U.S. Markets close in 2 hrs 28 mins

Edited Transcript of ARQL earnings conference call or presentation 3-May-17 1:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 ArQule Inc Earnings Call

WOBURN May 3, 2017 (Thomson StreetEvents) -- Edited Transcript of ArQule Inc earnings conference call or presentation Wednesday, May 3, 2017 at 1:00:00pm GMT

TEXT version of Transcript

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

Corporate Participants

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

* Brian Schwartz

ArQule, Inc. - Chief Medical Officer and SVP of Clinical & Regulatory Affairs

* Dawn Schottlandt

ArQule, Inc. - Senior Director of IR & Corporate Communications

* Paolo Pucci

ArQule, Inc. - CEO and Director

* Robert J. Weiskopf

ArQule, Inc. - CFO and Treasurer

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

Conference Call Participants

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

* Chad J. Messer

Needham & Company, LLC, Research Division - Senior Analyst of Biotechnology

* George B. Zavoico

JonesTrading Institutional Services, LLC, Research Division - Senior Equity Analyst

* Michael Werner Schmidt

Leerink Partners LLC, Research Division - Director, Biotechnology and Research Analyst

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

Presentation

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

Operator [1]

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

Good day, ladies and gentlemen, and welcome to the ArQule, Inc. First Quarter 2017 Earnings Conference Call.

(Operator Instructions)

I would now like to turn the conference over to Dawn Schottlandt, Director of Investor Relations. Please go ahead.

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

Dawn Schottlandt, ArQule, Inc. - Senior Director of IR & Corporate Communications [2]

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

Good morning, everyone. Welcome to the ArQule investor conference call reviewing operational and financial results for the first quarter 2017. This is Dawn Schottlandt, Senior Director of Investor Relations and Corporate Communications at ArQule.

This morning we issued a press release that reported results for the fiscal quarter and full year ended March 31, 2017. This release is available on our website at www.arqule.com.

Leading the call today will be Paolo Pucci, Chief Executive Officer of ArQule. Also present for the company are Peter Lawrence, President and Chief Operating Officer; Dr. Brian Schwartz, Head of Research and Development; and Rob Weiskopf, Chief Financial Officer.

Before we begin, please note that we will be making forward-looking statements as defined in the Private Securities Litigation Act of 1995. These statements will include, among other things, projections regarding the timing of a number of key events related to ArQule's proprietary pipeline. Actual results may differ materially from those projected in the forward-looking statements due to numerous risks and uncertainties that exist in ArQule's operations, development efforts and the business environment, including those factors discussed in our reports on Forms 10-Q and 10-K and other documents filed with the Securities and Exchange Commission.

The forward-looking statements contained in this call represent the judgment of ArQule as of today. ArQule disclaims any intent or obligation to update any forward-looking statement, except to the extent required by law. We will provide an opportunity for questions and answers at the end of this call.

I would now like to introduce the CEO of ArQule, Paolo Pucci.

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

Paolo Pucci, ArQule, Inc. - CEO and Director [3]

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

Thank you, Dawn. Good morning, everybody, and thank you for joining us for this update call today.

Let me start with a brief overview of what the core business we set out to achieve for '17 is. First on that list is to advance ARQ 087, our FGFR inhibitor, in a registrational Phase III trial in second-line intrahepatic cholangiocarcinoma, also known as iCCA. Second objective is to advance ARQ 092, our AKT inhibitor, in a Phase I/II trial in overgrowth disease driven by mutations of the AKT1 PI3K pathway, and this is our rare disease strategy.

And then, finally, our objective is to advance ARQ 531, our youngest and promising BTK inhibitor, into a Phase Ia/b trial in patients with B-cell malignancies who are refractory to other therapies. That would be ibrutinib in front line, as it stands today.

So, I'm very, very pleased to relate today that we are on track to achieve all of those core objectives and a few more of the secondary ones, which we'll not go into detail here today. We are well on our way, therefore, to build a diverse and multistage Phase I, Phase II and Phase Ia/b pipeline, and, importantly, that pipeline is fully proprietary to ArQule. So we own each and every single one of the compounds that we are working with today and that we are discussing with you today.

As a pipeline overview before I go into each individual program, let me highlight 2 of the most important developments. They both relate to ARQ 531.

We have announced in 2 separate press releases that the IND application for ARQ 531, our BTK inhibitor, has received clearance from the FDA, and therefore the door is open to initiate in the Phase Ia/b trial with that compound. And also, very importantly, we have achieved a foundational patent for this compound, compositional matter patent, that will stretch very far in time and reach as it is today until 2035, and that does not include extensions that we are working at and that can potentially improve that landscape further.

This is very important. Many investors have told me in our discussions this compound, ARQ 531, is promising, is interesting, has potentially great commercial outlook, but is not a clinical compound yet. Well, as of today, this is a clinical compound, and it also has potentially a very long patent life that can be improved further.

