Achieve Life Sciences, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Achieve Life Sciences second quarter 2020 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone keypad. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your first speaker for today, Ms. Jamie Xinos, Executive Vice President of Commercial at Achieve. Thank you. Please go ahead.

Thank you, 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 Bensich, 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, Jamie. On today's call, we will review the second quarter highlights. Firstly, the exciting top-line data from the New Zealand Rawora Phase III clinical trial led by Dr. Natalie Walker. Secondly, Dr. Cindy Jacobs will review the continuing momentum on initiating the Phase III ORCA II trial in the U.S. later this year. And thirdly, John Bensich will review our financial results plus the strengthening of our balance sheet facilitating the start of the ORCA II trial. At the end of June, we announced the successful top-line results from the investigator-led Phase III non-inferiority Rawora trial, comparing cytosinicline to Chantix in the Maori or indigenous people of New Zealand. Our congratulations to Dr. Natalie Walker of the University of Auckland for conducting this landmark trial. The Rawora trial evaluated the efficacy, safety, and cost effectiveness of cytosinicline compared to Chantix as a smoking cessation aid. In total, the study randomized 679 subjects. As a non-inferiority trial, it was designed to demonstrate whether cytosinicline was at least as good as Chantix for efficacy and safety. In fact, it showed that cytosinicline efficacy was similar to Chantix and that cytosinicline had a superior safety profile. Rauora compared cytosinicline administered on a modified schedule over 25 days of downward dosing titration followed by twice daily dosing for a total of 12 weeks against Chantix, which was administered on a standard dosing schedule of seven days of upward titration followed by twice daily dosing for a total of 12 weeks. The primary endpoint was a comparison of biochemically confirmed continuous abstinence rates at six months. The trial successfully achieved the primary endpoint for showing that cytosinicline plus behavioral support was at least as effective as Chantix plus behavioral support at six months. In addition, the trial showed that cytosinicline resulted in significantly fewer reported adverse events when compared to Chantix. The positive top line results of the Rawora Phase III trial which is the first direct head-to-head comparative study between cytosinicline and Chantix provides additional evidence that cytosinicline is at least as effective as Chantix while offering improved tolerability. We're excited about this outcome that further strengthens the potential for cytosinicline to help smokers quit. Importantly, these benefits were achieved using only the currently marketed one and a half milligram dose of cytosinicline and the downward titration schedule. The dosing duration was modified to 12 weeks in order to match the Chantix dosing schedule. Our upcoming US cytosinicline phase three clinical trials will use the higher three milligram dose at a simplified three times daily dosing schedule. Based on the results of the ORCA-1 Phase IIb trial, we are optimistic that this simplified dosing schedule in combination with a 3 mg dose will be easier for subjects and potentially result in better smoking cessation rates than what was observed in the Rawora trial. The final Rawora trial results have been submitted by Dr. Nathalie Walker, the Rawora primary investigator, for presentation at the Society for Research on Nicotine and Tobacco European Annual Meeting to be held this September. We look forward to sharing additional details on the RAORA trial results when presented. Turning to the upcoming ORCA2 double-blind placebo-controlled phase three trial, preparations are underway for the trial commencement in the fourth quarter. These preparations include careful risk management assessments for any potential impact of the COVID-19 pandemic. Our continuous risk assessment dialogue with clinical trial sites and our CRO still indicates that initiation of the ORCA II trial in the fourth quarter of this year remains feasible. The health and safety of our trial participants, healthcare providers, and employees will continue to be our number one priority. We continue to monitor the crisis in real time taking advice and precautions to minimize risk to all involved. I'll now turn the call over to Cindy to review the ORCA-2 trial design and provide a regulatory update.

