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Edited Transcript of ARNA earnings conference call or presentation 6-Aug-18 8:30pm GMT

Q2 2018 Arena Pharmaceuticals Inc Earnings Call

San Diego Aug 17, 2018 (Thomson StreetEvents) -- Edited Transcript of Arena Pharmaceuticals Inc earnings conference call or presentation Monday, August 6, 2018 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. - CEO, President and Director

* Kevin R. Lind

Arena Pharmaceuticals, Inc. - CFO & Executive VP

* Preston S. Klassen

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

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Conference Call Participants

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* Jessica Macomber Fye

JP Morgan Chase & Co, Research Division - Analyst

* Joel Lawrence Beatty

Citigroup Inc, Research Division - VP & Analyst

* Joseph Patrick Schwartz

Leerink Partners LLC, Research Division - MD, Biotechnology

* Joseph Robert Stringer

Needham & Company, LLC, Research Division - Associate

* Kennen B. MacKay

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

* Martin Douglas Auster

Crédit Suisse AG, Research Division - Research Analyst

* Yanan Zhu

Wells Fargo Securities, LLC, Research Division - Associate Analyst

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Presentation

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Operator [1]

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Good day, everyone, and welcome to the Arena Pharmaceuticals Second Quarter 2018 Financial Results and Corporate Update Conference Call. This call is being recorded. (Operator Instructions) .

I'll now turn the call over to Kevin Lind, Chief Financial Officer of Arena. Please go ahead.

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Kevin R. Lind, Arena Pharmaceuticals, Inc. - CFO & Executive VP [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 2018 financial results.

Joining me on today's call is Amit Munshi, our President and Chief Executive Officer; and Dr. Preston Klassen, our Chief Medical Officer.

Before we begin, I would like to remind you that we'll make forward-looking statements that involve risks and uncertainties, including statements about our focus, plans, goals, strategy, expectations, clinical programs, R&D, regulatory activities and operations, 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 the amount and allocation of our available financial and other resources, regulatory decisions and discussions, timing of the initiation of our trials, patient recruitment for our trials, which is competitive and challenging and may take longer than we project, data related to drugs and drug candidates and the timing of that data, which may not be as expected or sufficient for further development, regulatory approval, or commercialization, and collaborative activities. 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. - CEO, President and Director [3]

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Thanks, Kevin. Good afternoon, everyone, and thanks for joining our call today. During my comments today, I will provide pipeline and corporate updates as well -- as we continue to advance our promising product development programs. Preston will provide updates to the ralinepag Phase III ADVANCE program, and then Kevin will provide a financial review of the second quarter of 2018. And we will conclude, as usual, by taking questions.

Looking forward, we expect a significant number of value-driving catalysts over the next 12 to 24 months. In the near term, we're focused on initiating multiple Phase III studies for ralinepag and the olorinab Phase II readout in September.

In addition, following the exciting data for etrasimod, we are advancing toward a Phase III program in ulcerative colitis, or UC, as well as a program in Crohn's disease focused on rapid time to market.

So let's start with etrasimod. As a reminder, etrasimod is a thoroughly characterized, in-house developed, once-a-day oral S1P modulator with improved receptor selectivity and rapid on and off pharmacodynamics. We believe it is the only next-generation S1P modulator with 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.

We've made substantial progress on the etrasimod program since March when we delivered outstanding Phase II results from the OASIS trials, meeting all primary and secondary endpoints with statistical significance for patients receiving 2-milligram dose of etrasimod at 12 weeks. Approximately 1 out of 3 of the patients achieved clinical remission on the 3 domain [male] score at week 12 in a patient population where upwards of 40% of patients had previously received an anti-TNF or an integrin. We're pleased to announce that we have developed a full and comprehensive registrational plan and submitted our meeting request to the agency and look forward to updating you on our Phase III program.

Importantly, we've been accepted for podium presentations for the Phase II data at both the American College of Gastroenterology Annual Scientific meeting in the U.S. And the United European Gastroenterology Week Meeting in Europe, both taking place in October. We look forward to sharing our exciting clinical data with the physicians and investment communities in October.

Moving on to other indications for etrasimod. In light of the positive Phase II data in UC, we are also working through an aggressive development path in Crohn's disease. Crohn's disease is an inflammatory bowel disease that causes inflammation of the digestive tract. Inflammation caused by Crohn's can involve different areas of the digestive tract in different people. We look forward to providing further details on this program as we continue to make rapid progress on our path forward.

