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Edited Transcript of ARNA earnings conference call or presentation 7-Nov-19 9:30pm GMT

Q3 2019 Arena Pharmaceuticals Inc Earnings Call

San Diego Nov 17, 2019 (Thomson StreetEvents) -- Edited Transcript of Arena Pharmaceuticals Inc earnings conference call or presentation Thursday, November 7, 2019 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Amit D. Munshi

Arena Pharmaceuticals, Inc. - President, CEO & Director

* Kevin R. Lind

Arena Pharmaceuticals, Inc. - Executive VP & CFO

* Preston S. Klassen

Arena Pharmaceuticals, Inc. - Executive VP and Head of Research & Development

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Conference Call Participants

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* Alan Carr

Needham & Company, LLC, Research Division - Senior Analyst

* James William Birchenough

Wells Fargo Securities, LLC, Research Division - MD and Senior Biotechnology Analyst

* Jessica Macomber Fye

JP Morgan Chase & Co, Research Division - Analyst

* Joori Park

SVB Leerink LLC, Research Division - Associate

* Justin Hayward Burns

RBC Capital Markets, Research Division - Senior Associate

* Li Wang Watsek

Cantor Fitzgerald & Co., Research Division - Research Analyst

* Patrick Ralph Trucchio

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

* Shawn Michael Egan

Citigroup Inc, Research Division - Senior Associate

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Presentation

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Operator [1]

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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. Please go ahead.

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

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

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

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

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

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

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Thanks, Kevin, and hi, everyone, and thanks again for joining our call today. During our comments today, we'll provide pipeline updates and conclude with a financial review of the third quarter of 2019.

Arena continues to make exceptionally strong progress on all fronts: clinical, operational and financial; meeting or exceeding our objectives across the board.

Last week, we were pleased to have initiated our Phase II ADVISE trial in atopic dermatitis. We believe this is an important first step in the broadening of the therapeutic applications for etrasimod. We continue to expect to initiate our Phase IIb/III program in Crohn's disease this year, and Preston will provide additional color on our plans later in this call.

Beyond UC, CD and atopic dermatitis, we expect to further expand etrasimod utility in additional indications going forward. We believe -- we continue to believe that a once-a-day oral agent of etrasimod's profile offers tremendous promise in the treatment of a broad range of immune-mediated inflammatory diseases. We look forward to sharing our plans on 2 additional new indications in the next few months.

With regards to APD418, our preclinical asset for decompensated heart failure, we remain on track to file an IND in the fourth quarter of this year.

I'd now like to turn the call over to Preston to provide a few specific program updates. Preston?

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

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Thanks, Amit. I'll start with our etrasimod IBD indications. In June, we initiated the global Phase III ELEVATE UC registration program in ulcerative colitis, which will consist of 2 key trials, ELEVATE UC 52 and ELEVATE UC 12to evaluate etrasimod 2-milligram in subjects with moderately to severely active ulcerative colitis. Enrollment in ELEVATE UC 52 is progressing nicely, and we plan to begin enrollment in ELEVATE UC 12 in the second half of next year, 2020. We look forward to sharing additional detail on our progress with the ELEVATE UC program over time. I will note that data from the long-term open-label extension of our Phase II OASIS trial was presented last month at UEGW in Barcelona. This extension trial of etrasimod 2-milligram up to 46 weeks demonstrated sustained efficacy in terms of clinical remission, clinical response and endoscopic improvement. Among completed patients who achieved clinical remission, clinical response and/or endoscopic improvement on 2-milligram etrasimod at 12 weeks in the OASIS trial, 75% were still in remission, 93% had sustained clinical response and 77% continued to have endoscopic improvement at 46 weeks of therapy. We believe these data compare highly favorably to other existing therapies in UC.

Turning now to our second IBD indication, Crohn's disease, we are rapidly progressing toward the initiation of the Phase II/III program by the end of this year. This program will consist of a Phase II dose-ranging trial with an operationally seamless transition into the Phase III portion of the program. I will provide a few comments today about both the Phase II and Phase III segments of this program, and we will provide additional detail early next year as we get greater experience with etrasimod in this specific patient population.

