Arcturus Therapeutics Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 7, 2024

There are 14 speakers on the call.

Operator

Good day, everyone, and welcome to today's Arcturus Therapeutics Third Quarter 20 24 Earnings Conference Call. At this time, all participants are in a listen only mode. Later, you will have the opportunity to ask questions during the question and answer session. Please note this call may be recorded and I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Ms.

Operator

Nita Savarzada, Vice President, Head of Investor Relations, Public Relations and Marketing. Please go ahead.

Speaker 1

Thank you, operator. Good afternoon, and welcome to Arcturus Therapeutics quarterly financial update and pipeline progress call. Today's call will be led by Joe Paine, our President and CEO and Andy Sassine, our CFO. Doctor. Pat Cibecula, our CSO and COO will join them for the Q and A session.

Speaker 1

Before we begin, I would like to remind everyone that the statements made during this call regarding matters that are not historical facts are forward looking statements within the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward looking statements are not guarantees of performance. They involve known and unknown risks, uncertainties and assumptions that may cause actual results, performance and achievements to differ materially from those expressed or implied by this statement. Please see the forward looking statement disclaimer on the company's press release issued earlier today as well as the Risk Factors section in our most recent Form 10 ks and in subsequent filings with the SEC. In addition, any forward looking statements present our views only as of the date such statements are made.

Speaker 1

Arcturus specifically disclaims any obligation to update such statements. And with that, I will now turn the call over to Joe.

Speaker 2

Thank you, Neda. It's good to be with you again, everybody. We look forward to providing our updates today on our quarterly investor call. I will begin my remarks with an update on progress with our vaccine franchise led by CoStave, our self amplifying mRNA COVID-nineteen vaccine. We're thrilled about our recent commercial launch of CoStave in Japan.

Speaker 2

Last month, members of our senior management team, including myself, had the wonderful opportunity to travel to Japan to be vaccinated with COSTAVE in Tokyo. In addition to our team from Arcturus, we shared this experience with senior management from Meiji, CSL and Arcalis. As you can imagine, it was an experience our team will never forget. In connection with the first sale of our COVID-nineteen vaccine, Arcturus received a $25,000,000 commercial milestone. On the regulatory front, CSL Securus' partner in Japan, Meiji Seika Pharma, announced earlier this year that they submitted a partial change application for an amendment to the manufacturing and marketing approval of CoStave to include domestic manufacturing sites in Japan, including Arcalis.

Speaker 2

And Arcalis is Arcturus' manufacturing joint venture in Japan. When approved, this will allow for Meiji Seika Pharma to begin selling domestically produced CoStave this season. The European Medicine Agency continues to review the CoStave marketing authorization application. I've been impressed with how our team has worked diligently with the agency as they review the first potential self amplifying mRNA product in Europe. The process is near completion with the CHMP opinion expected next month.

Speaker 2

As we look forward to achieving marketing approval in the U. S, we plan to file a BLA for COSTAV in the first half of next year, which will be supported by positive results from multiple Phase 3 studies. We continue to collect meaningful clinical data for our proprietary next generation STAR mRNA platform. The company announced today another set of positive Phase 3 results wherein ARCT-two thousand three hundred and three, this is the monovalent XBB variant derivative of COSTAVE met all 4 primary study objectives and key secondary objectives. The study supports co administration of COSTAVE with licensed influenza vaccines.

Speaker 2

ARCT-two thousand three hundred and three demonstrated superior immune response versus ARCT-one hundred and fifty four as measured by neutralizing antibodies against Omicron XBB1.5.6 in terms of geometric mean titer or GMT ratio and a seroconversion rate or SCR difference. Co administration of ARCT-two thousand three hundred and three and cell based quadrivalent influenza vaccine showed non inferior immune response versus standalone QIV administration. Co administration of ARCT-two thousand three hundred and three and QIV also showed non inferior immune response versus standalone ARCT-two thousand three hundred and three administration. And lastly, co administration of ARCT-two thousand three hundred and three and adjuvanted QIV in older adults showed similar responses versus standalone administration of ARCT-two thousand three hundred and three and adjuvanted QIV. In September, the company along with our partners CSL, AcuraS and Meiji announced new 12 month post vaccination data for COSTAVE at options 12 for the control of influenza conference.