Now let me go in order, ARQ 087 in oncology. Let me provide a quick update for this compound, which is our FGFR inhibitor, and it is also our most advanced program. This is the first program that can bring ArQule back into Phase III stage of development.

So, the Phase II portion of the trial in intrahepatic cholangiocarcinoma, enrolled patients with FGFR fusions. This portion has concluded the recruitment some time ago, so no new patients are being recruited, but a few patients are still on therapy.

In this trial ARQ 087 has demonstrated an encouraging response and also encouraging durability of response, to the point that a few patients are still on therapy. We are on track to initiate the registration of Phase III trial for ARQ 087 in intrahepatic cholangiocarcinoma second line for patients with FGFR fusions. And we aim to enroll the first patient in the third quarter of this year. Subsequently, we will consider opportunity for applying for breakthrough designation, and I shall remind you that this compound in this indication already has orphan disease designation both in the U.S. and in Europe.

I have discussed before and I'd like to discuss again what is the commercial potential of this and the epidemiology that underlies intrahepatic cholangiocarcinoma. First of all, intrahepatic cholangiocarcinoma is a white space. It's an area of great unmet need. It is a rare ability to track cancer in one of the few cancers where the incidence of death has been steadily increasing. Currently, based on literature, we estimate that roughly 10,000 people are diagnosed in North America and in Europe each year with intrahepatic cholangiocarcinoma.

Literature further suggests that 30% of the patients are treated with surgery, while 70% of the patients advance to be treated with chemotherapy. Chemotherapy is, unfortunately, documented to produce a relatively low response rate of 7 to 8%, thus the need for therapeutic improvements, and thus the need for us to test ARQ 087 in this setting.

Also based on literature, as well as our own experience in screening patients for our Phase II trial, we estimate that approximately 10 to 20% of iCCA patients might harbor the FGFR2 fusion, meaning that there is about 1,000 to 2,000 patients in the West that could be eligible for treatment with ARQ 087 in North America and Europe should the drug be successfully approved for this indication at some later time. The number of patients that could be available to ARQ 087 actually more than doubles in Asia, driven by much higher epidemiology in that region.

The market opportunity for iCCA, making some assumptions, is estimated by us at this point to be greater than 200 million in the second setting alone, without imagining longitudinal expansions in the iCCA indication, considering adjuvant, neoadjuvant or front-line therapy as a single agent as well as in combination with chemotherapy. So, in our opinion, this indication represents not only a very attractive fast-to-market opportunity in a white space area as far as therapeutic alternatives now, but also represents a viable commercial opportunity to enter the market with this drug.

We currently anticipate that the first relevant data from the registrational Phase III trial would be related to an interim analysis of this trial, and it would be available sometimes mid-next year. This concludes the review of status for ARQ 087.

Let me now go to our rare disease strategy with ARQ 092, our AKT inhibitor. The program has expanded. It has expanded on the basis of increasing evidence of the potential utility of ARQ 092 in Proteus syndrome. Based on that evidence, as we have reported in recent times, and as it has emerged from the work of our partners and collaborators at the NIH, led us to develop a 3-prong strategy to attack Proteus syndrome and the broader family of overgrowth disease, of which Proteus syndrome is part.

The current 3-prong strategy is designed to establish maximum tolerated dose for the drug in this disease, as well as allow us to identify endpoints that could be pursued in a registrational trial. The first prong of this strategy is the company-sponsored Phase I/II trial in overgrowth syndrome, driven by AKT1/PI3K pathway mutations. This study recently opened for recruitment, and Brian will provide further updates in his discussion.

The second part of the strategy is to make 092 available on a name patient basis, or more commonly known, as more commonly known, compassionate use, to patients who are severely ill for whom the caregivers request drugs. And we currently have 2 patients under -- being dosed under this program, and we are assessing further requests as they come.

Thirdly, we continue to work with the National Institute of Health to support their ongoing and evolving effort in the Phase I trial that has been open for now 1.5 years at their site in Washington with a focus on Proteus syndrome.

Originally, you will recall that our rare disease effort was centered only on Proteus syndrome, which is a very rare disease that affects only a few hundred patients in the West. Based on that analysis of the literature, we believe -- we came to believe that the market opportunity might be broader than just Proteus syndrome, and we are currently defining that opportunity as P3CK and AKT1-driven overgrowth diseases.

We estimate further that the epidemiology of that family of diseases is greater than 1,000 patients. And, as you all know, for diseases for which there is no therapy, generally the epidemiology is always almost invariably underestimated.

The data from the next data points for this 3-prong strategy will flow seamlessly during the year. These are all open-label studies, so we receive constant updates from all 3 of the parts of these 3-prong strategies that we have in place.

Finally, ARQ 531, which is the project for which we have logged the greatest improvements and the better developments in the first couple of months of this year. Now, I discussed the IND. I discussed the fact that the patent has been granted. And Brian will discuss a little bit more the clinical plan for the Phase Ia/b study. I would just like to remind you of what this drug could mean for ArQule in terms of opportunity to transform the company prospects.

