Achieve Life Sciences, Inc.

Good morning, ladies and gentlemen, and welcome to the Achieve Life Sciences first quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star, then zero on your touchstone telephone. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Ms. Jaime Xinos, Executive Vice President of Achieve.

Thank you, Ashley, and thanks everyone for joining us. On the call today from Achieve, we have Rick Stewart, Chief Executive Officer, Dr. Cindy Jacobs, Chief Medical Officer, Dr. Anthony Clarke, Chief Scientific Officer, and John Bensage, Chief Financial and Operating Officer. I'd like to remind everyone that today's conference call contains forward-looking statements based on current expectations. These statements are only predictions and actual results may vary materially from those projected. Please refer to Achieve documents filed with the SEC concerning factors that could affect the company, copies of which are available on our website. I will now turn the call over to Rick.

Thank you, Jaime. Before we begin the discussion of our first quarter activities, Thank you very much. with friends, family, and colleagues. We're facing unprecedented times that truly test our resilience. We remain hopeful and we're also proud to be part of an industry that is working diligently to expedite the development of COVID-19 testing and treatments. Achieve is fortunate in that as a multinational organization, we're accustomed to working in a virtual environment with the exception of not being able to travel to meet and many of you were conducting business as normal. We are, of course, carefully evaluating the impact of COVID-19 on the initiation of our Phase III clinical development program. The health and safety of our trial participants, healthcare providers and employees will continue to be our number one priority. Given the impact of COVID-19 in individuals with pre-existing conditions, such as pulmonary disease, it is now more important than ever for smokers to quit. We believe in the potential of cytosine cleaning to help them to do so. In addition to our clinical trial sites and our CRO, we continue to anticipate initiation of our first phase three, the ORCA-Q trial in the second half of this year. This is of course subject to financing and confidence in our ability to conduct this trial in a manner that is safe to participants and healthcare providers. From a regulatory perspective, we have now submitted to the FDA all requested non-clinical data allowing for cytosinic treatment of both six and 12 weeks in the upcoming Phase III ORCA II trial. We did not observe any new safety or toxicology signals when evaluating either 13 or 26 of treatment in these non-clinical studies. Subject to final review by the FDA, the Phase III trial will be ready to initiate. As a reminder, the ORCA II trial will address three key factors. Number one, the evaluation of the higher three milligram dose of cytosinicline. Number two, the simplification of the dosing schedule given only three times daily leading to ease of use. And number three, the extension of the treatment duration to six and 12 weeks expected to yield better and more durable efficacy results. The extension of the dosing period to six weeks in the phase three trials could have significant benefits. It will allow us to measure the primary endpoint of four weeks of continuous abstinence while patients are still receiving cytosinicline. This was not possible with a 25-day treatment period in the ORCA1 trial. As documented in the literature, measuring efficacy while patients are on treatment typically results in higher quit rates. Shifting towards other opportunities for cytosinicline as a treatment for nicotine addiction, as previously discussed, we initiated an agreement with Freemind, an organization that assists life science companies with non-dilutive financing opportunities. Through this partnership, we recently submitted a grant application for funding of a phase two clinical study to evaluate the potential for cytosinicline as a nicotine cessation treatment for vapors and e-cigarette users. If this non-dilutive financing is granted, this study will be the first multi-center, double-blind, randomized, placebo-controlled phase two study conducted in daily nicotine e-cigarette users seeking to quit. This trial would enroll approximately 150 adult subjects at eight sites throughout the United States. The number of vapors and e-cigarette users continues to grow, and as reported in the Annals of Internal Medicine in 2018, has reached nearly 11 million users in the U.S. alone, of which nearly half are under the age of 35. While e-cigarettes and vapes have historically been viewed as safer than combustible cigarettes for harm reduction, their long-term safety remains controversial. Since these products also sustain addiction, many vapers are now seeking to quit nicotine completely. To further explore vapers' interest in quitting, we recently conducted a survey with IQVIA in approximately 500 users of nicotine vapes or e-cigarettes. looking specifically at individuals that only vape nicotine, approximately 74% indicated that they intend to quit vaping within the next three to 12 months. Of those who intended to quit even sooner within the next three months, roughly half stated that they will be extremely likely to try a new prescription product to help them do so. Pending grant approval and the outcomes of the study We believe that cytosinicline could be the first prescription drug offering a new option for nicotine vapors and e-cigarette users who are ready to quit for good. Now, before I turn the call over to John for our financial discussion, I want to give a brief update on the timing of the RAURA study. As you may recall, this is an investigator-led study being conducted by Assistant Professor Natalie Walker and the New Zealand National Institute of Health Innovation. The trial is a single-blind, randomized, controlled, non-inferiority trial to evaluate the safety, efficacy and cost effectiveness of cytosinicline compared to varenicline in the Maori indigenous population. The results of the Rauora trial are eagerly awaited as this is the first head-to-head evaluation to determine whether cytosinicline is at least as effective as Veronica Lane and will provide insights as to how the safety profiles compare in this population. We applaud Dr. Walker's efforts conducting this challenging real-world trial and expect the data to be submitted for presentation at a medical conference later in the year. I'll now turn the call over to John to discuss the recent financing on our first quarter results.