Speaker 2

The results of a head to head Phase 3 study demonstrated that COSTAVE maintained superior immunogenicity compared to the conventional mRNA vaccine Comirnaty for up to 1 year against Wuhan, Hu1 and Omicron BA. 4 and 5 and certain other variants and at onesixth the dose of the comparator. These results were published in The Lancet Infectious Disease. Additional Phase 3 data presented at the Options Conference showed that bivalent costave also known as ARCT-two thousand three hundred and one induced superior immunogenicity over conventional bivalent mRNA vaccine, Comirnaty that persisted against key variants up to 6 months post vaccination. Now shifting our attention to our mRNA therapeutics franchise, let's begin with an update on ARCT-thirty two.

Speaker 2

ARCT-thirty two is an inhaled messenger RNA therapeutic for cystic fibrosis and it's formulated with Arcturus' lunar delivery technology that differentiates us from our competitors. In September, we received clearance of an investigational new drug application to the U. S. Food and Drug Administration. The FDA clearance of the IND application enables Arcturus to initiate a Phase 2 multiple ascending dose study to evaluate the safety, tolerability and efficacy of ARCT-thirty two in people with cystic fibrosis.

Speaker 2

Our team is actively engaged in onboarding a substantial number of clinical sites to help us in this effort. We are fortunate to be able to be working closely with the CF Foundation in this process. The Phase 2 study is presently screening individuals with CF who do not qualify for or benefit from CFTR modulator medicines due to dysfunctional or absent CFTR protein and or drug intolerance. This study will allow us to evaluate FEV lung function improvement in individuals with CF. And I'm very pleased to report that the company is on track to share interim Phase 2 proof of concept data for our CF program in the first half of twenty twenty five.

Speaker 2

I'll now move on to our ARCT810 program. This is our messenger RNA therapeutic candidate for ornithine transcarbamylase or OTC deficiency. Earlier this year, Arcturus announced the expansion of the Phase 2 clinical program of ARCT810 into the United States. This open label multiple dose study evaluating pharmacodynamics and safety is currently enrolling adults and adolescents requiring clinical management for OTC deficiency. Our placebo controlled Phase 2 European study has completed the dosing phase.

Speaker 2

So these concurrent Phase 2 studies in Europe and the U. S. Will allow us to evaluate meaningful biomarker changes in individuals with OTC deficiency. And I'm happy to report that the company is on track to share interim Phase 2 proof of concept data in the first half of twenty twenty five. With that, I'll now pass the call to Andy.

Speaker 3

Thank you, Joe, and good afternoon, everyone. The press release issued earlier today includes financial statements for the Q3 of 2024 and provides a summary and analysis of year over year and sequential financial performance. Please also reference our most recent Form 10 Q for more details on the financial performance. We are very pleased with the launch of COSTAVE, our COVID-nineteen vaccine candidate in Japan. This represents an important milestone for Arcturus as it is the 1st commercial product in the company's history.

Speaker 3

We believe that this product highlights the differentiating aspect of sa mRNA technology and how it can potentially represent an improved vaccine option for patients. I am also happy to announce that we have received a $25,000,000 commercial milestone with the first COSTAID sale in Japan. I also went to Tokyo last month to get the COSTAV vaccine with 32 executives from Arcturus, Arcalis, CSL and NAGI. Due to the early clinical success of our cystic fibrosis program, Arcalis has become a strategic manufacturing asset for Arcturus and therefore we have decided not to sell our stake in Arcalis at this point in time. The strategic review process conducted by JPMorgan generated interest from financial and strategic participants, which will benefit Arcturus and Arcalis in the future.

Speaker 3

We decided to expand our manufacturing product line with Arcalis to include respiratory mRNA therapeutics and therefore we are planning to transfer our cystic fibrosis manufacturing process technology to our Catalyst. I will now provide a summary of our financial results for the Q3 of 2024. For the 3 months ended September 30, 2024, we reported revenues of $41,700,000 a slight decrease from the $45,100,000 reported in the same period in 2023. This small decrease is attributable to a decrease in CSL revenue as we achieved a milestone of $35,000,000 during Q3 of 2023 compared to a milestone of $25,000,000 during Q3 of 2024. This was offset by an increased revenue from the BARDA agreement.