As interesting as we deem to be for a number of reasons, the opportunity we have to bring 087 in Phase III, and the opportunity to bring 092 forward in a family of rare disease, as we discussed before, neither of the 2 appears to be immediately at first sight a $1 billion sales opportunity down the road, if the drugs were approved as we are planning to study them. That's a different story for ARQ 531.

The reasoning for defining the potential opportunity for 531, as some analysts have put it by analyzing other such drugs, is potentially a billion dollar opportunity in that our strategy is to pursue essentially ibrutinib failures. They're where the failure is driven by C481S mutation. And considering that the front-line therapy for BTK inhibition is estimated to be greater than $10 billion by some by 2025, making the assumptions that 10 to 20% of the market could be defined as second-line failures related to C481S mutations, there you have a potentially billion dollar commercial opportunity.

And that is what we have added to our portfolio, and that is something that we consider very exciting. And what's why early in my call I spoke about a pipeline that is becoming more diverse and much more enriched in just the past 6 months.

Now let me pass on the call to Brian so that he can describe a little bit in more detail where we are with the clinical, strictly clinical programs for each one of these 3 drugs. Brian, please.

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

Brian Schwartz, ArQule, Inc. - Chief Medical Officer and SVP of Clinical & Regulatory Affairs [4]

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

Thank you very much, Paolo.

Let me begin with ARQ 087 in intrahepatic cholangiocarcinoma. As you know, 087 is a multi-kinase inhibitor designed to preferentially inhibit fiberblast growth factor receptor family, primarily 2, 1 and 3. The Phase II iCCA trial, which recruited patients harboring the Fgfr2 fusions, is ongoing, as we still have a number of patients that will continue to receive therapy and benefit from therapy. You can surmise from this that we continue to be encouraged by the good durability noted.

We are on track to initiate a registration Phase III trial for ARQ 087 in iCCA patients harboring Fgfr2 fusions in Q3 '17. This will be a biomarker-driven trial and serve as a fast-to-market strategy. The primary endpoint will be response rate, and it is expected to enroll approximately 100 patients with iCCA and the Fgfr2 fusion.

We are planning for an interim analysis approximately midway through the patient recruitment process. The preparation for the trial initiation is going well, and since our last update we have contracted a CRO and are in the process of recruiting sites. We're also working to finalize the biomarker, which will be a break-apart FISH kit.

As Paolo mentioned, there are other cancers beyond iCCA that are known to be caused by FGFR dysregulation. The registration Phase III trial in iCCA is underway and will focus to explore the next -- and we will focus to explore the next indication. The next indication could come from either urothelial cancer, which has a 20 to 40% either Fgfr2 or 3 dysregulation; breast cancer, between 15 to 20%, mainly Fgfr1; and endometrial cancer of at least 10 to 15% of one of the 3 Fgfrs dysregulated. We are considering opportunities for development as single agent as well as combination with recently approved experimental immuno-oncology drugs, as well.

Moving to the next drug, ARQ 092 in rare diseases, as Paolo outlined, our strategy is threefold. But before I go into it let me spend a few minutes to go through the definition of overgrowth syndromes, or overgrowth diseases. Overgrowth disease is a term used to refer to a spectrum of rare diseases identified by somatic mutation, often of the PI3K or AKT pathway, that results in excessive growth of certain areas of the body.

While the individual diseases that fall within the overgrowth spectrum have similar symptoms, each disease is defined by unique characteristics. Diseases that are part of the overgrowth spectrum include Proteus syndrome, which we've spoken quite a bit about, and PROS disease, or PIK3CA-related overgrowth spectrum, which is of itself at least a dozen different diseases, the most common ones being that of CLOVES and fibroadipose hyperplasia.

Now moving on to our strategy, first I'm happy to announce that our company-sponsored Phase I/II trial in overgrowth syndromes driven by either PI3K or AKT pathway mutations is open for enrollment. The trial is open to patients age 6 and older, and the trial details are now available on clinicaltrial.gov.

The Phase I/II trial will enroll initially 6 patients, with intrapatient dose escalation as part of the Phase I portion of the trial. An additional 10 patients will be enrolled in the expansion cohort as part of the Phase II portion of the trial. The objective of the study is to determine a clinically meaningful endpoint to pursue in a registration trial. ArQule has been granted orphan drug designation in the U.S. and has applied for a pediatric rare disease voucher designation, as well.

Second, let me move on to the second part of the 3-pronged approach. That is the request for name patient use. We are working with advocacy organizations and patients' families who have approached us in terms of this regard. Currently we have been able to satisfy 2 patients who have received drug for a reasonable period of time in Europe.

The third part of the approach is where we initially reported on about 1.5 years ago is that of our collaborators at the NIH. I'm happy to report that they have now completed accrual into their second cohort, and hopefully we'll be able to get detail of target engagement of this patient in the upcoming months.

