U.S. Markets close in 5 hrs 52 mins

Edited Transcript of ARNA earnings conference call or presentation 26-Feb-19 9:30pm GMT

Q4 2018 Arena Pharmaceuticals Inc Earnings Call

San Diego Mar 1, 2019 (Thomson StreetEvents) -- Edited Transcript of Arena Pharmaceuticals Inc earnings conference call or presentation Tuesday, February 26, 2019 at 9:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Amit D. Munshi

Arena Pharmaceuticals, Inc. - CEO, President & Director

* Kevin R. Lind

Arena Pharmaceuticals, Inc. - CFO & Executive VP

================================================================================

Conference Call Participants

================================================================================

* Alethia Rene Young

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

* Daniel G. Wolle

JP Morgan Chase & Co, Research Division - Analyst

* 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 Analyst

* Kennen B. MacKay

RBC Capital Markets, LLC, Research Division - Co-Head of Biotechnology Research

* Martin Douglas Auster

Crédit Suisse AG, Research Division - Research Analyst

* Patrick Ralph Trucchio

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good day, everyone, and welcome to Arena Pharmaceuticals financial results and corporate update conference call. This call is being recorded. (Operator Instructions)

I will now turn the call over to Kevin Lind, Chief Financial Officer of Arena.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

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 fourth quarter and full year 2018 financial results. Joining me on today's call is Amit Munshi, our President and Chief Executive Officer.

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, drives, plans, goals, strategy, expectations, products, clinical and preclinical programs, R&D, regulatory activities and operations and those of our collaborators and licenses 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 and patient recruitment for clinical trials, which is competitive and challenging and may take longer than we project. Preclinical and clinical data related to drugs and drug candidates and the timing of that data, which may or may not be as expected or sufficient for further development, regulatory approval or commercialization, our products are in the development stage and may not be approved for marketing, 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

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thanks, Kevin. Good afternoon, everyone, and thank you for joining our call. During my comments on today's call, I'll provide a pipeline, licensing and some corporate updates, and then Kevin will provide a financial review of the fourth quarter and full year 2018. We will, as always, conclude by taking questions.

2018 was a tremendous year for Arena, and we're excited for all that is ahead of us. During 2018, we delivered on multiple important data readouts, built a strong balance sheet and continued scaling the enterprise. We are uniquely well positioned to continue to deliver results for patients and shareholders with our best-in-class products, our world-class team and our strong balance sheet. For etrasimod, we're moving to initiate the Phase III program for ulcerative colitis mid-year and rapidly advancing our phase IIb/III program in Crohn's disease as well as a phase IIb program in atopic dermatitis. For olorinab, we're progressing into our Phase IIb trial for visceral pain associated with irritable bowel syndrome or IBS. Additionally, we expect to file an investigational new drug application or IND for our preclinical asset APD418 in decompensated heart failure in the second half of this year.

So let me start with etrasimod. Etrasimod is a well-characterized in-house developed, next-generation, once-a-day oral S1P modular, with unique and best-in-class receptor selectivity in pharmacodynamics. We believe it is the only next-generation S1P modulator and has the potential to be the preferred oral option for patients suffering from a broad range of T-lymphocyte-mediated immune and inflammatory disorders, such as IBD.

Last month, we reported positive long-term data from the open-label extension of the Phase II OASIS trial evaluating etrasimod for the treatment of ulcerative colitis or UC. Etrasimod demonstrated clinical response and global long-term clinical remission as well as favorable long-term safety and tolerability. Importantly, amongst subjects achieving clinical response or clinical admission on 2 milligrams of etrasimod at the 12-weeks in OASIS sustained treatment effect over 46 weeks was observed, with 93% of patients experiencing sustained clinical response and 75% experiencing sustained clinical remission at both 12 and 46 weeks.

These data reinforce our belief in etrasimod as an important future therapy in IBD and our strong commitment to improve lives of patients suffering from these grievous conditions. We have received feedback from regulatory agencies concerning the details of our registrational program, which will enable us to initiate our Phase III program around midyear. We look forward to updating you on all the additional program details as we finalize them.