Speaker 3

Total operating expenses for Q3 2024 were $52,400,000 compared with $64,500,000 for Q3 2023. Total operating expenses for the 9 months ended September 30, 2024 were $191,800,000 compared with $195,900,000 for the 9 months ended September 30, 2023. Research and development expenses were $39,100,000 for Q3 2024 compared with $51,100,000 for Q3 2023. The decrease was primarily due to $15,900,000 in manufacturing expenses incurred in the Q3 2023 related to the MAGE supply agreement and other clinical trial manufacturing batches as well as decreased facilities and equipment expenses. The decreases were primarily offset by a 3 point $6,000,000 increase in clinical trial related expenses for the COVID and flu program.

Speaker 3

For Q3 2024, Arcturus reported a net loss of approximately $6,900,000 or $0.26 per diluted share compared with a net loss of $16,200,000 or $0.61 per diluted share for Q3 2023. Cash, cash equivalents and restricted cash were $294,100,000 as of September 30, 2024 and $348,900,000 as of December 31, 2023. Arcturus achieved a total of approximately $462,100,000 in upfront payments and milestones from CSL as of September 30, 2024 and expects to continue to receive future milestone payments from CSL supporting the ongoing development of the COVID and flu program and 3 additional vaccine programs by CSL. Based on the current pipeline and programs, the cash runway is expected to extend into the Q1 of fiscal year 2027 and does not include any contribution from the sale of COSTAV vaccines in Japan. In summary, the company remains in a strong financial position and has the cash runway needed to achieve multiple near term value creating milestones for the vaccine and therapeutic program.

Speaker 3

Furthermore, with the recent launch of CoStave in Japan, we look forward to reporting potential commercial revenues in 2025. I will now pass the call back to Joe.

Speaker 2

Thanks, Andy. We've continued to make exceptional progress on our mRNA vaccines and therapeutics pipeline. We are particularly excited about the launch of CoStave, the first commercial product in the company's history. And we're also pleased that both of our flagship mRNA therapeutic programs, ARCT-thirty two and ARCT-eight ten are on track for interim Phase 2 POC clinical data in the first half of twenty twenty five. I will now turn the call to the operator for Q and A.

Operator

Thank you. We'll go first to Lily Ensango with Leerink.

Speaker 4

Hi. Good afternoon and thank you for taking the question. I guess two questions from my side. So first question regarding the commercial launch of CoStave in Japan. Any chance you could give us maybe a little more granularity?

Speaker 4

So you had mentioned that 4,000,000 doses had been delivered to Japan through the partner Meiji that they are also upping production. I was wondering if you could give maybe a little more color on the launch trajectory in Japan and expectations for the fall for the winter season going into 2025. Secondly, so for the OTC deficiency study, so the European study has completed for a while now and so the U. S. Study is ongoing.

Speaker 4

Would you mind giving maybe a little more color on the number of patient and type of data we should expect in the upcoming readout in the first half of twenty twenty five?

Speaker 2

Hey, thanks, Lily for the question. Andy, with respect to the additional nuance on the commercialization process in Japan, do you want to handle that question?

Speaker 3

Sure. Thanks Lily. We're pretty excited about working with Meiji in Japan because as you know, they're the number one flu vaccine company. And so they're in a very strong position to be able to launch the product very effectively. And if you may have paid attention into a recent press release, they've actually articulated that they were planning to sell roughly 4,500,000 vaccines during the season with their guidance.

Speaker 3

And of course, we only shipped 4,000,000. And of course, the remaining vaccine must have come from the opportunity to produce them in our callus in Japan. So we're all awaiting the announcement of that approval by the PMDA shortly, which should enable Meiji to have a full launch by probably December or so With the vaccine, it's actually made in Japan. So pretty exciting, I think, for not only Meiji and CSL, but the Japanese people overall. So we're not really privy to give specific guidelines other than what they've been able to articulate publicly.

Speaker 3

But I would closely pay attention to any communications coming from Meiji and CSL regarding the launch and progress of the vaccine sales in Japan.

Speaker 2

And pertaining to the OTC question, Lilly, the U. S. Expansion is going to be similar in size relative to what we did in Europe. We are enrolling younger and more advanced disease subjects. We did see some early signals that were encouraging in the European trial, but we're going to be combining this data in what we share in the first half of next year.

Speaker 4

Thank you.

Speaker 2

Thanks, Sal.

Operator

We'll go next to Yasmeen Rahimi with Piper Sandler.

Speaker 5

Hey, good afternoon team. This is Jung Woo on for Yas. Thanks for taking our questions. First, to the extent that you can, for the Phase II cystic fibrosis study, could you provide any color on the size and cohorts that you're thinking about? What doses are you planning to move forward with?