In addition, and more importantly, they have now been able to lower the dose -- lower the range of patients being eligible for the next part of their trial to 6 years and older. Previously, they had had an age restriction of 12 years.

We continue to support the Phase I trial with drug substance, and we continue to collaborate with the NIH to better define the epidemiology and the endpoints related to Proteus syndrome. Finally, we are anticipating a publication authored by the NIH in collaboration with ArQule scientists and statisticians relative to the most up-to-date epidemiological data collected on Proteus syndrome.

Let me now turn on to 092 and 751 in oncology. Turning to our AKT inhibitor program in oncology, we include ARQ 092 and ARQ 751. The Phase I trial with 092 in AKT1-driven tumors is fully recruited, and we still have 1 patient ongoing. The Phase I trial with 751 is progressing nicely through the different dose escalation cohorts, and we anticipate to evaluate the data from that trial later this year. As previously discussed, we are waiting to see the data from the Phase I trial with 751 before we determine our next steps with ARQ 092 and 751 in oncology.

Lastly, let me move on to ARQ 531. Now, I'll make a few comments on our BTK inhibitor. ARQ 531 is a potent, reversible BTK inhibitor that has demonstrated preclinically to potently inhibit both wild-type and the important C481S mutant BTK. There is an emerging body of scientific evidence that indicates that the BTK C481S mutation is the cause of resistance to BTK inhibitors like ibrutinib.

Recently, in JCO REMARKS, Ohio State University published an important study. In the study there is an increasing number of CLL, or chronic lymphocytic leukemia, patients that are relapsing off their ibrutinib. The study found at 4 years roughly 20% of the patients on ibrutinib clinically progressed. Of these patients who progressed, 85% of them had the acquired BTK mutation that we are targeting. More interesting, as they were followed through the study it was noted that the mutation starts appearing approximately 9 months before clinical relapse.

Our initial strategy with 531 is to target these patients who are progressing on ibrutinib due to the 481S mutation. We are preparing to initiate the Phase Ia/b dose escalation trial and signal generation trial by Q3 of 2017, and we will target in the dose escalation and the expansion cohort patients with B-cell malignancies not only where ibrutinib is registered but also in other lymphomas, as well.

The Phase Ia portion of the trial will be a dose escalation study, a standard 3-by-3 in all B-cell malignancies, which primary aim is to establish a recommended Phase II dose. Upon completion of the Phase Ia trial, the company plans to expand this to a Phase 1b trial in a number of expansion cohorts, which will include patients with C481S mutations who are refractory to other therapies. Based on our preclinical data as well as the data from other BTK inhibitors we expect to see signs of clinical efficacy once we explore patients at the therapeutic dose in the portion of the Phase 1b study.

Our next data generation for 531 will be at the European Hematology Association Congress in June, where we will present a preclinical poster on data with ARQ 531 in a number of different lymphomas. We are also anticipating further publications by both ArQule and our collaborators at Ohio State University on the vast amount of data generated from the preclinical studies done with this molecule. I'm looking forward to updating you on the progress as we move through the year.

That concludes my review, and I'll now pass it over to Rob.

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

Robert J. Weiskopf, ArQule, Inc. - CFO and Treasurer [5]

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

Thank you, Brian.

Turning to the financials, the company reported a net loss of $7,576,000, or $0.11 per share, for the quarter ended March 31, 2017, compared with a net loss of $4,981,000, or $0.08 per share, for the quarter ended March 31, 2016.

At March 31, 2017 the company had a total of approximately $37,540,000 in cash, equivalents and marketable securities. For the quarter ended March 31, 2017, revenues were 0, compared with revenues of $1,227,000 for the quarter ended March 31, 2016.

Research and development revenue in 2016 included revenue from the Daiichi Sankyo tivantinib development agreement and the Kyowa Hakko Kirin exclusive license agreement. The revenue decrease in 2017 was due to the end of the development period for revenue recognition purposes on December 31, 2016, for both our METIV-HCC and JET-HCC trials. No further revenues are anticipated from either of these agreements.

First quarter 2017 research and development expenses were $5,194,000, compared with $4,198,000 for the first quarter of 2016. Research and development expense increased $1 million in the first quarter of 2017 compared to the comparable to the 2016 quarter, primarily due to higher outsourced preclinical, clinical and product development costs.

First quarter 2017 general and administrative expenses were $2,074,000, compared with $2,044,000 in the first quarter of 2016.

On January 6, 2017, the company entered into a loan and security agreement in the principal amount of $15 million. The loan bears interest at a minimum of 7.6 per annum, and the interest rate floats based upon the 30-day U.S. LIBOR rate. The company will have interest-only payments for 18 months, followed by an amortization period of 36 months. The maturity date of the loan is August 1, 2021.