Moving on to other indications for etrasimod, we're also looking on an aggressive development plan in Crohn's disease and we are finalizing plans from adaptive Phase IIb/III program. Announced last quarter, we are planning our path forward in atopic dermatitis. Current therapies have efficacy in a limited set of patients and range from simple emollients to new injectable biologics and other topical therapies. We believe there is significant opportunity to move this field forward with a once-a-day oral regimen that impact not only the dermatologic manifestation but potentially the systemic implications of atopic dermatitis as well.

We expect to initiate a Phase II trial this year with data readout in 2020. We're excited to further evaluate etrasimod in multiple indications going forward and continue to believe that it is the only next-generation S1P modulator in development with improved pharmacology and pharmacodynamics and demonstrated improved safety and efficacy offering tremendous promise in the treatment of broad range of immune and inflammatory mediated conditions.

Moving on to olorinab. Our peripherally restricted highly selective, [full agonistic to CB2]. We believe that this product has the potential to have a significant advance in the treatment of visceral pain. In light of the positive Phase IIa results that we delivered in September, we continue to advance olorinab program targeting GI pain. We expect to initiate a multidose randomized, double-blind, placebo-controlled Phase IIb clinical trial program targeting the treatment of irritable bowel syndrome pain this year.

We look forward to updating you on the progress throughout the year. In January, we completed our global license agreement with United Therapeutics for ralinepag. We received an $800 million upfront payment and are eligible to receive up to $400 million in regulatory milestone payments plus low double-digit tiered royalties. This deal allows us to maintain focus on our pipeline and secure a strong cash position, which Kevin will discuss further in the call.

Moving on to corporate updates. In December, we appointed Life Science industry Finance Executive, Manmeet Soni, to our Board of Directors. Manmeet brings deep financial and business experience to our board and our Audit Committee. His leadership abilities and senior finance experience within the life science industry will be instrumental as we strategically advance Arena towards its next phase of growth.

Manmeet is currently the Chief Financial Officer of Alnylam Corporation (sic) [Alnylam Pharmaceuticals] and has previously served as the CFO of multiple pharmaceutical companies, including

ARIAD and Pharmacyclics.

In November, we appointed Robert Lisicki as Executive Vice President and our Chief Commercial Officer; and Dr. Paul Audhya, as our Senior Vice President, Medical Affairs. With these hires, we initiated the build of our footprint into the Boston area. Rob brings close to 30 years of experience in biopharmaceutical management, sales and marketing to Arena. Prior to Arena, Rob held executive level commercial positions in several life science companies, including Regeneron Pharmaceuticals, Daiichi Sankyo, Amgen, and Johnson & Johnson.

Paul, who will be leading our Medical Affairs function has over 20 years of clinical development and global medical affairs leadership experience across a broad range of therapeutic areas and discipline, including rare diseases. Paul has held executive and senior management positions at Vertex, Hospira, Reata Pharmaceuticals, where he served as Chief Medical Officer, Abbott Laboratories, Amgen, Bristol-Myers and Janssen.

As we continue to strategically scale our team, our objective is to identify individuals with the passion, experience and ability to rapidly advance our business. Given Manmeet, Rob's and Paul's extensive expertise in their respective areas, we believe their appointment significantly strengthen our ability to deliver our transformational medicine to patients. We are thrilled to welcome them to the Arena team, and we're excited about our expansion into the Boston area.

So with that, let me turn the call over to Kevin for a review of our financials.

--------------------------------------------------------------------------------

Kevin R. Lind, Arena Pharmaceuticals, Inc. - CFO & Executive VP [4]

--------------------------------------------------------------------------------

Thank you, Amit. I'll provide a brief review of our fourth quarter and full year 2018 financial results here, while more detailed results are discussed in our press release from earlier today, and in our 10-K, which will be filed later this week.