Speaker 5

And then for the second question, what is needed to demonstrate proof of concept in your view?

Speaker 2

Pat, do you want to ask that question, the CF study?

Speaker 6

Yes. I mean, obviously, if you look at we are going to be looking at what a lot of our competitors are doing in terms of looking at the various biomarkers. And we can't disclose a lot about the actual study design. And our plan is to, again, recruit we finished our Phase 2 study. We plan to start our study in the U.

Speaker 6

S. And we'll provide more data around our CF study later on this year I mean early next year.

Speaker 2

Yes. Multiple doses are going to be evaluated in the CF study. It's an open label study. There's no bronchoscopy included in this study. And FEV is going to be measured throughout the study.

Speaker 2

But with respect to specific time points and additional details, there'll be an appropriate time for us to share that. And that'll be at a later time.

Speaker 5

Got it. Thank you.

Speaker 2

Thanks.

Operator

We'll move next to Whitney Egin with Canaccord Genuity.

Speaker 7

Hey guys, thanks for taking the question. First, I just wanted to follow-up on the commentary around vaccines in Japan and the switch to Arcalis once it's approved. Is the idea that when Arcalis is approved and it's manufactured domestically in Japan that there will be kind of a step up or an acceleration, just as we think about modeling quarter over quarter next year? And then, the second question to follow-up on OTC, I think looking back the interim Phase 2 data had originally been expected in the Q4. So maybe I missed it, but what drove the shift to the first half of next year?

Speaker 7

Thanks.

Speaker 2

Andy, do you want to address the first question?

Speaker 3

Sure, Whitney. No, I think you were spot on there with that assessment. And as you can tell Meiji and Orkalis are very proud to obviously be able to manufacture the first samRNA vaccine in Japan and it was pretty evident by the response in the press that we're all in attendance. They had over 30 press official there. So a pretty well attended press conference.

Speaker 3

And certainly, I think they would probably prefer to launch and articulate that this vaccine is made in Japan and certainly having shipments from our callus in December will enable them to articulate that more clearly. So with respect to probably a more aggressive commercial launch, you could probably anticipate it would happen in December, January timeframe in my opinion. So if you're looking at the timing of the revenues, probably would happen in the probably the first two quarters of next year.

Speaker 2

And with respect to the OTC data, we did complete dosing in Europe and there was some early evaluation of some of that data. The data is not locked and we initiated enrolling process in the U. S. Prior to that process. So we thought it was wise to just couple these together and provide the interim data update in the first half of next year.

Speaker 7

Understood. Thanks.

Speaker 2

Thanks.

Operator

We'll move next to Evan Wang with Guggenheim Securities.

Speaker 8

Hi, guys. Thanks for the question. Just a few for me. Firstly, on COSTAVE, anything you can share on broader vaccination trends in Japan, so not just COSTAVE specific. I know that Japanese season starts later, but has this been in line with Meiji's estimate to support the dose totals for the season?

Speaker 8

And also on dose Dave, you highlighted kind of recognizing revenue in 2025. Can you remind us some of the reporting here and how Arcturus recognizes some of those revenue? And then 3rd, on OTC and cystic fibrosis, I'm just wondering, it's great to see the timelines for proof of concept in the first half twenty twenty five. Just wondering what gives confidence in some of these timelines? Is dosing in recruitment thus far better than expected?

Speaker 8

Any additional color there would be helpful. Thanks.

Speaker 2

Sure. Let's see. You had a question about revenues. Do you want to address that one first, Andy?

Speaker 3

Sure. As you can see, yes, when Meiji will sell the vaccines in Japan, they will be reporting those sales to CSL on a quarterly basis. CSL then will in term determine the allocation of the profit share between CSL, Meiji and Arcturus. At that point in time, we'll be able to recognize those revenues once that allocation is contributed to Arcturus. And keep in mind that we do have to offset the initial revenues by the 40% of the production costs that we are responsible for in the development of the program.

Speaker 3

And so that amount has not been communicated officially, but you can assume that that would probably incur at least a few million doses before you're able to offset those initial 40% of the development and production costs for the COSTAVE vaccine. I hope that was helpful.

Speaker 2

And addressing your second or your question is about the COSTAVE trend and the CF timeline. I can comment that the team was in Japan and we got a really good feel for Meiji's presence in Japan in the vaccine industry. They have a large sales force. They have approximately 40% of the flu shot business in Japan. So it was really good to see what kind of materials they're providing to just a large number of physicians in Japan as you can imagine.