We anticipate that our cash, cash equivalents and marketable securities on hand at March 31, 2017, and the funds received on January 16, 2017, from our loan and security agreement will be sufficient to finance our operations into at least mid-2018.

There is no change to our previous 2017 financial guidance. For 2017 ArQule expects net use of cash to range between $25 million and $27 million. Net loss is expected to range between $30 million and $32 million, and net loss per share to range between $0.42 and $0.45 for the year. ArQule expects to end 2017 with between $18 million to $20 million in cash and marketable securities.

With that, I'd like to hand the call back to Paolo.

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

Paolo Pucci, ArQule, Inc. - CEO and Director [6]

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

And I would like for the operator to be so kind to open up for questions, please.

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

Questions and Answers

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

Operator [1]

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

(Operator Instructions)

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

Operator [2]

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

Our first question comes from Michael Schmidt, with Leerink Partners.

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

Michael Werner Schmidt, Leerink Partners LLC, Research Division - Director, Biotechnology and Research Analyst [3]

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

I had a couple, and the first one may be a technicality, so regarding 087 and the plans for registration trials in iCCA, so you're referring to the planned study to a Phase III trial as opposed to a Phase II study? And I was wondering if this trial, if completed successfully, if you then would still have to do a confirmatory randomized study following that upcoming trial.

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

Paolo Pucci, ArQule, Inc. - CEO and Director [4]

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

Everything is correct. We refer to the trial as a registrational Phase III trial because it will grant us registration, and once registration is granted a confirmatory trial will be necessary, in -- it could be, as far as we understand it right now, in the same indication or it could be in a different indication.

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

Michael Werner Schmidt, Leerink Partners LLC, Research Division - Director, Biotechnology and Research Analyst [5]

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

Understood. And that's a good segue to my next question. So am I right that the registration trial will be in chemo-refractory iCCA patients?

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

Paolo Pucci, ArQule, Inc. - CEO and Director [6]

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

Yes, you are correct. It would be in that setting. It would be in the second-line setting. And that's the reason why I mentioned in my discussion that we are assessing as commercial potential the second-line setting, and then in the confirmatory trial we could decide to move longitudinally in the indication, which would be front line, single agent or combination.

It could be adjuvant, it could be neoadjuvant. Or we could look at an additional indication. And that will be determined along the way based on how much additional signal generation work we can do while we are developing -- while we are running the Phase III registrational trial.

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

Michael Werner Schmidt, Leerink Partners LLC, Research Division - Director, Biotechnology and Research Analyst [7]

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

Understood. Great. Thanks. And then my other question relates to 531, the BTK inhibitor. And I guess my question is around the C481S mutation, whether that has been seen exclusively in CLL, or is there a phenomenon that has been seen across the board irrespective of the indication in patients that have been treated with ibrutinib across the board?

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

Brian Schwartz, ArQule, Inc. - Chief Medical Officer and SVP of Clinical & Regulatory Affairs [8]

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

So, Michael, it has been primarily reported in CLL, but also reported in Waldenstrom's and a number of other indications where BTK has been used. But most of the data in that mutation resides in CLL.

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

Paolo Pucci, ArQule, Inc. - CEO and Director [9]

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

Which would be rational, given that that is the first indication. So we don't find ourselves in what I consider to be a very enviable position with 531. However might cannot be summarized right now, this could be first and best in class in second-line -- in a number of second-line indications where BTK inhibition is relevant.

In our opinion, this is a very good position to be and is not a position that can be challenged by irreversible inhibitors. I hear oftentimes people say, well, there is a lot of BTK inhibitors in development. Oh, sure, yes, there is a lot of -- a number of BTK inhibitors in development. But mostly they are irreversible inhibitors, and if the science is point us in the right direction they will all have the same issue that ibrutinib has with 481S -- 4C18 (sic) [C481S] mutation.

So I think we are in one of those rare, again, as I was defining before, white spaces. We made the decision to direct our BTK program a few years back toward the 48C1S (sic) C481S mutation based on some internal biology and crystallography work that was done. And at the time the mutation, the resistant concept, was just a concept.

We have only seen that concept strengthened over time, and the indication that has garnered the more use of BTK inhibitors for the longer time is the one that points us to the potential of this strategy. So we're very excited about the opportunity we have with 531. It's white space, and it could be very valuable white space to occupy.

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

Operator [10]

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

Our next question comes from Chad Messer, with Needham & Company.

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

Chad J. Messer, Needham & Company, LLC, Research Division - Senior Analyst of Biotechnology [11]

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

So regarding 531, I've variably heard you guys refer to it as reversible, non-covalent and ATP competitive. Just wondering if you could remind me of what these things mean and how they may be helping to differentiate this compound.