Our Phase II dose-ranging study will be branded as the CULTIVATE trial. It will test the safety and efficacy of etrasimod 2-milligram and 3-milligram compared to placebo over 14 weeks. The primary efficacy endpoint will be endoscopic response at week 14, and we will be looking at a variety of scales of Crohn's disease activity, including abdominal pain and stool frequency. Approximately 225 patients will be enrolled in this Phase II trial.

We selected 2-milligram and 3-milligram doses for investigation in Crohn's disease based on the knowledge that in ulcerative colitis, we saw a clear dose response in terms of efficacy, with 2-milligram being superior to 1 milligram, but a similar safety and tolerability profile across these 2 doses.

And because moderately to severely active Crohn's disease tends to be a more difficult disease to treat than ulcerative colitis, it makes sense to test 2-milligram and 1 higher dose.

Based on our SAD MAD work in healthy subjects and very wide safety tox margins in our largest nonhuman species, we do not anticipate any rate-limiting safety or tolerability effects at the 3-milligram dose. We will use the results from the CULTIVATE trial to select the most appropriate dose for additional pivotal trials in the program.

A critical aspect of this program in Crohn's disease is the operationally seamless transition into the Phase III portion with no stoppage in enrollment activities across our global site network. This will enable us to avoid the typical S-shaped curve ramp up in site activity when a trial is first initiated. We will move from Phase II into Phase III seamlessly and firing on all cylinders. We will provide more detail on the operational aspects of this transition into Phase III later next year.

The Phase III portion of the program will consist of 2 induction trials with rerandomization of clinical responders into a single maintenance trial, which is a typical registrational program used in Crohn's disease to support drug approvals. As we gather operational experience in the CULTIVATE portion of this program, we will provide greater detail regarding the sizing, powering and overall timelines for the pivotal induction and maintenance costs.

We are choosing to focus on an operationally seamless Phase II/III program to afford Arena the opportunity to examine the data from CULTIVATE, make a real-time decision on dose for the pivotal portion of the program, publicly release those results of the data catalyst around midyear 2021 and still realize the operational synergy inherent to a seamless transition into the pivotal portion of the program.

And finally, I would like to highlight that we recently issued press releases regarding the initiation of 2 additional Phase II dose-ranging trials, the CAPTIVATE trial for olorinab in IBS and the ADVISE trial for etrasimod in atopic dermatitis. Those trials are on track to provide data readouts in the second half of 2020.

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

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

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Thanks, Preston. I'll provide a brief review of our third quarter 2019 financial results here while more detailed results are discussed in our press release from earlier today and in our 10-Q, which will be filed this week. For the third quarter of 2019, revenues were $1.4 million, with $800,000 of royalty revenue.

In terms of cost, research and development expenses totaled $60.3 million in Q3, including $6.7 million related to noncash share-based compensation. G&A expenses totaled $20.4 million, of which $6.6 million was share based comp. We burned approximately $48 million in cash this quarter. Net loss for the quarter was $72.9 million or $1.46 per share on a per -- on a basic per share basis.

At September 30, 2019, cash, cash equivalents and investments was approximately $1.2 billion and approximately 50 million shares of Arena common stock were outstanding.

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

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

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Thanks, Kevin. We are continuing to make significant progress across the company, delivering on key milestones as we build a world-class company with best-in-class products, the relentless focus on execution, a team that can deliver, and of course, our strong balance sheet.

We look forward to sharing our exciting milestones ahead, including the upcoming initiation of the Crohn's disease program, the initiation of clinical program for APD418. And next year, pain on the lower ab and IBS pain and etrasimod in atopic dermatitis.

I want to thank the entire Arena team for the tremendous effort this year and to our investors for your continued support.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from Patrick Trucchio from Berenberg Capital Markets.

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Patrick Ralph Trucchio, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [2]

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So a couple of follow-ups. The first one is just you mentioned that your expectation is to expand into additional indications going forward, and that you'll -- on etrasimod, and you'll share this with us over the next several months. And previously, I believe you've outlined peak commercial sales potential of etrasimod in the therapeutic areas of liver and dermatology disease, at $1.5 billion to $4 billion. So I'm wondering as you expand the clinical development program to additional indications, should we anticipate the expansion of beyond these disease areas. And is this estimation still in line with your thinking for total sales potential in these particular disease areas for etrasimod?