Thanks, Rick. Last month, we announced the completion of a private placement that resulted in gross proceeds of approximately $1.9 million prior to deducting placement agent commissions and offering expenses. The financing was the result of inbound interest from existing investors and was substantially oversubscribed. It had to be capped at the maximum amount allowed under the NASDAQ and SEC rules based on the structure of the transaction. The additional capital will help to maintain momentum on critical path activities. I'd also like to provide an update on our cash balance as of March 31, 2020, and also our operating expenses for the first quarter of 2020. As of March 31, the company's cash, cash equivalents, short-term investments, and restricted cash were $12.2 million. Turning to our statement of operations, the company incurred a net loss of $3.3 million for the quarter ended March 31, 2020 as compared to a net loss of $5.9 million for the quarter ended March 31, 2019. Research and development expenses in the first quarter 2020 decreased to a total of $1.5 million compared to $4.1 million in the first quarter of 2019. General and administrative expenses for the quarter ended March 31, 2020 were $1.8 million compared to 1.9 million in the quarter ended March 31st, 2019. As noted previously and highlighted during our call in March, we expect our quarterly operating expenses to remain lower in advance of initiating the phase three development of cytosinicline. That concludes the summary of our first quarter financial results. I would now like to turn the call back over to Rick.

Thank you, John. Our continued momentum of the cytosinicline program for the treatment of nicotine addiction remains impressive. The additional data event from the RAHORA trial is important as it will be the first direct comparison between cytosinicline and the current market leader, Chantix, which recently reported 2019 global sales just shy of $1.1 billion. The non-clinical data required to commence the ORCA II Phase III trial has now been submitted for FDA review. Preparations for the start of the Phase 3 trial continue with the aid of leading KOLs, and we remain optimistic that the first Phase 3 trial will commence in late 2020, COVID-19 and financing permitting. Thank you again for joining the call. Operator, please open the line for questions.

Ladies and gentlemen, if you have a question at this time, please press star to the number one on your touchstone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Your first question comes from Michael Higgins with Leidenberg Thalmann.

Good morning, guys. Thanks for taking the questions. Appreciate the updates. The first one I'd like to ask is on Rorora. When do you think you'll get results? How do you think they'll be presented and what kind of a forum? If you can give us any clarity on that, it'd be helpful. Thanks.

Sure. Thanks, Michael. Our expectation is the results will be available later in the year. I think we said on the fourth quarter call that the trial had been challenging. but the visibility we have so far is that it will be available later on in the year. Pretty much we can't give you any greater indication than that but I do think its importance cannot be underestimated given really this is the first time that cytosinicline and veranacline or Chantix have been compared head to head. It is a non-inferiority study so our expectation really is that we're looking at to see that cytosinicline is at least as good as Chantix in terms of efficacy. But I think given the meta-analyses that have been conducted historically, primarily by the Cochrane group, we would like to think that the superiority of side effects of cytosinicline versus Chantix will be maintained.

Is it possible that we see that SRNT in September?

Yes, it's possible, yeah.

Do you know when the submission deadline is for that? I think that has to come then from the API in New Zealand, correct?