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

Paolo Pucci, ArQule, Inc. - CEO and Director [12]

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

So I think the core word is that it's a reversible inhibitor, because that addresses -- that allows the compound to address the issue of resistance as we have defined it today and as the scientists of Ohio State continue to define it and study it. And that sets it apart from all the other -- from mostly all the other BTK inhibitors which are reversible, although there is -- also there is at least one reversible inhibitor also in the clinic currently. There is a couple more that have not passed the IND gate and that compares.

But do you want to go through each one of the words, Brian?

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

Brian Schwartz, ArQule, Inc. - Chief Medical Officer and SVP of Clinical & Regulatory Affairs [13]

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

I think, Chad, the simplest is that if we look at ibrutinib or acalabrutinib, they require a specific covalent -- they need to covalently bind to a specific area of the receptor, which basically if you have a mutation in that area you wouldn't be able to bind. Our drug doesn't require that, and it binds to BTK. So some people refer to them as covalent binders other than to irreversible binders. So you often see that terminology thrown around a lot.

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

Chad J. Messer, Needham & Company, LLC, Research Division - Senior Analyst of Biotechnology [14]

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

All right, great. That's very helpful. And then just on PROS syndrome, Paolo, you kind of walked us through your epidemiology. I think there's somewhere north of 1,000 patients with all the usual caveats of trying to pin down the exact numbers on these.

Just wondering what your thoughts are on misdiagnosis of these type of syndromes. It seems to me that it would be pretty clearcut to diagnose them, but I don't know much about them and wanted to ask you guys what you think.

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

Brian Schwartz, ArQule, Inc. - Chief Medical Officer and SVP of Clinical & Regulatory Affairs [15]

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

Yes, so maybe I can take that, Chad. It's a really complex disease or complex group of diseases with differing presentations if you look at overgrowth syndromes. But now what's happening in the last 5 years is pediatricians that observe unusual growth, unusual vascular changes or unusual features in pediatric children are now taking the fibroblasts from these patients and then looking for the different mutations, so that, as Paolo said, this group of disorders is expanding, because the feeling from experts in the area that the best time to really intervene is early, before these patients develop significant morbidities associated with the diseases.

The other issue is only small satellite cells in this tumor harbor the mutation, so that it's sometimes a little bit more complex to detect, as well, and only can rarely -- and only rarely groups of satellite centers or very large centers have been able to do it. The other thing, visiting these centers it's becoming very clear that the numbers are increasing as they are starting to better molecularly type the patients from a much younger age.

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

Paolo Pucci, ArQule, Inc. - CEO and Director [16]

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

And I would invite anybody to have a review of some of the material that is on our website specifically for the diseases as well as our corporate presentations, where there are some photographs of conditions like Proteus, both in patients with advanced age and in children. Some of these conditions are very difficult to miss and some others are as Brian says. Proteus itself is quite difficult to miss, because the malformations are very visible from an early age, unfortunately.

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

Chad J. Messer, Needham & Company, LLC, Research Division - Senior Analyst of Biotechnology [17]

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

Thanks. That's very helpful.

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

Operator [18]

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

Our next question comes from George Zavoico, with JonesTrading.

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

George B. Zavoico, JonesTrading Institutional Services, LLC, Research Division - Senior Equity Analyst [19]

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

Thanks for the update. A couple of quick ones, I think. For 087 you mentioned potentially more patients in Asia than in North America and EU. What are your plans for Asia? Will you expand your own sponsor trial into that space, the pivotal one, or are you thinking about finding a partner there?

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

Paolo Pucci, ArQule, Inc. - CEO and Director [20]

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

So, at this point in time our plans are in development, George. Depending on -- we have limited resources, particularly now that 531 has come through faster than we -- somewhat faster than we expected, and with a pattern that is very, very strong. We need to pay some attention to 531.

So the plan will be to include Asia at some point in time, and possibly while the Phase III, registrational Phase III in the West is recruiting, because that will make the most strategic sense. There is obviously a timeline limitation.

We will not -- we will proceed with all urgency with the registrational Phase III in the West, and hopefully an opportunity to do the work that is needed specifically in China as a Phase I preparatory to a registrational Phase III could be done either independently or with a partner in such a way that that region can participate to the trial. But it's a work in progress at this point in time.

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

George B. Zavoico, JonesTrading Institutional Services, LLC, Research Division - Senior Equity Analyst [21]

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

Okay, and just to be clear and make sure I understand, the registrational part Phase III trial in North America and EU, just the response rate will be sufficient, a significant difference in the response rate will be sufficient for approval, but you may need to do a confirmatory trial with survival, or what will the endpoint be in the confirmatory trial if it's not survival?

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

Paolo Pucci, ArQule, Inc. - CEO and Director [22]

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

So, the registrational Phase III requires us to achieve a certain results in terms of response rate as well as durability, and nothing has yet defined for what a confirmatory trial would be and what the endpoint -- neither the indication nor the endpoint. As I said, this will be granted on 2 factors.