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

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Patrick, this is Amit. Let me see if I can address that in a couple of different ways. With UC, Crohn's and atopic dermatitis, you're already addressing, in the next several years, about $50 billion of market opportunity. So a quite considerable amount of market opportunity. The new indications that we're focusing on, we look for a couple of things. We not only look for market opportunity. We look for therapeutic area fit and we look for a provocative biologic or scientific rationale. So those are the criteria upon which we make those decisions. At this point, it's a little too early to provide the specific indications, specific guidance. But I will just say that, again, the 3 indications we're after to date, address about $50 billion in market opportunity. And with a once-a-day novel oral product with a unique profile of etrasimod, we think we're in a fantastic position to capture a substantial amount of market share. So as we start talking about the new indications, we'll provide more color on both the incidence of prevalence and how we think about our products.

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Patrick Ralph Trucchio, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [4]

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So then just, if I may, just a follow-up on atopic derm. So we've seen some compelling data on Pfizer's JAK in atopic derm. Clinicians have told us, appears similar to dupi, has an acceptable safety and tolerability profile. It's a few years ahead of etrasimod, then there's some additional JAKs on the way, including topical JAKs. So the questions are, how should we think about etrasimod versus these -- the oral JAKs in atopic derm? Does etrasimod have to demonstrate efficacy on par with these JAKs or could safety considerations place etrasimod ahead of the JAKs in atopic derm even if efficacy is somewhat less compelling?

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

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So without addressing directly the efficacy question, let's just talk about the safety profile. We'll come back to the other piece on atopic derm. As you know, etrasimod safety profile is unlike the JAK, with the absence of the malignancy risk, the VTE risk, for example, upper respiratory infections. So we think that will continue to play out in an indication where that physician community is even more sensitive to safety compared to the gastroenterologists. So we're moving into a broader range of applications. We're moving into specialties where dermatologists are even more sensitive to adverse event profile and that -- we think that positions etrasimod quite favorably.

I will say that atopic derm as a whole has been undertreated for a very long time. The advent of the biologics, starting with Dupixent, is a great start. We think orals will fundamentally change that market. And this is a market that, from a prevalence perspective, could be 3 or 4x, just in the moderate to severe population, 3 or 4x in what we're seeing with ulcerative colitis and Crohn's. So in a large and growing market population, having multiple modalities, I think, is going to be important. We've seen this in other autoimmune conditions over the last 2 decades. The advent of more and more modalities allows physicians to move seamlessly between one to the other. The advent of orals usually gets placed ahead of the biologics. So we expect some of those patterns to continue. We'll see how the novel -- the newer JAKs and the topical JAKs play out. There's still a lot of room here between here and there. So we're excited about our safety profile. We're excited about the category, dermatology, broadly, atopic derm, specifically. We think etrasimod is uniquely positioned there. So as time goes on, I'm sure we'll spend much more time thinking about the relative profiles.

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Operator [6]

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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 [7]

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Just curious about the ADVISE trial. And given that the primary endpoint for the approval of Dupixent was Investigator Global Assessment, how should we think about the sort of translatability of your Phase II endpoint to that endpoint? And just the implications for the design of a pivotal trial? Are you going to evaluate IGA as a secondary?

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

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Let me hand that off to Preston. Preston, do you want to quickly cover that?

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Preston S. Klassen, Arena Pharmaceuticals, Inc. - Executive VP and Head of Research & Development [9]

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Yes, absolutely. Thanks for the question. So yes, the short answer is, we will be evaluating a number of different endpoints that will help give us the appropriate read-through on the Phase III. And so while the primary endpoint is the percent change in the EASI score from baseline to week 12, we will also be looking at IGA and we'll be looking at categorical cuts of the data as well. The EASI 75, that kind of thing. So it's going to be -- it's typical for a Phase II dose-ranging study. We need to get, first and foremost, a good sense that, number one, the drug is efficacious as a dose-response pick for those that we think is best on the basis of efficacy and safety tolerability, and then getting appropriate read-through on the Phase III. So we're -- we think we've got the record of the study design and endpoints to do that.

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Jessica Macomber Fye, JP Morgan Chase & Co, Research Division - Analyst [10]

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Okay. And then can you just explain why you picked the percent change in EASI as opposed to EASI 90 or 75 for the primary?