Yeah, exactly. It depends entirely on Natalie Walker. I think, given COVID-19, that they have been moving the submission dates around a bit, so I'm not entirely clear on exactly when the submission date is.

Okay. I'm sure it's something she's looking at, given the importance of this study and the whole field of smoking cessation, and I'm sure she'd like to get it out at a nice big conference, so it makes sense there. Question on ORCA2 and the start there and the conduct there, given the impact that we're all having here from COVID-19. And I think I saw you were starting that in the second half of the year. What adjustments do you make to the trial design to account for the FDA's guidance? And how does that trial come together? Thanks.

Well, actually, I'm going to hand that one over to Cindy.

Yeah, actually, we're working with our CRO as far as any changes in procedures that would become virtual. I think the communication with the sites right now are the most important as far as when they're ready. Some sites are ready now. Some sites will will be ready later. So as we go through this, our communication with the sites and with virtual procedures that if a COVID outbreak comes later in the fall while we're in the trial, those are the things that we're evaluating right now. As far as the overall design of this study, nothing will be changed.

Okay, very helpful. All right. Staying on the theme of the ongoing pandemic, I assume, and as we've been hearing, it takes some resources away from government officials working on whatever they've been working on towards this for the most part. How is that affecting your efforts to start an evaping study in your conversations with government officials? Thank you.

I'm sorry, as far as starting the ORCA II study?

E-vaping study, I guess, and particularly, yeah.

Well, right now we have submitted the grant. We don't know as far as if it is going to affect the timelines for the reviewing, but per their guidance as far as the reviewing for this grant, it should be later this year. So we do expect that we would know by fall or quarter four.

Okay.

If I can add a bit of flavor to that one, Michael. When we started discussions with the KOLs on the concept of using cytosinicline for e-cigarette users and vapers, we got a tremendous amount of enthusiasm from them. and I think that's principally because of some of that controversy that's surrounded the yes, we understand there is a significant harm reduction in comparison to combustible cigarettes but I think some of the issues that were confronted through the middle of last year with respect to the side effects of the vapes but also I think increasingly with COVID-19 People are questioning, you know, are some of the issues that are related to smokers and a potential increased prevalence of COVID-19, does that also apply to the e-cigarette users and vapors?

Makes sense. I appreciate it. Thanks, guys.

Your next question comes from Jim Malloy with Alliance Global Partners.

Hey, guys. Thanks for taking my question. I had a quick question on talking about the ORCA study, the ORCA II trial enrollment over the summer. I know that the prior study, you guys enrolled right sort of as the new year was coming and the winter everyone, the thinking being everyone's in the new year, I'm going to quit smoking, and that really helped enrollment. How does that impact or not impact for sort of the different time of the year on getting the trial enrolled expeditiously, again, assuming COVID-19 allows the trial to be enrolled at all?

Yes, let me just make a correction. We're not enrolling right now over the summer months. We are looking at reevaluating in September, October for whether we would start slow enrollment. It would be very much similar to the YORCA one where we would have sites if we were to open, start slow enrollment just before December, the holiday season, and then ramp up immediately after the new year. We have 15 sites. Five of them actually are experienced with the ORCA-1. So those five sites might have faster enrollment as far as release, so not a slow enrollment. So all of these factors are being looked at as far as the end of this year.

Okay, so in many ways, a similar timeline on the enrollment for ORCA-1.

Correct.

Can you speak a little bit to... The ability to run any parts of this trial at home or virtually? It seems like this could be a trial that would lend itself nicely to that.

Yes, and actually we're looking at, obviously FDA wants to have vital signs as far as the safety, so we're looking at situations where there would be home nurses that would go if they couldn't come into the clinics and other virtual processes for the clinics in that regard. The CRO that we're working with has already been performing COVID testing and studies, so they are getting quite experienced with a lot of their virtual procedures, so we're really taking a lot of guidance from our CRO on this one.

And then maybe the last question, the non-diluted for the vaping trial, and you're just talking about submitting the grant, what's sort of the number that you need to get, and will the grant cover All of the trials, most of the trials?