Speaker 2

So clearly, there's an educational phase of the launch, teaching people about this next generation technology. But any additional details than that, it would be more appropriate to just for them to provide with their regular updates on with respect to commercial guidance. But I can all I can say is that I was very impressed with the management team and the commercial staff there that they really knew what they were doing. With respect to the CF timeline, the reason we're very comfortable on this is, first of all, if you notice our the design of our trial is, I would say, open label. It's not placebo controlled.

Speaker 2

There's no bronchoscopy involved or lung brushing, which can deter participants from participating. And we also have some early data that we've already shared in Phase 1b, including a Class 1 subject that had some early and promising data. So I think that data collection is helping us. We're also working with the CF Foundation. And as we're on boarding a substantial number of sites, I think it's given us encouragement with these preliminary conversations that we should be well on track to deliver some data in the first half of next year.

Operator

We'll move next to Myles Mentor with William Blair.

Speaker 9

Hey, thanks for taking the questions. Three quick ones, if I may. The first one is just on the guidance that you'd get the EMA approval milestone from CSL for potential approval of cost save in the Q1 of 'twenty five. Does that imply that you'd expect to see a chimp opinion issued at either the November or December meeting by the end of this quarter? First one.

Speaker 9

The second one is on the decision to keep the Arcolis equity stake, does that mean if Meiji does give additional manufacturing orders of COSTAVE to Arcalis, that's something you could actually report on rather than just pushing back to Meiji for commercial guidance? And the third question is moving the CF program manufacturing to our callus and having a U. S. Focused Phase 2 clinical trial, does that mean you have to get FDA inspection of that facility? Thanks very much.

Speaker 2

Andy, do you want to provide a first answer?

Speaker 3

Sure. No, it's we were obviously very encouraged by the opportunity with the early progress we've had in cystic fibrosis. So obviously manufacturing and trying to plan strategically a global production basis is quite daunting because just to address just to give you an idea, just to address the Class I population, you're looking at probably 17 roughly kilograms per year. And so you need to put together a very well orchestrated manufacturing base to be able to address all that. And of course, our Catalyst has now become very strategic because of that opportunity.

Speaker 3

And consequently, they are a very low cost and very efficient operation because as you know, the drug substance, drug product and DNA is all made there. And so is going to authorization and the fill finish. So having all that in one location reduces a substantial amount of transportation logistical risk, especially with transferring drug substance to Europe for the drug product completion stage. And so there are many implications and opportunities. And obviously, as you have just heard, the amount of mRNA we're going to need to make for the CF program is quite substantial.

Speaker 3

And based on just the capacity our Catalyst has now, that's about $100,000,000 a year just for our Catalyst in sales. And that's only considering 2 kilograms out of the 17. So just to give you the significant impact of this opportunity is pretty substantial. So we've had to reevaluate our global supply base and working very closely with Aldebron and Danaher, of course, and Catalent and Resifarm and Polymune. And so this has taken on a very global concerted effort.

Speaker 3

It's exciting, but it's going to take a little bit of work. And certainly, it makes Arcalis a much more valuable partner right now and we need them and we're kind of excited about working more closely with them on the CF program.

Speaker 2

And pertaining to EMA approval, we've clearly guided today that we're anticipating a CHMP decision in December. And that obviously proceeds a formal approval process shortly thereafter that takes us into Q1. So I think your assumption is fair. Did we address all your questions, Myles?

Speaker 9

Just a quick one on the second one. Just with the manufacturing orders that could come to Meiji when the PMDA issues approval in December, if they do that, is that something you as Opturus would be able to report on if they do indeed receive a bulk manufacturing order for cost of? Thanks.

Speaker 2

Yes. The short answer is no, but Andy, yes, go ahead.

Speaker 3

Yes. We really can't comment on those because that'll be up to Meiji and CSL to articulate that. Of course, we'll give you as much color as we can post quarter and hopefully that will enable you to have a better insight as to the ramp up and the success of the Arcalis production on a quarterly basis.

Speaker 9

Awesome. Appreciate taking all the questions. Thanks.

Speaker 2

Thanks, Nelson.

Operator

We'll move next to Yanan Xu with Wells Fargo.

Speaker 10

Hi. Thanks for taking our questions. This is Kwan on for Yanan. So I have a question on your CF program. Can you share with us your thoughtful success on FEV1?