Thanks, Rick. The ORCA-2 phase three trial builds on our experience from the successful ORCA-1 trial. Valuable lessons were learned which have been integrated into the trial design along with specific requirements requested by FDA. We have consulted frequently with our key opinion leaders who have given us the benefit of their wisdom, and we are now finalizing preparations to commence the trial in the fourth quarter. ORCA-2 is a multicenter, double-blind, randomized, placebo-controlled Phase III study that will randomize 750 adults who are daily cigarette smokers intending to quit smoking and are willing to set a quit date within seven days of starting treatment. Participants will be randomly assigned with equal probability to one of three arms. Arm A will receive 12 weeks placebo treatment. Arm B will receive six weeks of cytosinicline and then be switched to placebo for the latter six weeks. And Arm C will receive 12 weeks of cytosinicline. There will be 250 subjects in each arm receiving either placebo or cytosinicline three times a day for the 12-week study treatment period and then followed monthly out to week 24 for a six-month evaluation. All 750 subjects will receive behavioral support during the entire 24 weeks. Similar to ORCA1, each smoker will start study drug treatment the day after being randomized and will have their quit date set within the following five to seven days or at least by the end of the first week of treatment. Starting after their quit date at week two of treatment, assessments for smoking abstinence will begin by weekly self-reporting of abstinence or not with biochemical verification of abstinence by exhaled carbon monoxide levels. These weekly assessments occur through the 12 weeks of blinded study treatment. Then monthly follow-up assessments will occur for smoking abstinence at week 16, 20, and finally week 24. The ORCA-2 study has two independent primary endpoints that will be evaluated. The primary endpoint outcomes will evaluate the rate of smoking abstinence of cytosinovan treatment at both the end of six weeks and 12 weeks treatment periods compared to the placebo treatment. For both primary and point comparison, smoking abstinence will be defined as continuous abstinence during the last four weeks of treatment. That means for the six-week treatment period, successful quitters must have smoked zero cigarettes with weekly CO biochemical verification at weeks three, four, five and six assessments. for the 12-week treatment period. Successful quitters must have smoked zero cigarettes with weekly CO biochemical verification at weeks 9, 10, 11, and 12 assessments. The secondary endpoint outcomes will evaluate for continued smoking abstinence from the end of six-week cytosiniclin treatment to week 24 and from the end of 12-week cytosiniclin treatment to week 24. separately and compared to placebo treatment within the same timeframe. An additional secondary endpoint outcome will look for a reduction in risk of relapse from week six to 24 in subjects receiving cytosinicline for six weeks versus 12 weeks. The sample size for this study is specified at 250 subjects per arm. This assumes A difference of 12% benefit for cytosinicline over placebo with 96% power. ORCA2 will enroll at approximately 15 clinical sites across the U.S. Each site will have specific COVID-19 protection and operating procedures in place. We are preparing for potential restricted site interactions if a site needs to be quarantined with remote testing or monitoring. and procedures for missing data per FDA guidelines if a subject becomes infected with COVID-19 and cannot be evaluated. From a regulatory update and perspective, we have now completed all required non-clinical submissions to initiate our Phase III program. This has included submitting to FDA all the non-clinical data required to support the six and 12 weeks of cytosinicline treatment in the Phase III trial, In addition, we have submitted the final protocol for the ORCA II Phase III trial. As discussed last fall, we reviewed the Phase III protocol and the statistical plans with the FDA in a Type B meeting in November of 2019 and have incorporated FDA input from that meeting into that final protocol. We are now proceeding with the final operational planning and logistics to initiate the phase three in the fourth quarter. So in summary, we intend to initiate ORCA2 in the fourth quarter of this year and this trial will address three key factors. The evaluation of the higher three milligram dose of cytosinicline for both six and 12 weeks of treatment. The simplification of the dosing schedule given only three times daily. leading to ease of use regardless of treatment duration. And the extension of the treatment duration of 6 and 12 weeks to potentially increase quit rates and yield more durable efficacy results. The extension of the dosing period in the Phase III trials has significant benefits. It will allow us to measure the primary endpoint of 4 weeks of continuous abstinence while subjects are still receiving cytosinicline treatment. This wasn't possible with a 25-day treatment period in the ORCA-1 trial. As documented in the literature, measuring efficacy while subjects are and remain on treatment typically results in higher quit rates. I will now turn the call over to John to discuss recent financing activities and our second quarter results.