So the grant is actually, it covers for three years up to $5 million a year. For us, when we're running a trial, usually the costs are primarily that first year. But we didn't cap over the $5 million, and then it runs into the second year. So we're looking at a grant that would... support to the pretty much the predominant site costs and some of our costs as far as personnel for the two years it would run.

Thank you very much for taking the questions.

Again, for any questions, please press star then the number one on your telephone keypad. And your next question comes from John Vannermoson with Zax.

Good morning. I wanted to start out with just some examples of the hurdles that you may face due to the coronavirus. I've heard that in many cases critical trials can continue, but non-critical ones cannot, and I think it's mostly on a state-by-state basis. Can you just give some clarity on how that might go forward?

Well, with our different sites in various states, obviously we're relying on the sites to let us know as far as their ability and safety for people are subjects in the trial is always a first priority. And at this time, we have not heard that any of our sites would not be able to participate.

Okay, great. And those five sites you mentioned before in our previous caller's question, how much of the volume did those five do of the total population enrolled? Caller's question, how much of the volume did those five do of the total population enrolled?

We pretty much had the sites were pretty much equal. They all met their quota. I mean, these sites are pretty active as far as they each figure that 20 to 40 subjects they can do easily. So we have to really limit the number of sites sometimes on these studies. because they don't want to participate unless they can have an equal share. So it's really interesting with these trials. We don't have a problem with enrollment in that regard as far as one site not participating or enrolling as well as another.

Okay. And just remind me whether or not the breast test will be given at every visit. Is that required every visit?

Yes, well, the CO monitoring, absolutely. That's on a weekly in every clinic visit. Now, that is something that can be virtualized, too, as far as, like, we could get CO monitors, you know, for patients. So those are all the types of things that we're looking at as far as if someone could not come into the clinic.

Okay, great, great. Yeah, that's great. It can be done virtually. It looks like Pfizer, as far as I understand it, their Chantix is coming off patent this month. What is the competitive environment going to look like for the rest of the year for that?

Well, that's an interesting one, John, because our latest intelligence, we believe that they still got the first of the patents to expansion maybe into late 2022. We are expecting, frankly, at any time some kind of generic competition, but I think Our latest intelligence says it might actually be a little bit later than we had actually expected. What we are expecting, frankly, when that generic arrives, or generics, it'll be one to start off with, with our six-month exclusivity. But, you know, we are expecting probably a reduction in price by potentially a third. And when the second one arrives, it'll kind of... equal out to somewhere around about the $700 per course of treatment level. And then subsequent to that, we'll just have to see where the market goes. And I think if you position cytosinicline in comparison to varenicline, I think our major advantages are obviously the reduced side effect profile of cytosinicline, and I think the lack of nausea and vomiting or the reduced nausea and vomiting that we see with cytosinicline really does provide it with a very significant advantage. We believe that the nausea and vomiting is one of the causes of the non-compliance that we're seeing with varenicline but also the shortened treatment period is another advantage for cytosinicline will have a single prescription over a six-week period versus Varenicline, which currently has three prescriptions over its 12-week treatment period. So I do think that even in a genericized environment, we have some pretty significant advantages, but it has to be put in the context that on average it takes a smoker between eight and 11 quit attempts to be successful. So there will be a continuing cycling between and maybe even nicotine replacement. But I do believe that we do have some advantages as the new entrant. Okay.

And Pfizer made a brief comment about Chantix on its call. I think they suggested that because people aren't going to the doctor that prescriptions were down during the coronavirus, but anticipated to come back strongly, perhaps even more strongly than before, just because of concern over susceptibility to coronavirus if you're a smoker. Any thoughts on that? Does that sound like a fair assessment or any additions to what Pfizer had said based on what they're seeing in their trends?

Yeah. What I see is a resetting of the smoking cessation market. I think The real concern has been and will continue to be, what is the effect on smokers of COVID-19? Are they more severely affected and are more susceptible to COVID-19? And I think certainly where I'm sitting here in the UK, we've seen a significant increase Thank you, Rick, and thank you, Cindy

I am showing no further questions at this time. I will now hand the conference back to Rick Stewart for closing remarks.

Well, I'd just like to say thank you for your interest in Achieve Life Sciences and we look forward to updating you again on our second quarter results. Thank you very much.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.