Finally, the primary biliary cholangitis study, or PBC study, is ongoing. As a reminder, PBC is a chronic liver disease where T-lymphocytes accumulate in the liver, resulting in the of destruction of bile ducts.

To summarize etrasimod, the positive safety and efficacy data provides us with further conviction on the promise of etrasimod as a potential best-in-class S1P modulator with broad clinical utility.

We're excited to further evaluate etrasimod in multiple indications going forward and believe that the product offers tremendous promise to patients as a true -- as the only true first oral next-generation S1P modulator with vastly improved pharmacology and pharmacodynamics, resulting in potentially improved safety and efficacy.

So with that, I'd like to turn the call over to Preston to discuss our recently initiated Phase III ADVANCE program for ralinepag. Preston?

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

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Thanks, Amit. As a reminder, last year, we delivered unprecedented positive top line results from our Phase II study with ralinepag for the treatment of WHO Group 1 pulmonary artery hypertension, or PAH in a patient population where the majority of patients were on dual background therapy.

And on the basis of that study and all prior preclinical and clinical work and its development program, ralinepag has a potential to be the first once-daily oral prostacyclin agonist that provides continues receptor engagement and drives improved exercise capacity and clinical outcomes in PAH patients.

With the belief that ralinepag is a potential best-in-disease product, our Phase III program is designed to elucidate the benefits of ralinepag across the spectrum of PAH patients, including not just prevalent patients, but newly diagnosed or incident patients. We believe that PAH patients deserve early treatment with prostacyclin therapy, and ralinepag is the best therapy to meet that need because of its improved receptor potency and extended pharmacokinetics, resulting in a profile closer to the IV prostacyclins than any other oral prostacyclin analog.

We are thrilled today to announce that we've initiated our ralinepag Phase III clinical program, branded as the ADVANCE program, and expect it to be the most comprehensive Phase III program ever conducted in PAH.

Before I walk through the program, as a reminder, we developed this Phase III plan with a focus on 4 goals: speed to market, breadth of label, physician experience and differentiation data. We believe that the ADVANCE program will address and fulfill these important goals.

The ralinepag Phase III ADVANCE program is designed to be wide-ranging, consisting of 2 main components: firstly, a time to clinical events program; and secondly, an exercise capacity program, each of which is designed to stand alone for registrational filing. We will also be conducting additional nonregistrational trials to provide evidence of differentiation for health care providers and payers. We believe these trials maximize our speed to filing and provide a robust platform to demonstrate the benefits and appropriate use of ralinepag.

A few more specific words on the 2 independent registrational pathways in the ADVANCE program. The first pathway is anchored on a time to clinical events trial called the ADVANCE OUTCOMES trial. This study is recently initiated and will enroll approximately 700 patients, investigating ralinepag compared to placebo on top of standard-of-care therapy in prevalent PAH patients. The trial is sized to provide 90% power at a significant level of 0.01.

The second registrational pathway is focused on exercise capacity in patients who are newly diagnosed or incident and is intended to investigate the use of ralinepag to treat PAH patients as part of first-line therapy in combination with PDE5 agonist and/or ERA antagonist therapy. We're approaching this exercise capacity pathway, with 2 separate trials focused on different methodologies: cardiopulmonary exercise testing, or CPET, and 6-minute walk.

In our ADVANCE CAPACITY trial, we will evaluate peak oxygen uptake, or peak VO2 via CPET testing in approximately 140 recently diagnosed patients over fixed treatment duration, and we will be initiating this trial in Q3 of this year.

In a separate exercise capacity trial, ADVANCE ENDURANCE, we will focus on measuring 6-minute walk distance in approximately 280 recently diagnosed patients, again, over a fixed treatment duration. We expect to initiate this trial in Q1 of next year.

Each of these trials is sized to provide 90% power at a significant level of 0.05. The decision to split the exercise capacity program into 2 trials is a result of FDA feedback favoring the use of peak VO2 as a primary endpoint for a CPET trial and the estimation that it is advantageous to therefore focus on a smaller number of highly qualified CPET sites with the ADVANCE CAPACITY trial to drive a lower standard deviation for the primary endpoint, and at the same time, enable a broader number of non-CPET sites to participate in the 6-minute walk study, the ADVANCE ENDURANCE trial.