Revenues for the fourth quarter were $8.6 million, consisting of $6.9 million in collaboration revenue and $1.8 million in royalty revenue. In terms of cost, research and development expenses totaled $37.9 million, general and administrative expenses totaled $15.4 million. We burned approximately $36 million in cash this quarter, excluding onetime items.

A change in our deferred tax value -- asset valuation allowance resulted in an income tax benefit of $110.3 million. Net income for the quarter was $68.7 million or $1.39 per share on a basic per-share basis and the diluted earnings per share was $1.35.

At December 31, 2018, cash, cash equivalents and investments balance was $528 million and approximately 49.4 million shares of Arena common stock were outstanding.

For the full year 2018, revenues were $18.0 million, consisting of $11.4 million in collaboration revenue and $6.6 million in royalty revenue. R&D expenses totaled $115 million, G&A expenses totaled $47.7 million. Net loss was $29.4 million or $0.63 per share. As of February 1, 2019, Arena's cash, cash equivalents and investments balance was over $1.3 billion. As we think about 2019, we expect to record the United Therapeutics upfront payment as revenue in Q1 '19.

Now I'll turn it back to Amit.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thanks, Kevin. We believe there are 3 things that are necessary to drive long-term success in a biotechnology organization: best-in-class or first-in-class products that have a meaningful impact to patients; capital support, a growth plan over the long term; and a highly skilled management team.

We are in a unique position at Arena today, and we firmly believe that we have all 3 of these key ingredients for growth. We've put a tremendous effort in over the last few years in the turnaround of Arena, and feel that we currently have the hallmarks necessary to build a vibrant, sustainable enterprise. We look forward to updating you on a robust best-in-class pipeline, as we continue to make progress, and we look forward to an exciting next few years for Arena as we continue to grow the business.

I'll now turn the call over to the operator to begin the Q&A session. Operator?

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) And our first question is from Jessica Fye with JPMorgan.

--------------------------------------------------------------------------------

Daniel G. Wolle, JP Morgan Chase & Co, Research Division - Analyst [2]

--------------------------------------------------------------------------------

This is Daniel for Jessica. First of all, with etrasimod. In terms of competitive picture in UC and Crohn's, what are you most focused on within that field?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

This is Amit. And it's really interesting time in the evolution of ulcerative colitis and Crohn's, the IBD space in general. There is a couple of key dynamics happening. One is a real push to identify patients who are moderate-to-severe patients. And about 60% of patients out there are moderate-to-severe patients have never received the biologics. So it's quite striking. In other patients who received the biologic, about 80% at any one time are nonresponsive or failing biologic. So there's huge market opportunity here in front of us. There is a very clear physician and patient preference to move to the oral agents. And within the oral agents, there is some selection bias towards the S1P modulators over the JAK inhibitors and we will talk about that on this call at a future time, but the market research is fairly clear. When it comes down to the S1P class, there is no doubt in our minds. We firmly believe that etrasimod is a best-in-class agent both on the receptor pharmacology, the pharmacodynamics, the demonstrated efficacy and the demonstrated safety profile. So we think we're in a unique situation as this landscape evolves and really have the leading product in IBD. Now clearly there's a lot of work still to be done, but as we see the world looking forward and as the market research informs our decision-making, we're very confident that we have an agent here that has the ability to transform the ulcerative colitis marketplace.

--------------------------------------------------------------------------------

Daniel G. Wolle, JP Morgan Chase & Co, Research Division - Analyst [4]