Speaker 10

And also Vertex Moderna will report their VX-five twenty two Phase onetwo data also in first half twenty twenty five. So can you remind us the differentiation of 032 versus VX-five twenty two? Thank you.

Speaker 2

Yes. It's definitely a wonderfully competitive area. And I think this is great for patients in general in the CF community. But we do have key differentiation elements to our program and our technology compared to our competitive peers. So thank you for the question.

Speaker 2

The first and foremost, we have a different delivery technology that we call LUNAR, but this not only has a different registered trademark, but it's a chemically different lipid nanoparticle that is biodegradable, non accumulating and we believe these chemical differences have proven out to provide differentiated data pre clinically. So we have preclinical data in the ferret model that has shown that we have a very significant response that supersedes positive control after a single administration. I think that would be representative of the differentiation I'm speaking to. We're also sharing data more visibly. We've already provided some Phase 1b data and a Class 1 subject that has provided some promising early response after just 2 administrations.

Speaker 2

And then finally, a purification IP, I think is a differentiator. And this is a big deal in the therapeutic space when you're dosing chronically and larger amounts of mRNA, it's very important, especially in compromised lungs like the CF patient population that these mRNA molecules are substantially pure. And we have a potentially leadership position in this space and with intellectual property behind it, it's different. How we purify our mRNAs is likely different than our competitors. But I'll stop there.

Speaker 2

I could talk for a while, but I think those are the key differentiators.

Speaker 10

Right, got it. Thanks for all the colors. And would you mind sharing your barcode success on FEV1?

Speaker 2

Did you say our expectations around FEV1? What was your question?

Speaker 9

Right.

Speaker 10

Yes.

Speaker 2

Because we're addressing the patient population where there's substantial unmet medical need, again these are the non modulator responders, it's about 15% to 18% of the CF population. So we're going after these folks that do not really have an excellent treatment option. So the barrier for entry, the bar that we need to establish for lung function improvement, I believe is very small. We haven't provided any details on that. And with respect to our conversations with regulatory agencies, for example, we hold those cards close to our chest.

Speaker 2

But the short answer is anything measurable, I believe, would be very significant for this patient population. A small percentage improvement would be very meaningful in our view, but we haven't given that specific number yet. There will be an appropriate time later down the road.

Speaker 10

Yes. Thank you for that. And one quick question on 2,303 concretes on the data. Can you share with us what's the next step for the program? Are you ready to file or what's your strategy?

Speaker 10

Thank you.

Speaker 2

2,303, the strategic purpose for these other Phase III trials is just to showcase the breadth of the platform that the technology can be multi antigenic, for example, in the bivalent trials we're doing. And also in where we're conducting these trials is meaningful because we're collecting an expanded safety database in multiple ethnicities around the world with these additional Phase III trials. Taking that all together, it helps beef up and support a really strong BLA application in the first half of next year. So they're strategically important to support the BLA application in the U. S.

Speaker 2

I don't foresee us marketing these products. The data is used to support the platform of CoStave in the United States.

Speaker 10

Got it. Thank you for all the color.

Speaker 2

Thank you, Ynon.

Operator

We will move next to Pete Stavropoulos with Cantor Fitzgerald.

Speaker 11

Hi. This is Samantha Schafer on the line for Pete. Thanks for taking our question. Can you touch on the H5N1 pandemic flu program? If you could remind us on key details for this non CSL partnered program and what to expect?

Speaker 11

Thanks.

Speaker 2

Hey, thank you. The short answer to that question is we remain on track to get into the clinic this year. So thank you for the question. H5N1 is definitely important to BARDA. We do have some BARDA references in our filing documents and our press release and probably the script as well, you can see that we're elevating our relationship with them.

Speaker 2

But that stage of getting into the clinic is coming up here shortly.

Speaker 11

Thank you.

Operator

We'll move next to Ed Arce with H. C. Wainwright.

Speaker 5

Hi, good afternoon, everyone. This is Thomas Atkins. Congratulations on the progress to date. So first question, wondering what's the Phase 2 data readout for ATN and OTC expected in first half next year? Which efficacy measurement do you believe has the potential to support approval endpoints?

Speaker 5

Which efficacy endpoint should investors focus on?