In addition to the 2 registrational pathways for ralinepag that I've described, we believe it is important to generate data differentiating our compound from the competition. We will providing -- we will be providing more details in the fall about this differentiation aspect of the ralinepag program.

I'm excited about the ADVANCE clinical program. The foundation of this program is the ADVANCE OUTCOMES trial, investigating clinical events in prevalent PAH patients and by adding the exercise capacity trial's ADVANCE CAPACITY and ADVANCE ENDURANCE, investigating the earlier use of oral prostacyclin therapy in incident on newly diagnosed patients. We have the opportunity to book a broadened ralinepag label by demonstrating the benefit with first-line use of ralinepag and increase our speed-to-market as these trials have a fixed duration of therapy and are anticipated to read out ahead of the ADVANCE OUTCOMES trial.

I want to emphasize that Arena is taking a more rigorous and comprehensive approach to the ralinepag Phase III program than others have in previous PAH programs because we fundamentally believe ralinepag is the best-in-disease therapy. We're confident that collectively, the studies I've outlined, as the ADVANCE clinical program, will elucidate the benefits of ralinepag, enabling a winning label to allow appropriate use across a broad range of patients who suffer from PAH.

We look forward to updating you as we continue to actively type and screen patients, and we will provide more details on the studies and program time lines in October.

And now I will turn the call back over to Amit for the remainder of the pipeline. Amit?

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

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Thanks, Preston. Moving on to olorinab, formerly APD371, a peripherally restricted, highly selective full agonist to the CB2 receptor. We believe this product has a potential to be a significant advancement in the treatment of visceral pain. We are excited to announce we have completed enrollment of the ongoing Phase II proof-of-concept study and look forward to sharing top line study results in September.

We look forward to seeing the data that [I am] and coming back to you with future plans for olorinab.

Switching over to collaboration. In July, our partner, Everest, submitted Investigational New Drug applications in China to the China Food and Drug Administration, or CFDA, to initiate Phase I clinical trials for etrasimod in UC and ralinepag in PAH. Everest's IND submission to the CFDA demonstrated an important milestone in the global advancement of both etrasimod and ralinepag and further solidifies our confidence in their expertise and capabilities to navigate the regulatory environment in this difficult but important and rapidly growing market.

Also in July, our partner, Eisai, reported positive top line data from the CAMELLIA-TIMI trial, a 12,000-patient cardiovascular outcomes program for the anti-obesity agent, BELVIQ.

We're pleased to see yet another Arena-discovered product achieve clinical success, further supporting the potential quality and safety of our compounds.

Moving on to the team. On July 10, we appointed Life Science industry veteran, Kieran Gallahue, to the Board of Directors. Mr. Gallahue most recently served as Chairman and Chief Executive Officer of CareFusion Corporation, a medical products company from 2011 until its acquisition by Becton, Dickinson and Company in 2015 for $12.3 billion. His extraordinary experience in building and scaling enterprises will be invaluable as we position the company for long-term sustainable growth. Kieran's extensive expertise will be particularly important as we plan our path forward for the rapidly advancing multiproduct Phase III product -- Phase III-ready pipeline.

So with that, I'd like the turn the call over to Kevin for a corporate update and the financial review.

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Kevin R. Lind, Arena Pharmaceuticals, Inc. - CFO & Executive VP [6]

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Thank you, Amit. I'll provide a brief review of our second quarter 2018 financial results here, while more detailed results are discussed in our press release.

For the second quarter, revenues were $4.0 million, consisting of $3.1 million in collaboration revenue and $0.9 million in royalty revenue.

In terms of costs, research and development expenses totaled $26.8 million in Q2, general and administrative expenses totaled $10.4 million.

We burned approximately $26 million in cash this quarter excluding onetime items. At this juncture, with uncertainty of timing and size of the Phase III trials for etrasimod, it's difficult to provide longer-term guidance. When we have additional feedback from regulatory agencies, we will come back with further information.

Net loss for the quarter was $31.8 million or $0.65 per share. At June 30, 2018, cash, cash equivalents and investments balance was $592.4 million and approximately 49.3 million shares of Arena common stock were outstanding. Amit?

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Amit D. Munshi, Arena Pharmaceuticals, Inc. - CEO, President and Director [7]

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In summary, our focus remains on working towards delivering our transformational medicines to patients and building a vibrant, sustainable enterprise. We're excited about the catalysts ahead of us, including the Phase III program for etrasimod in ulcerative colitis, a development program for Crohn's disease and initiating additional studies for our Phase III ADVANCE program for ralinepag, and finally, delivering the Phase II data on olorinab in September.