One is what additional signals emerge for the class of FGFR inhibitors in the meantime that we conduct our registrational trial, and it will also depend on any additional signal we might be able to generate on our own in that period of time. It would lastly depend on the results we will achieve with the registrational Phase III trials. All those streams of activity will help us define what a registrational trial might be.

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

Brian Schwartz, ArQule, Inc. - Chief Medical Officer and SVP of Clinical & Regulatory Affairs [23]

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

But, George, if we take precedence in terms of other TKIs, for example, the ALK inhibitors or other that have faced similar problems, there's a mix of both PFS and OS that is used for your confirmatory trials.

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

George B. Zavoico, JonesTrading Institutional Services, LLC, Research Division - Senior Equity Analyst [24]

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

Okay, but you'll be able to -- obviously be able to sell after a positive result on response rate.

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

Paolo Pucci, ArQule, Inc. - CEO and Director [25]

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

Of course.

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

Brian Schwartz, ArQule, Inc. - Chief Medical Officer and SVP of Clinical & Regulatory Affairs [26]

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

That's right.

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

George B. Zavoico, JonesTrading Institutional Services, LLC, Research Division - Senior Equity Analyst [27]

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

Okay.

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

Paolo Pucci, ArQule, Inc. - CEO and Director [28]

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

This (inaudible) our strategy, as Brian mentioned, this has -- it's more rare than 2 trials for (inaudible) but is a strategy that has been successfully deployed before by a number of companies, big or small.

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

George B. Zavoico, JonesTrading Institutional Services, LLC, Research Division - Senior Equity Analyst [29]

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

Yes, like you said, it certainly worked for (inaudible) for (inaudible). So it's a nice path to follow.

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

Paolo Pucci, ArQule, Inc. - CEO and Director [30]

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

Yes, I mean, it's nothing unusual.

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

George B. Zavoico, JonesTrading Institutional Services, LLC, Research Division - Senior Equity Analyst [31]

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

Yes. So, for Proteus and PROS, you've started your own Phase I/II trial and NIH is continuing on their own Phase I trial. Eventually do you see the NIH clinical site being folded into your -- perhaps the Phase II portion of your trial? And also on 092 do you want to eventually get under 6 years? You mentioned earlier the better. Do you want to get to like 2- and 3-year-old patients?

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

Paolo Pucci, ArQule, Inc. - CEO and Director [32]

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

So let me address the first question and I'll let Brian address the second. The first question is would the NIH effort be merged with our effort. There is a number of reasons why the 2 efforts for the foreseeable future will remain separate.

The one reason is that the scope of the NIH trial is defined by Proteus disease and the scope of the Phase Ia/b that we have started, I/II we are starting now is a little bit broader, because it's PROS disease. It will include some Proteus patients, but it will include them, but we will put particular emphasis in recruiting patients also other than Proteus to expand our opportunity to generate signals and to expand the potential epidemiology for the opportunity.

There is also a number of additional reasons that are mostly to do with mechanics of the trial. The NIH runs independent trials from industry, and they make their own decisions. So it would be difficult to imagine a shared effort.

What I would say on the NIH is we're very encouraged by the fact -- we are very grateful, first of all, that they provided with that trial the in vivo proof of concept in the only way that it could have been provided, because there's no mouse model, so you could not demonstrate in vivo target engagement other than with the FISH trial, the one they have conducted -- they are conducting.

Secondly, we are very grateful for their continued engagement with this drug in that provides us insights, guidance, points of references. And we expect that that will continue to be the case given that the second cohort has been completed with enrollment of the third patient. And we're looking forward to hear more.

They are also moving towards younger age. So that also is a very encouraging signal for us. And as far as we moving to younger age, I'll let Brian comment.

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

Brian Schwartz, ArQule, Inc. - Chief Medical Officer and SVP of Clinical & Regulatory Affairs [33]

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

Yes, I think with all these type of agents, George, it's the cautious approach. But you're correct. As soon as we cover all of the patients between 6 and 12, we would really like to go down to a lower age group.

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

George B. Zavoico, JonesTrading Institutional Services, LLC, Research Division - Senior Equity Analyst [34]

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

Okay. So is the potential scenario, then, that you, because the NIH trial is further along with Proteus, that you might get a restricted approval first just for Proteus and then your trial expands it into PROS?

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

Paolo Pucci, ArQule, Inc. - CEO and Director [35]

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

So let me clarify one thing. The NIH trial has so far dosed 6 patients. Those patients have been dosed at a level that has generated essential no side effects but demonstrated target engagement. It has not yet shown any sign of improvement in the disease as far as shrinkage or change in the masses, although has pointed to some improvements in quality of life.

So although there are 6 patients there, these 6 patients are dosed at a very low dose for now, okay? Brian has provided drug for 2 patients in the compassionate use program, and those 2 patients are being treated at a higher dose level. And there, as well, we have not yet observed any morphological changes in the masses. One patient has been dosed for greater than 9 months, and one has been dosed a few weeks. But there, as well, anecdotally, there are reports of some improvement in quality of life measures.