Speaker 2

That's actually a really good question. The data we're collecting is not only important to establish proof of concept for intravenously dosed mRNA in our platform, But a key part of the OTC strategy is to identify the appropriate biomarker if we choose to advance this into a pivotal trial or a Phase 3 trial. So it's not just the data that's important in this first half of 2025, but understanding which of these many biomarkers that we're collecting data on many of them. And we believe we have a strategy that is going to be appropriate for a Phase 3 or pivotal trial, but we won't be communicating specifically what that biomarker strategy is today. That's something that we can do concurrently with the interim data sharing in the first half of next year.

Speaker 5

Got it. And then for the other program that is partnered I believe is partnered with CSL. Are there any updates with the lunar flu program? I believe last we heard this Phase 1 and 2.

Speaker 2

Yes, good question. Our CSL collaboration in the flu is a very active one, I'll say that. It's multiple programs are involved. The funding for these programs has been increasing. We're meeting regularly in JSC meetings with CSL.

Speaker 2

But with respect to the cadence of data sharing and any sort of commercial strategy on these, we've respectively agreed with CSL that we'll allow them to provide that information. So all we can say with respect to the flu program is that it's very active. There's multiple programs and that funding is increasing for these programs. And it's definitely a priority for our collaboration. But again, how the data is shared and the cadence of that data and any sort of commercial strategy and what it's combined with and the bundling commercial strategies, these kind of things we can't refer to at But thanks for the question.

Speaker 5

Got it. First one more question from us. This one first for Andy. Just wonder what's the entire $25,000,000 milestone from Yuuji? Was that entire announced recognized in Q3 or it's going to be spread over several quarters?

Speaker 2

Yes. The $25,000,000 when it's recognized? Go ahead, Eddie.

Speaker 3

Yes. Thank you, Joe. Yes, the $25,000,000 is going to be reported just like all of our other development milestones at this point in time on and ASC 606 acquirers that we probably amortize around 90% to 93% of the milestone in the quarter that it was earned. And then the remaining amount is amortized over a production to complete method. And so that's why you see the accruals on some of the CSL revenues that occur on a recurring basis in our quarter.

Speaker 3

So hopefully that gives you a perspective of what we've recorded here in the quarter.

Speaker 5

Got it. Thank you again for taking our questions. Looking forward to the upcoming progress with close date in Japan.

Speaker 12

Thank you. Thank you.

Operator

We'll move next to Yale Jen with Laidlaw and Company.

Speaker 13

Great. Thanks for answering the question, taking the question. My first question is that, given that 3 parties will be involved in terms of determining the allocations, so should we anticipate any potential royalty from revenue from Japan will be something of next year instead of the last quarter of this year?

Speaker 2

Yes, timing of revenue recognition? Yes, go ahead, Andy.

Speaker 3

Yes, yes. I think if you listen closely to what we were articulating, by the time Meiji reports the sale to CSL and then they will in turn determine the allocation, you're probably better off assuming that the sales will be recognized in the first half of next year rather than this year. So hopefully that gives you some perspective, because remember we also have the 40% of the production costs that we have to absorb before we're able to recognize any revenues. So I think I would prefer to caution on the conservative side and probably anticipate the first half of next year, the better predicament of when we can see some of those revenues. Hopefully that helps you.

Speaker 13

Yes, it does. And then maybe just to tag on one more question, at least on the P and L side. I noticed that this quarter's R and D expenses was lower than the sort of prior two quarters. I understand you have changes from the last years, but should we anticipate this little bit lower R and D expenses presumably will continue or how should we think about that?

Speaker 3

That's a good question. And one of the reasons why it's so difficult to give quarterly guidance is because of the functionality of when trials are completed and when inventory is shipped. So that's why I prefer to provide a runway guidance. And so if you can be reassured that we had restated that our guidance is in the Q1 of 2017, so that's remained consistent now for a few quarters. So you can assume that our burn is going to be somewhere around $100,000,000 a year.

Speaker 3

And if you divide that by the cash we have, that should give you some comfort that we should be easily achieving that Q1 of 20 27 goal. And keep in mind that it doesn't include any revenue contributions from Japan. So hopefully we'll be able to update the market next year on that progress.

Speaker 13

Great. And then maybe the last question here is that in terms of 2,303 combined with the QIV, how should we think about that going forward in terms of these combined vaccines? Would that be something that we should see a decision on the specifics?

Speaker 2

Exactly. Yes. Yes. We now have the Phase 3 data to show that non inferiority or equivalents, right? So CSL will be determining anything to doing with commercial strategy and especially with the flu, they provide that, whether it's combos or co promotions or bundling, anything like that, that will all come from them.