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Preston S. Klassen, Arena Pharmaceuticals, Inc. - Executive VP and Head of Research & Development [11]

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Well, one of the reasons is the overall sample size. And then we see it in the Phase III study. It's going to give us enough of a read-through into the categorical that would be the [improvement] endpoint. But we didn't think that we needed to be focusing on the categorical endpoint, but picking the dose that would work moving forward.

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Jessica Macomber Fye, JP Morgan Chase & Co, Research Division - Analyst [12]

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Okay. And then just maybe putting the JAKs aside, if they're -- for whatever reason, not the right comps for your atopic derm data, what atopic derm drug do you see as sort of setting the benchmark for the kind of efficacy that you're hoping to drive?

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

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Let me take that one. It's early days for us. We don't have any data at this point, right? We're speculating. So I'd rather not speculate on the effect size and what we're hoping to get out of the study. What I will say is that oral agents, even if they are not quite as good as a biologic in some cases, tend to do quite well. And I think the recent Otezla transaction very clearly demonstrates the value of an oral agent. And in that case, had substantially less efficacy than the biologics in psoriasis.

Here, I think if we look at our asthma data, which has been published, we look at the Dupixent data also in asthma models. We see -- we don't feel like we're at any sort of gap in terms of potential efficacy. So again, long road ahead. We need to see the data, but we feel quite confident that etrasimod will perform quite well in this patient setting. And you could throw the JAKs in to that mix, and you can throw the biologics in that mix. I think we've got a really good shot here to demonstrate something quite exciting.

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Jessica Macomber Fye, JP Morgan Chase & Co, Research Division - Analyst [14]

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Okay. Great. If I can sneak one more in. Just on the financial side with ADVISE starting up, the Crohn's trial starting up and the ramp of the ELEVATE trials. Are there any comments you can make just to help us kind of model R&D spend or cash R&D spend for 2020?

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Kevin R. Lind, Arena Pharmaceuticals, Inc. - Executive VP & CFO [15]

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Yes. We're not going to give guidance on -- thanks, Amit. We're not going to give guidance on 2020 today. What we have said and what we'll continue to say is, it's going up. I think we've seen a fairly big step-up from 2018 to 2019. And with the number of these trials going forward, there will likely be another step-up from there.

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Operator [16]

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Our next question comes from Joseph Schwartz from SVB Leerink.

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Joori Park, SVB Leerink LLC, Research Division - Associate [17]

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I'm Joori, dialing in for Joe. My first question is on etrasimod I was wondering if you could walk us through what you saw in terms of etrasimod metabolites presented at your AAPS poster. So given the relatively high percentage of total radioactivity, what is known about the M3 and the M6 and their biological activity? And it seems like the sum of unknown traces metabolites is about 18.9%. So I was wondering what sort of metabolites that was composed of. And the data that you presented was a single dose, and we're wondering if there are any concerns for buildup of accumulation of these metabolites during a repeat dose.

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Amit D. Munshi, Arena Pharmaceuticals, Inc. - President, CEO & Director [18]

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Great. Let me have Preston take that.

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Preston S. Klassen, Arena Pharmaceuticals, Inc. - Executive VP and Head of Research & Development [19]

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Yes, sure. Thanks a lot. So let's just start off with kind of the high-level summary. This is obviously a human mass balance study that we presented, and it was conducted in the way these studies are conducted, a radiolabeled etrasimod. We recovered a high degree, the amount that you're supposed to recover, in terms of making sure we had accounted for the appropriate proportion of drug. And we did find that etrasimod was extensively highly metabolized. However, because it goes through a number of different routes, we don't have accumulation or buildup of what is classically termed a major active metabolite. And that's defined -- it can be in tolerance that would be 10% or higher. So we have no individual metabolite that was -- that met that criteria, which essentially means we don't have to do additional follow up looking at, for example, plasma profile with in any one particular type of metabolite. And so we haven't seen anything that indicates anything other than the fact that the vast majority, if not all, of the clinical activity of this drug comes from the parent, etrasimod.