Now, these are all anecdotal reports that we received, and we are encouraged, but we cannot bring them as endpoints to the NIH. So although there are 6 patients in the NIH, I would say that the 2 patients that are in compassionate use are very telling for us because of a higher dose they are being treated. And as far as dose that will be deployed in the Phase I/II, Brian, in PROS disease, company-sponsored, you might want to comment.

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

Brian Schwartz, ArQule, Inc. - Chief Medical Officer and SVP of Clinical & Regulatory Affairs [36]

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

I mean, George, the goal is to -- we will be starting at about 3 times the dose that the NIH saw target engagement. (inaudible) very almost a third of the dose used in the cancer patients, and we'll dose escalate each patients and look for measurable changes in disease. We've been very encouraged, as Paolo says, by the reports of quality of life. But those are softer instruments, and we feel that it will be much easier to move forward with measurable or clear signs of change of disease.

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

Paolo Pucci, ArQule, Inc. - CEO and Director [37]

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

So what I would take away from the conversation around rare diseases is that the effort is expanding, and it's expanding for a reason, because our confidence is growing. The effort is also expanding because we have established at least at low doses, relatively low doses, a baseline of safety, and that is giving us and physicians the basis for stepping up the dose, more toward -- so we are making progress toward a therapeutic dose level, and that's the reason why we are engaging directly with a company-sponsored trial now.

So we're very pleased with the progress we've been making with the rare disease, both -- and in Proteus as springboard for an expansion, too. And I see some of the requests that come from compassionate use. Believe me, there is a need. It might not be the thousands of patients that might generate a $1 billion opportunity for 531, but there is a dire therapeutic need for these people. And we're all here for that, as well.

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

George B. Zavoico, JonesTrading Institutional Services, LLC, Research Division - Senior Equity Analyst [38]

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

No, I believe that, too. Yes, so really you're -- the NIH trial really is an exploratory trial. It's not really a path to registration. Your Phase I/II trial is really the path to registration, in a nutshell.

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

Paolo Pucci, ArQule, Inc. - CEO and Director [39]

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

At this point in time, that's a correct summary.

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

George B. Zavoico, JonesTrading Institutional Services, LLC, Research Division - Senior Equity Analyst [40]

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

Okay. And one last question on 531, you mentioned that the C481S mutation appears 9 months before clinical manifestation of progression. Do you see that as a Step 1, Step 2 kind of process, where you first treat patients who have clinically progressed, and then maybe as monitoring of patients on ibrutinib occurs do you then in a Phase -- or in a Stage II-type situation would then start earlier, before clinical manifestation? Is that your strategy?

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

Brian Schwartz, ArQule, Inc. - Chief Medical Officer and SVP of Clinical & Regulatory Affairs [41]

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

The initial strategy, George, is to have both the mutation and the clinical progression, because that would be your high, quick-to-market and need approach. As Ohio State better determines when is the best point to intervene, we believe that it may be a little bit earlier than full-blown clinical progression. But Ohio State will continue and others in the field will continue to gather data, and I'm sure in the next year or two we'll be able to give guidelines to physicians when to modify therapy or when to initiate a new therapy.

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

George B. Zavoico, JonesTrading Institutional Services, LLC, Research Division - Senior Equity Analyst [42]

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

Okay. Yes, I think you just need more data on that as the data accumulates (inaudible).

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

Paolo Pucci, ArQule, Inc. - CEO and Director [43]

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

And how much of -- although we need more data, I would point out that the science is moving in the direction that we hypothesized a few years ago, and it's moving consistently in that direction. And that's the reason why, although we have our capital constraint, last year we cut out a very significant budget to allow 531 to go in a very accelerated fashion to IND.

And we have now the budget to assure for ourselves the best possible, the best, longest and strongest possible patent we could get, compositional matter until 2035. And if you think about that 2035 minimum horizon, in the relation to what an accelerated development for ARQ 531 could be in a space where there is an emerging therapeutic need that is not going to be met by the irreversible inhibitors, well, then, that's a very interesting situation, at least in our opinion.

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

George B. Zavoico, JonesTrading Institutional Services, LLC, Research Division - Senior Equity Analyst [44]

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

Look forward to continuing interim results throughout the year.

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

Operator [45]

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

(Operator Instructions)

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

Operator [46]

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

And I'm showing no further questions. I would now like to turn the call back to Dawn Schottlandt for any further remarks.

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

Dawn Schottlandt, ArQule, Inc. - Senior Director of IR & Corporate Communications [47]

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

Thank you for joining us on the call today. Please note we posted updated investor presentations on our website this morning in the Investor Relations section under the Events and Presentations section. We hope everyone has a nice day, and we look forward to speaking to everyone through the quarter. Thank you.

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

Paolo Pucci, ArQule, Inc. - CEO and Director [48]

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

Thank you. Bye-bye.

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

Operator [49]

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

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