Finally, as we will soon have a number of late phase clinical trials ongoing, each with a substantial number of data catalysts, we anticipate hosting an R&D Day on October 4 to provide further details on each of our core programs as well as additional clinical programs, which we intend to progress. We're excited to further highlight our robust, potentially best-in-class pipeline and milestones later this year. And we look forward to a busy remainder of 2018.

I'll now turn the call over to 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) Our first question comes from Kennen MacKay of RBC Capital Markets.

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Kennen B. MacKay, RBC Capital Markets, LLC, Research Division - Co-Head of Biotechnology Research [2]

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Maybe a quick one to start on the olorinab Crohn's data. Wondering if you could just sort of break out for us what would be data worthy of moving forward here versus data that's worthy being really excited about versus potentially not worth pursuing? And then I have a quick follow-up question on UC, please.

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

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Kennen, this is Amit. I'll take the olorinab and then we'll move to your UC question. In our preclinical models in olorinab, we saw both anti-inflammatory and analgesic activity. And one of the things we're really looking at out of this small pilot study is to really ascertain how much of the effects size is anti-inflammatory versus analgesic. So we'll be looking at pain scores, but we'll also be looking at some inflammatory markers. And on the outcome of that, we'll be able to determine where exactly to take this program. There's a range of potential options from other visceral pain conditions like IBS pain to sticking to something narrower like Crohn's. So we'll let the data speak for itself, but we should get some initial clues from this small pilot study as to where to go next. And you had a question on UC as well?

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Kennen B. MacKay, RBC Capital Markets, LLC, Research Division - Co-Head of Biotechnology Research [4]

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Yes, and maybe just to rephrase that. I guess, do we have a sense of sort of what kind of range of change scores we should expect with placebo, just to get a sense of sort of what noise could look like there? And then the follow-up was in relation to something Kevin mentioned in terms of challenges and forecasting burn, given several of the large Phase IIIs that will be ongoing in timing there. Just wondering sort of what can be done in the Phase III in ulcerative colitis to sort of speed development versus historical trials? Or maybe some of the headwinds that historical trials face that you may not be facing as you're enrolling etrasimod's Phase III.

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

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Again, Kennen, so on the placebo response, historically, this, again, this is an open label trial, but we were confident, given the consistency of the placebo responses and visceral pain studies being about a 2-point change on a 10-point scale. So we'd be looking for something north of that on the scale. So Kevin, on the...

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Kevin R. Lind, Arena Pharmaceuticals, Inc. - CFO & Executive VP [6]

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Yes, so the reason why we're not giving guidance for the latter half of the year in terms of burn is largely around whether or not we can get the Phase III studies for etrasimod started this year as well as how quickly the cash burn is for ralinepag around the Phase III programs. I want to pass it over to Amit for just how we can move etrasimod forward faster, given some of the other challenges companies have had.

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Amit D. Munshi, Arena Pharmaceuticals, Inc. - CEO, President and Director [7]

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Sure. So, Kennen, I think there was a couple of different variables to think about in terms of moving etrasimod forward more rapidly in ulcerative colitis. I think the first one is really self-explanatory from the Phase II data. As you'll recall, 40% of our patients had failed integrin or an anti-TNF. That's a higher rate than anyone else has seen out there in terms of background failures on Biologics. So this gives us great confidence in the ability to grow broadly in -- at clinical sites as a opposed to trying to cherry pick patients who are naïve to new -- novel agents. So I think that's number one. Number two is, as we look at the broader landscape, we see a slowing down of the number of sites -- I'm sorry, number of studies. And whereas in '15 to '16, we saw a tremendous amount of new studies initiating both the Jack inhibitor, the integrin, the biosimilars, et cetera. And we're seeing a lot of those studies conclude, so that gives us a larger bolus of the patient going forward. So literally, just a matter of market timing that begins to drive our ability to enroll faster. Number three, and I don't want to comment too much further on this, but we have proposed some very interesting and exciting study design options to the agency, and we'll gauge their reaction and come back to you with details. But we think some of the more creative ideas that we've been able to put forward would also help accelerate this study. So those are sort of the 3 legs of the stool in terms of being able to move faster.

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Operator [8]

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Our next question comes from Martin Auster of Crédit Suisse.