--------------------------------------------------------------------------------

And one more question. Could you provide us with your updated thoughts on the trail designed for the Phase II study in atopic dermatitis?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Sure. The atopic dermatitis study as we've disclosed before, will be a randomized double-blind, placebo-controlled trial. It's fairly conventional. If you look at most of the atopic derm Phase II trial, it won't be strikingly different than any of those, both in size and duration of treatment. It's important to understand that we saw a very good lymphocyte reduction very early in both the healthy volunteer studies as well as the IBD studies. So this is a -- is not a product that requires a very long duration of treatment, but in that duration area that we've talked about before for UC and Crohn. So there's not a lot of magic in the trial design here. We're excited about the compound as a once-a-day oral in atopic derm. We're excited about being able to look at the marketplace that currently only has emollients, a few topical agents, which are not well received in the marketplace and then biologic. So having an option for once-a-day oral here is pretty exciting. I'll add that we believe the biology is really spot on with the activity in S1P4 and its impact on the migration of dendritic cells and then -- and T-lymphocytes, where the S1P1 medium, we think etrasimod is uniquely positioned for these patients. And we're excited to run the trial and look forward to sharing more details as we get going.

--------------------------------------------------------------------------------

Operator [6]

--------------------------------------------------------------------------------

Our next question comes from Joseph Schwartz with SVB Leerink.

--------------------------------------------------------------------------------

Joseph Patrick Schwartz, SVB Leerink LLC, Research Division - MD of Rare Diseases & Senior Analyst [7]

--------------------------------------------------------------------------------

Congrats on all the progress. So there has been some more safety issues in terms of thrombo-embolic events with XELJANZ, particularly higher doses. I was wondering, if we could get your view on how that might be impacting the competitive landscape in IBD, in particular?

--------------------------------------------------------------------------------

Amit D. Munshi, Arena Pharmaceuticals, Inc. - CEO, President & Director [8]

--------------------------------------------------------------------------------

Yes. Joe, it's a little early to tell. We haven't seen all the full data sets. I think it's pretty clear that the JAK inhibitors broadly have shown -- demonstrated some effect or an increase in risk in thrombo-embolic events. It's important also to note and something that's probably not as discussed as it should be, that IBD patients specifically have a two- to threefold higher risk of thrombo-embolic events. That's just a native risk. And now, you've got a class of agents that has demonstrated in other areas like RA to show a increased risk of thrombo-embolic events. So we believe that this continues to bolster the case for new and novel mechanisms, especially oral agents in the IBD space and I think it really sets us up well competitively long term.

--------------------------------------------------------------------------------

Joseph Patrick Schwartz, SVB Leerink LLC, Research Division - MD of Rare Diseases & Senior Analyst [9]

--------------------------------------------------------------------------------

Okay. And then, could we get your updated views on how you see the Phase III -- how long you see the Phase III enrollment for ulcerative colitis and Crohn's requiring for full enrollment?

--------------------------------------------------------------------------------

Amit D. Munshi, Arena Pharmaceuticals, Inc. - CEO, President & Director [10]

--------------------------------------------------------------------------------

Yes. Joe, we haven't provided specific enrollment guidance, and we'll probably unlikely to do so. What we have said is we expect data in 2021 from the UC study and we'll provide similar guidance on Crohn's as we lock down the final study design. So like to really focus on kind of the front end of the start in the midyear timeframe for UC and then data in 2021. And then in the interim, we'll continue to do our job to make sure we enroll these trials. We're excited about the study design. We spend a lot of time with regulatory authorities in U.S. and outside the United States as well as with experts on both sides of the pond. And we think we've got a study design that will help expedite the enrollment both in terms of sample size and in terms of patient recruitment. So we'll provide more details on specific pound calculations and sample size calculations around the time we start the study. We did that previously with ralinepag and we'll seek to do the same thing here.

--------------------------------------------------------------------------------

Operator [11]

--------------------------------------------------------------------------------

And our next question is from Joel Beatty with Citi.

--------------------------------------------------------------------------------

Joel Lawrence Beatty, Citigroup Inc, Research Division - VP & Analyst [12]

--------------------------------------------------------------------------------

The first one is on etrasimod. Can you talk a little bit about the key steps that need to be taken before the Phase III program can be started?