So this is not a situation, like in the case with ozanimod, they have a drug that's ingested. And then, in fact, most of the clinical activity comes from metabolites that themselves have very different PK processes from the original parent and it's not the case with etrasimod. We're very confident that we understand the half-life of the drug, how it's metabolized. Frankly, the fact that we have multiple metabolic pathways, means that the likelihood of having a significant drug-drug interaction is lowered. And so we're really encouraged by the decisions so far. So there will -- actually, there would not be any kind of late-in-the-game changes, if you will, in terms of what you think about the profile of the compound as we move forward.

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Amit D. Munshi, Arena Pharmaceuticals, Inc. - President, CEO & Director [20]

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Let me add. This is Amit. Let me just add just one more piece of color. I think this is just further evidence of the decades in long research that we've done in reading around the GPCR targets. As you know, etrasimod is the beginning of a whole family of compounds in S1P modulation that we have internally, again, based on these decades-long research. So again, it's a homegrown product. We understand exactly what we were going to see in the human mass balance. We're really pleased we saw exactly what we expected. And again, unlike some of the competitor products, which are really academic compounds or tool compounds, this is -- this product really stands on its own.

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Joori Park, SVB Leerink LLC, Research Division - Associate [21]

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Okay. Great. That's very helpful. And then my second question is also on etrasimod. I was wondering if you could provide us some updates on the CULTIVATE study in Crohn's disease, given that both UC and CD could be seen by similar physicians. Will you be able to elevate -- to leverage your ELEVATE studies and lessons in sites learned to expedite the enrolling of CULTIVATE?

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Amit D. Munshi, Arena Pharmaceuticals, Inc. - President, CEO & Director [22]

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Preston, do you want to take that?

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

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Yes, sure. The short answer is yes. We are establishing a global site network in UC, the ELEVATE program of approximately 450 sites. And again, across over 40 countries. And we will be leveraging many of those sites, the majority of those sites for the Crohn's program. We may end up adding additional sites for Crohn's. As you well know, both UC and Crohn's are very competitive and difficult to enroll. And so we want to make sure that we're availing ourselves of every opportunity. So we're likely over time to develop that global network even further for Crohn's disease, but there will be overlap in terms of the site.

And then in terms of how we go about operationalizing site activity in the trial overall. Absolutely, we're developing a variety of innovative approaches to patient identification and enrollment at the site level and intend to lever those along with our CRO partner across -- into the Crohn's disease program.

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Joori Park, SVB Leerink LLC, Research Division - Associate [24]

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Okay. Great. And if I could just squeeze one more question. I have a quick question about the patients you're aiming to enroll in the ADVISE trial. Could you provide some clarity on like baseline characteristics, such as average EASI score and will you be assessing etrasimod in combination with a topical corticosteroid as well?

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Preston S. Klassen, Arena Pharmaceuticals, Inc. - Executive VP and Head of Research & Development [25]

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Yes. So the -- in terms corticosteroid, it would be in patients who have not had an adequate response to topical steroids. And so will not be used during that treatment period. Because they've already have a shot at it, and it hasn't worked. And then in terms of the -- it's basically the moderately to severely active atopic dermatitis, is not vialed at this point. And so we're not necessarily going into full inclusion-exclusion criteria disclosure at this point. But it's a fairly standard patient population in terms of the kinds of patients you see enrolled in these programs across Phase II and III.

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Operator [26]

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Our next question comes from Kennen Mackay from RBC Capital Markets.

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Justin Hayward Burns, RBC Capital Markets, Research Division - Senior Associate [27]

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This is Justin on for Kennen. And congrats on the progress so far this quarter. I was wondering if you could share with us the sort of feedback that you've been getting from the sites in the ELEVATE 52 trial given your sort of tailored boots on the ground approach there, and how that's impacted your thinking on the CD enrollment.

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Amit D. Munshi, Arena Pharmaceuticals, Inc. - President, CEO & Director [28]

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Yes. Preston, do you want to take that again?

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

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Yes, sure. Absolutely. Again, it's reasonably early days, but we're really excited with the progress that we've made. Again, we're not going to be sharing on a call-by-call basis specifics around enrollment. But we are -- things are working the way we have planned at this point. And so -- and as I mentioned, there's always an S-shape kind of ramp-up curve activities as you get sites on board.