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Martin Douglas Auster, Crédit Suisse AG, Research Division - Research Analyst [9]

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Just had a couple on ralinepag and the ADVANCE program. Congratulations on the progress there. Just wanted to first confirm that all 3 of those trials you detailed today are one-to-one randomized. Second, I want to make sure and confirm that both 302 and 304 would need to be completed before you plan to conduct an NDA filing. And then third, just wanted to understand a little more about your thoughts on enrollment timing of 302 versus 304, and how much site overlap you estimate between the 2, and how that might interplay? And then I may have a follow-up.

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Preston S. Klassen, Arena Pharmaceuticals, Inc. - Chief Medical Officer and Executive VP of Research & Development [10]

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Sure. This is Preston. For the first question, we're going to save the study design aspects and giving more detail on program time lines until October 4, on our R&D Day, so I'll address that in a couple of months. In terms of the second question related to filing, could you repeat that?

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Martin Douglas Auster, Crédit Suisse AG, Research Division - Research Analyst [11]

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I just wanted to confirm that you'd expect to complete both the CAPACITY and ENDURANCE studies prior to NDA filing?

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

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Most likely. One of the things I really like about the program that we have is that it really increases flexibility. So on -- as we look to our estimates of a time line, again we'll talk more about those specifically in October, but as I mentioned, we anticipate that as a fixed duration treatment, that the exercise CAPACITY studies -- ADVANCE CAPACITY and ENDURANCE, would read out first. It's clear from our end of Phase II discussions with the agency that a single study can stand alone if it has an appropriate p value, which would typically be less than 0.01. And so you can envision a number of different scenarios where: one, exercise CAPACITY study, for example, comes [in a below 1] level, that would technically be registrable. And so -- and as we read out the exercise CAPACITY studies, that could in fact impact what ends up happening with the outcome studies also. Because as you know, in these longer-term time to event clinical outcomes trials, they typically involve planned interim analyses. And so there's just a number of ways that we can provide flexibility. Conventional wisdom is that we designed both exercise CAPACITY studies at the 0.05 level to have 2 robust double-blind placebo-controlled studies to suffice for (inaudible).

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

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Marty, I think you asked about randomization yield. Yes, they are all 1:1 randomization.

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Martin Douglas Auster, Crédit Suisse AG, Research Division - Research Analyst [14]

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Okay, yes. And then the last question was just kind of, again, expanding the trial, splitting the trial from a single 250-patient trial to a 400-patient experience across 2 different endpoints. That explanation makes a lot of sense. I want to just get a sense of how much site you'd overlap you'd expect? And what maybe -- what you are thinking preliminarily about time lines for enrollment at this point? And then maybe if I can just squeeze in a final one to Kevin, if you want to comment on just the cost of the overall Phase III program that you laid out today.

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Preston S. Klassen, Arena Pharmaceuticals, Inc. - Chief Medical Officer and Executive VP of Research & Development [15]

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Yes, I'll hit it at a very high level. CPET sites are pretty specialized. We're looking for the best of the best in terms of CPET sites, as I mentioned in my comments, to drive that standard deviation down. And so those sites will be different from the others. There will be some overlap in terms of the ADVANCE OUTCOMES and ADVANCE ENDURANCE studies. The main difference there being more of a prevalent patient population compared to newly diagnosed patients. And we'll provide more details on our estimates, our assumptions behind everything in terms of the power and sample sizes, as well as more specific data on our expectations for time line of these programs in October.

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

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Yes, Marty, around the costs. Based on how we had planned for the original ralinepag studies, there isn't a significant change in the overall cost that we assume with the program. So we -- no big change there.

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Martin Douglas Auster, Crédit Suisse AG, Research Division - Research Analyst [17]

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Okay. Could you be more granular in terms of what the overall cost the program is? Or is that not something you're looking to comment on at this time?

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Kevin R. Lind, Arena Pharmaceuticals, Inc. - CFO & Executive VP [18]

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Not looking to comment on that specific number at this time.

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Operator [19]

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Our next question comes from Jessica Fye from JPMorgan.

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Jessica Macomber Fye, JP Morgan Chase & Co, Research Division - Analyst [20]

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When did you request the FDA meetings to talk about the development plan for etrasimod? And do you expect to have minutes back from that meeting prior to the Analyst Day? How much detail do you expect to be able to provide on that development plan at the Analyst Day?