--------------------------------------------------------------------------------

Amit D. Munshi, Arena Pharmaceuticals, Inc. - CEO, President & Director [13]

--------------------------------------------------------------------------------

Joel, as with any Phase III trial, we want to make sure that we're implementing the protocol correctly, so it's probably 2 or 3 big areas. One is site activation, site identification. We've previously disclosed that we have some proprietary methodologies that we have been developing over the last 6 or 8 months in terms of site selection and patient enrollment. And so those things are ongoing, and then final tweaks on the protocol simultaneously. So lots of little stuff, lots of operational details, all the major pieces are in place.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Okay, great. And then just one more question, just on the cash burn for the year. Can you tell us a little bit about what you would expect? Or if not specific numbers, but perhaps some kind of levers will be affecting the cash burn over the course of the year?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Kevin, can I turn that over to you?

--------------------------------------------------------------------------------

Kevin R. Lind, Arena Pharmaceuticals, Inc. - CFO & Executive VP [16]

--------------------------------------------------------------------------------

Sure. Given the moving pieces, particularly around Crohn's and atopic dermatitis, we are not planning on giving specific guidance at this time. We do expect the burn to go up over the course of 2019 and up from Q4 numbers. But we're looking at start-up costs around ulcerative colitis as well as locking down everything in Crohn's and atopic derm, which will be kind of the moving pieces that you were asking about.

--------------------------------------------------------------------------------

Operator [17]

--------------------------------------------------------------------------------

And our next question is from Kennen MacKay with RBC Capital Markets.

--------------------------------------------------------------------------------

Kennen B. MacKay, RBC Capital Markets, LLC, Research Division - Co-Head of Biotechnology Research [18]

--------------------------------------------------------------------------------

Congrats on 2018's progress as well as that $1.3 billion on the balance sheet in February, that's great to see. And, I mean, if I heard to right, I think you mentioned some FDA feedback on the Phase III trial design. Can you maybe elaborate on some of the interactions you've had with the FDA in maybe in the New Year or this was made in '18? And sort of what this feedback has been on? And then sort of, on that similar note, I was wondering if you can just discuss and elaborate a little bit on the purpose of etrasimod study II design and the use of the 12-week endpoint there? Is there maybe potential to get to market a little bit earlier with that 12-week endpoint?

--------------------------------------------------------------------------------

Amit D. Munshi, Arena Pharmaceuticals, Inc. - CEO, President & Director [19]

--------------------------------------------------------------------------------

Yes, let me take the second question first. Now for approval we do need the longer-term study and we need 2 randomized double-blind, placebo-controlled trials. One is, of course, the 12-week induction trial. The other 1 is the 52-week maintenance trial with the treat-through design, and both are required for approval. So there's no real early opportunity here. And we're excited about the long-term 52-week we saw from our open-label extension that patients continue to improve. And they had a long sustained, durable effect with etrasimod. So as opposed to lots of other products where patients are rolling off, up to 60% to 80% of patients fail most therapies, including the biologics. Here you have a chance of key patients on drug for a longer period of time. We think that's a tremendous benefit to patients, and, of course, a tremendous opportunity in terms of modeling the revenue for the product. Coming back to your first question, the FDA feedback was around the treat-through design, agency feedback and we previously discussed that, so there is no -- there's nothing new earlier this year in terms of agency feedback.

--------------------------------------------------------------------------------

Kennen B. MacKay, RBC Capital Markets, LLC, Research Division - Co-Head of Biotechnology Research [20]

--------------------------------------------------------------------------------

Got you. And maybe just one quick follow-up. In one of your decks earlier this year you had some data from etrasimod and pyoderma gangrenosum. I was wondering if you could elaborate whether there are any plans for development there. Or how that data could sort of be a read-through to other indications?