And just to point back, harking back to my comments around Crohn's. That's why we are focusing on our operationally seemless transition from Phase II into Phase III for that program. But bottom line is that we're really encouraged with what we've seen to date. Very encouraged with the amount of interaction we have at the site. Again, a big philosophical aspect of our -- how we're approaching this is we want to -- we needed to own as a sponsor. On the site relationships, we have established a field-based team of health care professionals. MSLs are amazed to interact predominantly at PI, principal investigator level, and a separate field team of clinical trial educators to interact at both -- at the clinical study coordinator level and other study staff. And so we are really doing a lot to make sure that we own, how we talk at the sites and what we do to encourage them and help them, and it's very much a customer-focused kind of launch, if you will, approach to conducting a clinical trial. We're excited with what we've seen so far.

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Operator [30]

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Our next question comes from Alethia Young from Cantor Fitzgerald. .

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Li Wang Watsek, Cantor Fitzgerald & Co., Research Division - Research Analyst [31]

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This is Li on for Alethia. And I have 2. So first, can you talk about what your expectations for ozanimod's Phase III Truenorth data, which is going to read out in the middle of next year? And what do you think will be the most relevant rates due to your own UC program from both the clinical and commercial perspective?

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Amit D. Munshi, Arena Pharmaceuticals, Inc. - President, CEO & Director [32]

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Yes. This is Amit. Let me to take a stab at that. I think it's really difficult on Truenorth to get a good sense of where that's going to end up. And I think it's for one very important reason. As you will recall, their endpoint, the 3 domain modified male score and excluding the Physician Global Assessment, and we never saw that data from their Phase II trial. So going back in time, it's really difficult to draw a line from their Phase II to Phase III. So I think that's a question better asked of them in terms of what's the read-through from Phase II to Phase III, what is their expectation, what is their underlying powering assumptions. And the absence of that, it becomes very difficult to predict an outcome of a Phase III trial or even to begin to guess where it's going to end up.

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Li Wang Watsek, Cantor Fitzgerald & Co., Research Division - Research Analyst [33]

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Okay. So can you talk a little bit about the potential read-through there? Like what would you be like looking for from their data?

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

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I mean -- we think the drug is effective in terms of its activity. We think it's active. We're going to be looking at the safety profile and seeing what's consistent with what they've seen in their Phase I and Phase II trials with AV conduction abnormalities out in time. So we'll be looking very carefully at their safety and how they report that out. And they probably won't report that out of top line. So we'll probably have to wait until a medical conference. Assuming they get the powered assumptions right and they powered appropriately and had the right inclusion, we expect that to be the drug to be active. So outside of that, it's anybody's guess, simply because they never showed us anything out of their Phase II that's a read through in their Phase III.

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Li Wang Watsek, Cantor Fitzgerald & Co., Research Division - Research Analyst [35]

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Okay. And then separately, so given your strong balance sheet with over $1 billion in cash, so how are you thinking about deploying capital at this point? Is there anything you could do to accelerate current time lines with more resources? Are you sort of more focused on creating a broader pipeline at this point?

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Amit D. Munshi, Arena Pharmaceuticals, Inc. - President, CEO & Director [36]

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I think from a strategic perspective, the things Preston talked about with not only the number of sites we have in ELEVATE, but the sites we'll have over time on ELEVATE and CULTIVATE and the Phase III programs and all the on-the-ground resources, I think we're already doing what you had mentioned, which is we're focusing on enrollment. We're focusing on timed enrollment, and we're putting the resources where it matters in terms of our program. So that's kind of how we're thinking about it.

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Operator [37]

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Our next question comes from Jason Butler from JMP Securities. .

And we will move on to our next question from Joel Beatty with Citi.

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Shawn Michael Egan, Citigroup Inc, Research Division - Senior Associate [38]

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This is Shawn Egan on for Joel. I think most of mine have been addressed, but maybe it's kind of 2 quick ones. For ADP418 (sic) [APD418]. I see you're filing of your IND this year. Is the expectation that, that will be in the clinic next year? And then as a brief follow-up, do you have any time lines on when the Phase II ADVISE trial will be up on clinicaltrials.gov?

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

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Preston, do you want to take those?

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Preston S. Klassen, Arena Pharmaceuticals, Inc. - Executive VP and Head of Research & Development [40]

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Yes, sure. In terms of 418, the answer, yes. We're filing the IND and will be in the clinic next year. I'm sorry, file -- be in the clinic next year. And then the clinicaltrials.gov filings for posting for ADVISE will be up pretty shortly.