Speaker 13

Okay, great. Thanks a lot and congrats on the progress.

Speaker 2

Yes, thank you. Thank you.

Operator

We'll move next to Yigal Nakhimovis with Citi.

Speaker 12

Hi, guys. I hope you can hear me okay. Just first of all, could you just clarify $25,000,000 milestone from Japan? Is that accounts receivable? Or is it actually your cash reported at the end of the Q3?

Speaker 12

Thanks.

Speaker 2

Hey, go ahead.

Speaker 3

Yes. No, good question. We give CSL about 60 days to pay the bill. So and they've been a pretty good customer. So I'm not too worried about getting that $25,000,000 Hopefully that alleviates your concern about them paying us.

Speaker 12

Okay. And then on the manufacturing, I'm just wondering, so you're saying that you're going to transfer the manufacturing on the CF over there. Capacity is left at Argyllis after including CF on top of COVID.

Speaker 3

And do

Speaker 12

you have does do they have the capability there to do the fill and finish for the specialization of CF product given that it's going to be the nebulized product? Is there anything else that they need to incorporate into the manufacturing chain to do that piece of things?

Speaker 2

No, the question is Go ahead.

Speaker 3

Yes, we can let go ahead. Let Pat answer that if he has any more color on production.

Speaker 6

Yes. Again, the process for making our drug substance for both our CF product as well as our vaccine products are very similar. So that's the great beauty about messenger RNA. I think we can use a very similar process for all the APIs and all of our programs that we're currently having internally. There's obviously nuances related to a lyophilized product or frozen drug product.

Speaker 6

And I think that there is some specific and the components, exact components that are in our CF product are different than what we're currently using for our vaccines. So because of that, there is a know how or a tech transfer process that we have to undergo. But we're confident that that tech transfer process is going to be just fine and they're capable of making our drug substance. And ultimately, you asked a question a little bit about fill finish. They are building out not just drug substance capabilities, but also drug product and final fill finish capabilities as well.

Speaker 6

And because of that, we're going to be leveraging our partners.

Speaker 12

So the product produced for CF in Japan will be the final commercial product, correct?

Speaker 2

Yes, that would be the vision of the yes.

Speaker 12

Okay. And then as far as capacity, I guess the question is what about OT what about OTC? Is that something you would consider transferring over there? Or is there a reason you are deciding not to do that is a capacity question? It's rare

Speaker 2

to lead, small amount.

Speaker 12

So we

Speaker 3

can handle that with our current partners. So we're fine there. Just demand for the amount of cystic fibrosis mRNA that's going to be required is pretty substantial. As I articulated early on a year over year basis of 17 kilograms, that's a lot of mRNA. And as you know, our callus has capacity up to 5 kilograms right now.

Speaker 3

So, and so certainly there's an opportunity to potentially expand that as we are able to achieve some clinical success with the CF program.

Speaker 12

And then last one is, so you have the 4,000,000 doses that you're shipping over there. And then you said another 500,000 that's going to be made locally in Japan. So are they basically and then at some point they're all going to go into the channel and there may be some overlap potentially. Are they all going to kind of look into distinguishable from a labeling branding perspective?

Speaker 5

Correct.

Speaker 3

Well, they all have the same label. Yes, the label is uniform. And so the excitement here is that our callus is now in the process of producing the COSTA vaccine. And that's important because as you know, the Japanese government has given our callus $165,000,000 to help construct that facility. So it's a very strategic plan, not only for the Japanese people, but the government to protect the people in any future pandemics that should arise.

Speaker 3

And so that I think is why the people over there are very excited about this opportunity.

Speaker 2

And one thing to correct, Yigal, the $4,000,000 has already been shipped. I just wanted to make sure that was clear.

Speaker 12

Okay. Yes. Understood. Thank you.

Operator

And with no further questions holding at this time, I'll turn the conference back to Joe Payne for any additional or closing remarks.

Speaker 2

Hey, thanks everyone for participating on the call. If there's any remaining questions, please don't hesitate to reach out to our team and we'll get back to you as soon as we can. Thanks and good night.

Operator

Thank you. Ladies and gentlemen, that will conclude today's program. We thank you for your participation. You may disconnect at any time.

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Earnings Conference Call
Arcturus Therapeutics Q3 2024
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