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

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Jess, we don't provide details on the timing of when we put requests in, partly because the FDA is unpredictable in terms of how long it takes them. In different divisions, there's a different level of impact in terms of changeover, headcount, et cetera. So there's just too many variables there for us to put dates out there, and then everyone is waiting for dates, so we choose not to put those dates out there in terms of when we establish. We will, in October, have additional thoughts and considerations in terms of where we're going with the program. We may or may not have FDA feedback by that point, but we look forward to at least sharing with you our early thinking in terms of where these programs could potentially go, with all the caveats that if we haven't been to the FDA by that point, it will be subject to change. But we'll try to do the best we can, given that it's out of our control.

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Jessica Macomber Fye, JP Morgan Chase & Co, Research Division - Analyst [22]

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Okay, great. And maybe just one follow-up to make sure I understand the latest thinking on partnering in business development. Is your goal to take both ralinepag and etrasimod all the way through Phase III independently?

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Amit D. Munshi, Arena Pharmaceuticals, Inc. - CEO, President and Director [23]

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Yes, absolutely. So as you know, we did the China partnership. We're looking at other geographies on a limited basis where we may be able to get some partnerships. As far as the major markets, we plan to keep those unencumbered and progress them ourselves.

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Operator [24]

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Our next question comes from Joseph Schwartz from the Leerink Partners.

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Joseph Patrick Schwartz, Leerink Partners LLC, Research Division - MD, Biotechnology [25]

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So on ralinepag, will you be evaluating VE/VCO2 slope? Or is PVO2 the only CPET metric that the FDA is interested in? And what gives you confidence that decreases in PVR is likely to translate into increases in PVO2?

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Preston S. Klassen, Arena Pharmaceuticals, Inc. - Chief Medical Officer and Executive VP of Research & Development [26]

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Yes, thanks for the question, this is Preston. So we had a good discussion at the end of Phase II meeting with the FDA on both VO2 as well as the VE/VCO2 slope. Our kind of thought on the data was that we thought what was nice about the slope is that it provided a little bit lower standard deviation. Ultimately, the agency is most interested in PVO2. We'll be measuring both, but as a primary endpoint, they were very clear, that they thought that just -- and historically, PVO2 was thought of as a direct measure of exercise capacity, and so therefore, a direct measure of patient function basically, and the endpoint that they wanted to see in a CPET study for primary endpoint. They are interested in slope and understanding more about it, but they wanted the PVO2. And we know that PVO2 has a slightly larger standard deviation, and so that's what drove our thinking around focusing on a smaller number of sites. And then as it turned out, as we got into the planning more, we realized that by splitting exercise capacity into these 2 studies, we could frankly enroll more rapidly, we believe, and execute that aspect, the exercise capacity aspect of the overall ADVANCE program more quickly than we would have anticipated doing had we done the original design, where it was CPET and 6-minute walk lumped together. Did that answer your question, or are there other questions in there?

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Joseph Patrick Schwartz, Leerink Partners LLC, Research Division - MD, Biotechnology [27]

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Yes, no, but I would like to follow up, actually. I guess, there haven't been any studies done, certainly in PAH, I know in heart failure there have been more, but how are you surveying the landscape in order to get the information that you need in order to power these studies?

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Preston S. Klassen, Arena Pharmaceuticals, Inc. - Chief Medical Officer and Executive VP of Research & Development [28]

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Yes, great. So you're right in that we're taking -- short answer is both literature as well as clinical experts who are doing these cardiopulmonary exercise testing today, we are looking at both the PAH field, as well as [partner here.] But you're right, there's more -- there's been more work in the heart failure space. In PAH, we're understanding the way to use the heart failure literature and discussion with those experts that we think can translate over to PAH. And it's not like PAH is devoid of prior experience. And so in putting all of that together we're confident that the anticipated delta, all those statistical assumptions will give us a good degree of assurance in terms of 90% power, et cetera, to anticipate a positive outcome. And we're going to go through all of that in more detail in our October R&D, and we'll spend time going over assumptions and some of the background evidence relating PVR changes to exercise capacity with CPET, which we think are either direct read through, and so I look forward to having a robust discussion about that in person at R&D Day.

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Joseph Patrick Schwartz, Leerink Partners LLC, Research Division - MD, Biotechnology [29]

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Okay, great. And then historically, you had spoken some about doing a head-to-head trial as well. Is that thinking been deemphasized now, or is that still something that you're contemplating?