--------------------------------------------------------------------------------

Amit D. Munshi, Arena Pharmaceuticals, Inc. - CEO, President & Director [21]

--------------------------------------------------------------------------------

Sure. We'd initiate a series of orphan-type indications like PG early in our evolution of the turnaround of Arena back at the -- back end of 2016. And we've done that as a little bit of a hedge in terms of where the business was going. It's very clear with the quality of the data we had in IBD, UC specifically, that our focus is on the GI space and not some of these smaller indications. Having said that, the PG study as well as patients with dermatologic extra intestine manifestations in our Phase II ulcerative colitis trial gives us a really nice read-through to other dermatological condition. So as you might know, PG is a very difficult-to-treat condition. It's an ulcerative-type condition on the skin. And we were able to demonstrate 60% to 70% reduction in lesion size in a 12-week study, which is fairly novel and fairly unique. And I think it gives us a really nice read-through to other dermatologic indication. So it's also important to look at safety in some of these dermatologic conditions and we have a few patients here and we feel confident with the safety profile in derm patients. So we're excited about moving into the atopic dermatitis indication. We think it's a logical play from both the mechanism, from the UC data, from the EIM data and the PG data to head in that direction.

--------------------------------------------------------------------------------

Operator [22]

--------------------------------------------------------------------------------

And our next question is from Martin Auster with Crédit Suisse.

--------------------------------------------------------------------------------

Martin Douglas Auster, Crédit Suisse AG, Research Division - Research Analyst [23]

--------------------------------------------------------------------------------

Congrats on the progress so far. I had a question Amit on 418, just curious with the out-licensing of ralinepag to United Therapeutics and kind of a lack of kind of a need to build up a specialty cardiovascular sales force over time. Is that a program that you've changed at all your mindset kind of long-term strategically from where you're at the R&D Day? Is this something where you might want to show proof-of-concept and look for partnerships on? And then also, as a secondary question, are there some reason for us to expect that there will be any continued R&D activity beyond 418 as we get into 2020 looking out?

--------------------------------------------------------------------------------

Amit D. Munshi, Arena Pharmaceuticals, Inc. - CEO, President & Director [24]

--------------------------------------------------------------------------------

So first of all, I think we said this at R&D Day, we repeated this. We have a couple of other cardiovascular agents sitting on the shelf, both clinical stage and preclinical. So we're contemplating when and how to move those forward. We thought it was important to move 418 forward, it's the one that we're incredibly excited about we think has a tremendous application for decompensated heart failure patients in a situation where Dobutamine is the only option for these patients. So we are excited about it. We haven't made any future plans in terms of what to do with the compound long term. As of now, our job is to progress the compound, do the right experiments, and again, at the same time, move forward some of the cardiovascular assets that are still sitting on the shelf. So just because we're no longer in PAH, it doesn't mean we're out of cardiovascular. And we think we've got a long-term footprint to build in the cardiovascular space and we'll continue to do that. In terms of additional INDs, I just mentioned we have some additional things in the cardiovascular space. And we think about the INDs in 2 different ways. One is new molecular entities, and the second is new indications and new INDs that can get filed for both olorinab and for etrasimod, both of those programs have tremendous upside potential and across a broad range of conditions that we talked about previously. So we think about INDs from both those points of view. And we have a unique, for a company our size, a fairly unique set of challenges around portfolio planning and whether we pull things off the shelf or whether we progress new INDs, and we'll continue to make some of those decisions as we did last year with adding atopic derm, we'll continue to make those decisions going forward. So the short answer is, yes, we've got a ton of additional INDs to file over the next couple of years. Our challenge is going to be to kind of stage dose in the right way so that we're capital efficient, resource efficient and we're not taking the eye off the ball on etrasimod.

--------------------------------------------------------------------------------

Operator [25]

--------------------------------------------------------------------------------

And our next question is from Alethia Young with Cantor Fitzgerald.

--------------------------------------------------------------------------------

Alethia Rene Young, Cantor Fitzgerald & Co., Research Division - Head of Healthcare Research [26]

--------------------------------------------------------------------------------

Congrats on the deal that you did earlier this year. And maybe 2, 1 on olorinab. I just wanted to talk the data that was presented obviously in February at the Crohn's meeting. And then just kind of maybe if you can frame like kind of how you're thinking about running some of the studies going forward, the development pathway. Obviously, you have the 2 8 data to back that up. And then just talking a little bit about what you're seeing with etrasimod? And how you're thinking about running Crohn's study? And like kind of what's the overlap in kind of those 2 diseases? And were there any kind of points of evidence that gave you increased confidence from the UC data set itself?