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Operator [41]

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

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James William Birchenough, Wells Fargo Securities, LLC, Research Division - MD and Senior Biotechnology Analyst [42]

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And congrats on all the progress. I guess, first, just on atopic dermatitis, could you maybe go through the lines of evidence that give you confidence in that indication. You mentioned biologic rationale as one of the drivers of where you go with etrasimod. So maybe if you could speak to the role of S1P modulation in sequestration of Th2 cells? Or what are the different lines of evidence that really give you confidence in that indication?

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Amit D. Munshi, Arena Pharmaceuticals, Inc. - President, CEO & Director [43]

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Pardon me, Preston. Do you want to grab that?

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Preston S. Klassen, Arena Pharmaceuticals, Inc. - Executive VP and Head of Research & Development [44]

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Yes, sure. So there's a number of different lines of evidence. Obviously, we know that eosinophils -- sorry, the lymphocytes and eosinophils are part of the general pathophysiology. And that at a high level, it's more of a Th2 profile. And that's essentially what S1P modulation impacts, trafficking around both activated CD4/CD3 positive T cells, and we're learning more about the eosinophil aspect of this as well. And then very clearly, we do reduce a Th2 cytokine profile. So all of that kind of makes sense on paper. When you actually look at preclinical investigation, fingolimod, as an example, has had a other publications around animal models for a variety of dermatologic conditions, models of those conditions. And so we've taken a look at all of that work.

We've also got early clinical results of our own in terms of etrasimod with both pyoderma gangrenosum, a very brief exposure to some patients that we had initiated and then pulled back on as an ultra-rare condition. Once we knew that we were going forward on IBD, it didn't make as much sense to continue a full-on program in PG. But when we did take a look at the handful of patients that have been treated, we saw good results.

We've also taken a look at a handful of patients with extraintestinal manifestations, ulcerative colitis from the OASIS trial. And see what we thought were reasonable. As a whole, very anecdotal in terms of the clinical evidence with etrasimod and not a direct necessarily readout on atopic dermatitis but nothing in the mix here has given us reason to think that the overall mechanism of action of S1P modulation, combined with the pathobiology of atopic dermatitis, doesn't suggest that we have a really good shot at showing some clinical efficacy.

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James William Birchenough, Wells Fargo Securities, LLC, Research Division - MD and Senior Biotechnology Analyst [45]

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Great. And then maybe just if I could squeeze in a question on olorinab. What -- could you speak to what the hurdle is there? How high a hurdle are you setting for yourselves? Is LINZESS, kind of the -- what you need to kind of approach? Or maybe speak to what we should be looking for in terms of the hurdle you're going to set there.

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

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Yes, this is Amit. Let me take that. So as you know, LINZESS and the activity on LINZESS has been around a 2-point change on the AAPS scale. They had about 50% of patients hits a 30% threshold. And importantly, LINZESS has restricted to IBS-C. So what's exciting here is that we have activity potentially in IBS-C and IBS-D, where we can go after a broader part of the marketplace. And so we're seeing activity that's about twofold up from our Phase IIa data. So we think we're in the ballpark, maybe a little bit north of where the differences on the AAPS scale. But I think importantly, we'll be able to go after multiple parts of this disease.

Preston, do you want to add any color?

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Preston S. Klassen, Arena Pharmaceuticals, Inc. - Executive VP and Head of Research & Development [47]

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Yes. I mean, just to point out, it's classic Phase IIb dose-ranging study. So this is -- we're exactly at the point you would expect to be at right now. The -- our IIa work was in colitis and Crohn's. So there's some -- a different patient population than IBS, although we think that the underlying pathobiology of pain associated with colitis and Crohn's and IBS is, in fact, very similar. Certainly, preclinically, it is. And so this is really a test to confirm that we've got good biologic activity that translates into efficacy and figure out exactly what dose we need to be having. So it's premature to say the amounts that we think we'll see. What we do know, and I'm going to mention that when you look at the delta in terms of pain scores, albeit across different diseases, quite (inaudible) and IBS, the delta and pain scores we saw was really significant clinically. And so if we can show something like that in IBS, it's going to be really fantastic.