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Preston S. Klassen, Arena Pharmaceuticals, Inc. - Chief Medical Officer and Executive VP of Research & Development [30]

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We're still contemplating a number of, I guess, we called it a differentiation program. So these are nonregistrational studies that may potentially have application in terms of the Section 14, within the label, Clinical Study Section, that kind of thing. But regardless, we'll get out into the scientific and clinical community appropriate information that helps to differentiate ralinepag from its competition. So that means, obviously, selexipag, and also provide better evidence around the comparability, if you will, to the IV prostacyclins. And so I don't want to go too much in detail right now, but we have contemplated head-to-head design. Again, none of this is like Phase III kind of registrational program. We're not going to do a head-to-head outcome study or head-to-head 6-minute walk kind of study. But there are ways that you can think about, taking a look at the, mechanistically, what's happening with ralinepag compared to selexipag. And potentially other oral prostacyclin.

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Operator [31]

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Our next question comes from Joel Beatty from Citi.

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Joel Lawrence Beatty, Citigroup Inc, Research Division - VP & Analyst [32]

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The first one is on ralinepag and the studies 302 and 304. Could you give us a sense of the number of sites that you expect to have for those trials and some type of sense of timing that you expect those trials to come online -- or those sites to come online?

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Preston S. Klassen, Arena Pharmaceuticals, Inc. - Chief Medical Officer and Executive VP of Research & Development [33]

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Yes, in terms of, as we mentioned, the 302 will start later, or ADVANCE CAPACITY will start later this year, and ENDURANCE will start at the beginning of next year. In terms of overall number of sites, we'll provide more of that information in October at R&D Day. But suffice it to say, it's a small number, with the CPET compared to the larger, for the ENDURANCE study, larger number of sites of 6-minute walk, and that's just a matter -- well, first of all, I think more patients, as you could tell by the numbers we provided in today's press release, approximately 280 for the 6-minute walk trial and approximately 140 for CPET, just because CPET is a more specific sensitive measure of exercise capacity than a 6-minute walk with a wider standard deviation. But the kind of caveat is, looking at that, is it's essentially more sites available -- many more sites available to conduct 6-minute walk studies compared to the more specialized cardiopulmonary exercise testing. So we're really honing it down to a small number of sites that are the best of the best in terms of their experience with CPET, get that standard deviation down and we'll provide more detail on the overall site numbers, as well as expectations for bringing sites online and, again, from a time line perspective in October.

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Joel Lawrence Beatty, Citigroup Inc, Research Division - VP & Analyst [34]

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Got it. And a question on etrasimod for Crohn's disease. Is there a potential to move straight into a Phase III trial in that setting? Or do you expect that will require a phase II program before moving into Phase III?

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

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Yes, so obviously, it would be premature to provide specific detail prior to speaking with the agency. But suffice it to say that we believe the mechanistic rationale and the evidence that we've seen to-date in ulcerative colitis makes us very excited about getting into Crohn's. And our preference would be to not conduct a stand-alone phase II program prior to going into Phase III. So there are a number of ways to do that. We're exploring those now with our advisers. We'll be putting together a plan to discuss with the agency and move forward. But again, it's our intent to get into Phase III as quickly as possible and to do so without requiring a standalone phase II. That's not to say that there wouldn't be some Phase II work, there could be potentially, in combination. There are a number of ways to think about doing this. But that would be our preference.

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

Operator [36]

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

Our last question comes from Jim Birchenough from Wells Fargo.

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Yanan Zhu, Wells Fargo Securities, LLC, Research Division - Associate Analyst [37]

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This is Yanan in for Jim. So first off, on ralinepag, so would you mind sharing the -- in your powering assumption, what the placebo rate might be for the 3 ADVANCE programs?

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Preston S. Klassen, Arena Pharmaceuticals, Inc. - Chief Medical Officer and Executive VP of Research & Development [38]

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Yes, we'll be sharing some of those assumptions in October as we kind of go through all of the, essentially the study design assumptions that lead to our estimates, for 700 for the OUTCOME study, 100 for CPET and/or ADVANCE CAPACITY and about 280 for ADVANCE ENDURANCE. So it's kind of premature to do that on this call, but we want to save that for the R&D Day discussion.