--------------------------------------------------------------------------------

Amit D. Munshi, Arena Pharmaceuticals, Inc. - CEO, President & Director [27]

--------------------------------------------------------------------------------

Yes, absolutely. I think -- let me take the last one first and work backward. In terms of read-through from UC to Crohn's, there's plenty of good read-through from other programs out there. We look at the consistency in a dose-dependent manner of lymphocyte reduction. And this is one of the real discerning factors between the S1P class, specifically etrasimod and the JAK inhibitors for example, that there is a very clear dose response in the physical measures, things like lymphocyte reduction and then we see a very similar dose-dependent affect in the UC, in various aspects of ulcerative colitis. And we think that will play very nicely through to our dose selection and our program in our Phase IIb/III adaptive design type program for Crohn's disease. So we think there is a very nice read-through predominately driven by the very reliable biology of etrasimod. It does what it's supposed to do and it does in a dose-dependent manner. So that helps tremendously. The question I think you asked about the data we had in February, were you referring to the open-label extension data?

--------------------------------------------------------------------------------

Alethia Rene Young, Cantor Fitzgerald & Co., Research Division - Head of Healthcare Research [28]

--------------------------------------------------------------------------------

For the CB2?

--------------------------------------------------------------------------------

Amit D. Munshi, Arena Pharmaceuticals, Inc. - CEO, President & Director [29]

--------------------------------------------------------------------------------

Oh, the CB2 data, okay. So...

--------------------------------------------------------------------------------

Alethia Rene Young, Cantor Fitzgerald & Co., Research Division - Head of Healthcare Research [30]

--------------------------------------------------------------------------------

Yes, for the pain.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Oh, yes, okay. So yes, we had quite a few data readouts here. So we had -- the CB2 data continues to impress us in terms of how the product works. We think we've narrowed down identified the right therapeutic areas around visceral pain. And just to refresh ones memory, all -- it was a small open-label trial, 100% of patients showed a very nice reduction of hitting the 30% threshold for improvement in the AAPS scale, and importantly, the mean reduction about 4.6 on the AAPS scale, which is roughly two-and-half fold other products that are currently on the market. So a very nice, robust effect around the data. And the big challenge with this oral pain and cannabinoids and the selection of -- and selection of indication has always been that the compounds that have previously been developed have been partial agonists. They have been not peripherally restricted. And in many cases, the products that are out there, that purport to be CB2 agonists are actually CB1, CB2 mixed activity. And then we may have a twofold or threefold better improvement -- better activity in CB2 versus CB1. In our case, as you know, we have a thousandfold improvement. So the effects that we saw in our nonclinical results in February pulls really nicely through the clinical data both in the Phase I and the Phase II. And we think we want to continue to explore a range of doses in the Phase IIb study. So we saw -- we were probably well over the EC50 at the 25 and we want to push probably a little bit higher than 25, then a little bit below the 25 to figure out what that nice dose-response part is for the product. And so those are the things that we're working through as we design the Phase IIb study.

--------------------------------------------------------------------------------

Operator [32]

--------------------------------------------------------------------------------

And our next question is from Jason Butler with JMP Securities.

--------------------------------------------------------------------------------

Jason Nicholas Butler, JMP Securities LLC, Research Division - MD and Senior Research Analyst [33]

--------------------------------------------------------------------------------

I had another one on olorinab. The next study run will be the first. Obviously, we have a control arm. Can you just talk a little bit about the historical precedent here, variability of placebo response and just how you're thinking, obviously, without giving details at this point, but how are you thinking about powering in context of the control arm?