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James William Birchenough, Wells Fargo Securities, LLC, Research Division - MD and Senior Biotechnology Analyst [48]

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And then maybe just a follow-up to that. If you're successful in the Phase II work, what's the plan going forward? Is this something you look to partner? How do you think about the commercial -- the best way to leverage this commercially?

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

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Are you speaking about leveraging the olorinab commercially?

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James William Birchenough, Wells Fargo Securities, LLC, Research Division - MD and Senior Biotechnology Analyst [50]

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Yes.

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Amit D. Munshi, Arena Pharmaceuticals, Inc. - President, CEO & Director [51]

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Yes. So yes, so we -- look, we'll again, the data will be the data. We're excited. We think the biology is spot on. As Preston pointed out, having another product that has applications potentially in IBS-C, IBS-D and importantly, in IBD pain, puts us squarely in a GI sales force bag, right? So as you know, a lot of companies that have launched their first drug and part of the short the launch thesis is because there's not much behind it. You can't continually put pressure in the marketplace by putting additional products in the therapeutic area. We're in a very unique situation between etrasimod and olorinab. We have the opportunity to have 5 different GI indications, and that sets us up really well for success long term. So assuming the clinical trials pan out the way we hope they do, it really cuts up a very nice picture for the company long term.

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Operator [52]

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And our next question comes from Alan Carr from Needham.

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Alan Carr, Needham & Company, LLC, Research Division - Senior Analyst [53]

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I can continue on a little bit there in terms of commercial strategy. What is your long-term plan there in terms of U.S. and ex U.S. and in the extent to which you might partner it? And also, I guess, looking at earlier in your pipeline, what is the latest on your efforts behind your cardiovascular drug that you're exploring? Are you working on anything? But before that, earlier stage? And what's the latest on relationship with Beacon Discovery? Do you also still have ties to them, and any expectations of them to deliver any drugs for you in the future?

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Amit D. Munshi, Arena Pharmaceuticals, Inc. - President, CEO & Director [54]

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Alan, your first part of your question was that focused on olorinab? Or just generally on a corporate basis from a partnership?

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Alan Carr, Needham & Company, LLC, Research Division - Senior Analyst [55]

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Etrasimod and olorinab.

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Amit D. Munshi, Arena Pharmaceuticals, Inc. - President, CEO & Director [56]

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Great. Yes. So our game plan right now is to retain U.S. and European rights. We don't have any intention of partnering out these markets. We think partnerships are highly valued, disruptive long-term to shareholders. And most importantly, they're -- they don't allow us to actually build a company. We have a generational opportunity here. Well, they're a combination of the team we have in place, the infrastructure we've built, the quality of these fantastic assets and of course, the balance sheet. And we find ourselves in a great position there to really go off and build a company here, and that's our aim. So -- and again, I think we've got the right ingredients to do that, and the partnership is not in the equation.

In terms of the long-term pipeline in cardiovascular. We've mentioned that we have additional cardiovascular targets in our pipeline. And we'll prosecute those over time as our cost of capital continues to improve, and we continue to have enough bandwidth to execute. One thing we're very, very conscious of is making sure that we don't get too far ahead on areas that then potentially impact our ability to execute on the ELEVATE program, CULTIVATE program, et cetera, and the ADVICE program. So this is about time and scale as we bring things forward.

We're in an incredible position to have additional compounds sitting on our shelf today. And we have access to certain things out of Beacon over time as well. So we have a good relationship with Beacon. They continue to be a contract research organization for us in a lot of scientific inquiry, around our existing pipeline. And we have certain unlimited right of first refusal in certain areas of things that they're working on. So we'll spend more time talking about Beacon and our long-term pipeline over time. But we really have no shortage of things to work on. It's really quite remarkable.

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Operator [57]

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And I am showing no further questions from our phone lines. I'd now like to turn the conference back over to Amit Munshi for any closing remarks.

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Amit D. Munshi, Arena Pharmaceuticals, Inc. - President, CEO & Director [58]

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Great. I just want to thank everyone for being on the call today. We look forward to continuing to update you on our progress. We've got quite a few exciting things happening between this year and next year and look forward to continuing the conversation. Thanks, everyone.

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Operator [59]

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