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Yanan Zhu, Wells Fargo Securities, LLC, Research Division - Associate Analyst [39]

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

Got it, got it. And then on etrasimod, just wondering how would you anticipate that in the upcoming FDA meeting, how you might frame the first dose heart rate effect? How would you frame that in your discussions?

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Amit D. Munshi, Arena Pharmaceuticals, Inc. - CEO, President and Director [40]

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Yes, I'm not sure I fully understand the question. Frame it from what perspective?

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Yanan Zhu, Wells Fargo Securities, LLC, Research Division - Associate Analyst [41]

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

Whether -- how -- the requirement, for example, the requirement for not having to have go through monitoring, things of that sort.

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Amit D. Munshi, Arena Pharmaceuticals, Inc. - CEO, President and Director [42]

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

Yes, that's not a traditional end of Phase II discussion, that's mostly a post-filing, NDA-label discussion. We'll have some discussions around what's required in Phase III and what's not required in Phase III. Just to recount, most of our patients had -- all of our patients had single-digit heart rate changes, which is substantially lower than all the other products coming in development or on the market. Additionally, we had no cases of sinoatrial arrest. So we see a very, very differentiated cardiovascular profile. So I'm sure we'll have those discussions with the FDA, but it's far too early to contemplate eventual potential risks.

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

Operator [43]

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

Our next question comes from Alan Carr of Needham.

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Joseph Robert Stringer, Needham & Company, LLC, Research Division - Associate [44]

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This is Joey on for Alan. Two quick ones here. One on etrasimod. So the PBC trial, that's still ongoing. Can you give us any quick update on time lines when we can expect data for that? And maybe just in a general sense, with some increased competition in the PBC space, how do you see etrasimod in that indication going forward? And the second question is olorinab, is that an asset that you plan to keep in-house, or would you think about partnering that?

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

Amit D. Munshi, Arena Pharmaceuticals, Inc. - CEO, President and Director [45]

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

Yes, thanks. So let me talk about PBC first. So you're absolutely correct, there's a lot of studies ongoing in PBC, which adds to complexity in terms of enrolling even smaller trials in the space. So that's mostly an enrollment issue. From an eventual market competition perspective, we're working completely in a different part of the pathway, working far upstream of all the cholestasis and all the bile acids. Just to remind you, PBC is actually a autoimmune disease where T-lymphocytes attack bile ducts. It's not a bile acid disorder specifically. The destruction of the bile ducts happens with T-lymphocytes, so we're uniquely positioned to catch the disease early and impact its progression, and we hope that, that's what we see in clinical programs. So we haven't provided any guidance on timing, and we won't do so, partly because it's a fairly competitive area to enroll patients. And we're less worried here about long-term differentiation and focused more on near-term enrollment in the context of all of our other priorities, including UC and moving aggressively in Crohn's.

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

Joseph Robert Stringer, Needham & Company, LLC, Research Division - Associate [46]

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

And a follow-up question was the pain asset. Was that something that you would consider keeping in-house? Or would you -- do you think about partnerships with that?

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Amit D. Munshi, Arena Pharmaceuticals, Inc. - CEO, President and Director [47]

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

We want to see the data first to see how much of the effects is analgesia, inflammation. We're excited about the overlap of the pain asset to our emerging GI franchise with etrasimod. So we see things in Crohn's pain, and we think there's an application in IBS pain, for example. The product fits very nicely with our overall focus. If the drug has water utility across multiple types of visceral pain indication, things like chronic prostatitis or endometriosis, which we're not studying today, but we think those broader application, we'll definitely consider and think about whether there's a way to maximize the value of that asset. So a lot will depend on the data, and a lot will depend on what we see there in terms of what the long picture is for olorinab.

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

Operator [48]

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

I show no further questions in the queue at this time. I'd like to turn the call back to Amit Munshi for closing remarks. Please go ahead.

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Amit D. Munshi, Arena Pharmaceuticals, Inc. - CEO, President and Director [49]

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

Thanks, everyone, for joining us today. We're excited about the progress in the last quarter. We're just as excited about the next few quarters in terms of all the things on our plate to continue to move forward, and we look forward to updating you on this progress as we continue to execute on the opportunities ahead. And we're really looking forward to October 4, for our R&D Day, and sharing more details on all the programs with you at that time, as well as some additional programs we think are super exciting. So we look forward to seeing you there, and thank you again.

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Operator [50]

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

Thank you, ladies and gentlemen, for attending today's conference. This concludes the program. You may now disconnect. Good day.

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