--------------------------------------------------------------------------------

Amit D. Munshi, Arena Pharmaceuticals, Inc. - CEO, President & Director [34]

--------------------------------------------------------------------------------

Sure. So again, as we get closer to kickstarting that study, we'll provide much more detail as we have historically. If we look at the trials that have been tried in IBS, so we're looking at IBS pain. For example, the LINZESS pain study had about 1 -- I think, it's 1.1 placebo change on the AAPS scale. We've seen placebo response is up to 1.5 on the AAPS scale. LINZESS, of course, demonstrated a 1.9 and that was significant for them in their trial. In this situation, we show 4.6, we think is so considerably above what we've seen historically that we have to be a little judicious in terms of how we power this study. So we're working through those issues now. We've scanned the literature, but most of the placebo is in that 1.5 -- 1 to 1.5, and then we'll power based on that.

--------------------------------------------------------------------------------

Operator [35]

--------------------------------------------------------------------------------

And our next question is from Patrick Trucchio with Berenberg Capital.

--------------------------------------------------------------------------------

Patrick Ralph Trucchio, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [36]

--------------------------------------------------------------------------------

I have a few follow-ups on olorinab. First, can you remind us why you're moving forward in IBS pain before IBD pain? And then which subtypes of IBS do you intend to focus on in this study: IBS with constipation, with diarrhea or mixed or a combination of all 3 subtypes? And then regarding IBD, when might you move forward with your next study on IBD pain?

--------------------------------------------------------------------------------

Amit D. Munshi, Arena Pharmaceuticals, Inc. - CEO, President & Director [37]

--------------------------------------------------------------------------------

Sure. So the study we did in IBD pain, the Phase II study in Crohn's pain, this was in patients with quiescent Crohn's. So these are patients who had underlying Crohn's that was controlled, but yet had ongoing visceral hypersensitivity. So we think there is a micro inflammation happening here that's creating this visceral hypersensitivity. That mechanism is identical to what we see in both animal models and in humans IBS pain. So in a sense we're looking at the same mechanism between quiescent Crohn's or quiescent IBD and IBS pain, where you have this essentially visceral hypersensitivity where CB2 receptors are up [regulating] . Again, that's well documented in the literature. So we think there is a really nice read-through from our small study to a larger study in IBS pain. IBS pain is a much easier study to enroll. You don't have to wait for patients to be in a quiescent state in IBD, so it makes it a lot easier. And -- so we think there's a much larger market opportunity. There's 23 million, 24 million patients out there with IBS. The data, suggests upwards of 80% of these patients have chronic pain. And so it's a much larger market opportunity, it's easier to enroll, and there is some good demonstrated hallmarks for what is a approvable endpoint in that patient subset. We will be looking at IBS-C and IBS-D that expands on products like LINZESS that are restricted to just one of the two. So we'll be essentially doubling that market opportunity. And we will come back to mix at a later point in time. So we think right now, C and D are probably better characterized and it will allows us to have a little bit more homogeneity in the patient population. And then as we get up and running in that study and as we learn more about the product, we'll come back to IBD pain, it's a little trickier to do and we want to make sure we're not masking anything underlying in terms of a disease activity. That's very important. When you speak to the clinicians, we think there's some ways to do that and we're working through that. So we'll -- that's going to take a little bit more turn time in terms of planning.

--------------------------------------------------------------------------------

Operator [38]

--------------------------------------------------------------------------------

And sir, I'm not showing any further questions in the queue. I would like to turn the call back to Amit Munshi for his final remarks.

--------------------------------------------------------------------------------

Amit D. Munshi, Arena Pharmaceuticals, Inc. - CEO, President & Director [39]

--------------------------------------------------------------------------------

Great. Thank you, again, for everyone joining us today. We look forward to continuing to update you on our progress and provide more detail on the clinical programs as we look forward to getting them started this year. We think we have a tremendous opportunity ahead here with Arena to build a fantastic company and we've got all the right ingredients. So we look forward to staying in touch. We appreciate all the support along the way. Thanks, again.

--------------------------------------------------------------------------------

Operator [40]

--------------------------------------------------------------------------------

And ladies and gentlemen, thank you for participating in today's conference. This concludes the program. And you may all disconnect. Have a wonderful day.