forward with a solid Phase 2 program that can lead into pivotal if the data look good enough, and we think the marketplace dynamics will still be favorable at the time that we're entering launch.

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Patrick Trucchio, [43]

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A question on BD and specifically on the openness to further partnerships. Can you tell us what structure additional partnerships could take, where in the portfolio should we or should we not expect additional partnerships, and which geographies and the timing going forward in terms of when we could expect an update on this front?

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Amit D. Munshi, Arena Pharmaceuticals, Inc. - President, CEO & Director [44]

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Yes. So we've stated publicly on numerous occasions that we don't particularly have an interest in partnering etrasimod today in North America, or even in Europe for that matter. We've got the cash balance, we've got the team, we've got the expertise to build the company around etrasimod. So right now, there's really no particular press on a partnership option for etrasimod. So that's our current thinking, and if that changes, we'll let you know. But right now that's -- we find ourselves in a really unique position where, again, we've got the capabilities, we've got the capacity to win in the marketplace with etrasimod and that's what we're aiming for.

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Operator [45]

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And there are no further questions at this time. I would now like to turn the call back to Amit Munshi, CEO, for any further remarks.

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Amit D. Munshi, Arena Pharmaceuticals, Inc. - President, CEO & Director [46]

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Great. Just want to say thank you again for everyone being on the call today. We look forward to continuing to stay in touch in updating you on our progress as we continue to execute on the opportunities ahead of us. We look forward to later in the year spending time talking about some new indications and exciting things on the horizon for 2020. So look forward to talking again soon. Thanks to everyone.

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Operator [47]

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Ladies and gentlemen, thank you for your participation in today's conference. This does conclude today's program. You may all disconnect. Everyone have a great day.