Thanks, Cindy. I would like to first provide an update on our recent financings. and Cash Position, and then review our second quarter financials. Post the end of the second quarter, we have announced two public equity financings totaling $13.5 million in gross proceeds. Both of these transactions were common stock only that were priced at stepped-up valuations from the previous. Last month, we announced the closing of a $6 million registered direct financing. The financing was completed at no discount to the previous closing share price. The financing provided net cash of approximately $5.5 million after deducting placement agent commissions and offering expenses. This week, we announced the pricing of an underwritten public offering with gross proceeds of approximately $7.5 million. This was also a common stock only offering that included the full exercise of the underwriter's over allotment option and will provide estimated net proceeds of approximately 6.8 million after deducting commissions and offering expenses. In addition, subsequent to the end of the second quarter, we have also seen outstanding warrant exercise that have provided an additional 2.3 million in cash proceeds. In total, we have received approximately 2.9 million in proceeds from warrant exercises since the start of the second quarter. The additional capital will help to maintain momentum on cytosinicline development and set this up with a strong balance sheet going into the second half of the year as we initiate the ORCA II Phase III trial. As of June 30, 2020, the company's cash, cash equivalents, short-term investments, and restricted cash were $12.2 million. On a pro forma basis, including the July and August financings, as well as warrant exercises, will be starting the third quarter of 2020 with approximately $26.7 million of cash on hand. Turning to our statement of operations, the company incurred a net loss of $2.9 million for the quarter ended June 30, 2020 as compared to a net loss of $3.6 million for the quarter ended June 30, 2019. Net loss for the six months ended June 30, 2020 decreased to $6.3 million compared to $9.6 million for the six-month end of June 30, 2019. As noted previously, we expect our quarterly operating expenses to remain lower in advance of initiating the Phase III trial. That concludes the summary of our second quarter financial results. I would like to now turn the call back over to Rick.

Thank you, John. The second quarter highlighted the true potential of cytosinicline as a future leader in the smoking cessation market with the release of successful top-line results from the Rauora Phase 3 trial comparing cytosinicline and the current market leader Chantix. Additionally, we continue to make excellent progress preparing for the commencement of the ORCA2 750 subject placebo-controlled Phase 3 trial. And of course, we took the opportunity to add additional capital during the quarter to further reinforce our balance sheet. The Rauora trial results are a landmark because this is the first direct head-to-head comparison of cytosinicline efficacy and safety compared to the current market leader Chantix, which reported 2019 global sales just shy of $1.1 billion. We're pleased that cytosinicline showed its potential to compete strongly with Chantix and clinical data continues to indicate a potential best-in-class profile for cytosinicline for smoking cessation. We are well prepared to start the upcoming Phase III with FDA requirements fully met. The non-clinical data required by FDA to commence the ORCA II Phase III trial has now been submitted for FDA review. Preparations for the start of the Phase III trial progress with the aid of leading KOLs in the field. and we remain optimistic that the first phase three trial will commence in the fourth quarter of 2020, COVID-19 permitting. Finally, I'd like to briefly discuss the impact of COVID-19 specifically on smokers and why we believe that cytosinicline will have a key role to play in aiding smokers to quit in the future. Advice from the regulatory agencies such as the CDC and WHO has never been stronger or more vital about quitting smoking. The impact of COVID-19 in individuals with pre-existing conditions such as pulmonary, cardiovascular, and other smoking-related diseases has amplified the urgency to quit smoking now. There are two key COVID-19 implications for smokers. Firstly, the impact of cigarette smoking on lung health is incredibly damaging and believed to lead to more susceptibility to the COVID-19 virus and more severe symptoms. And secondly, it appears that smoking rates are on the rise as a result of changing social dynamics, reports of vaping-related lung disease and a banning of flavored vape products. There has never been a more critical time for smokers to quit for good, and we believe cytosinicline can play an important role in helping them do so. Thank you again for joining us today. That concludes our prepared remarks, and we will now open the line for questions. Please open the line.

As a reminder, to ask a question, you will need to press star 1 on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Please stand by while we compile the Q&A roster. First question is from the line of Michael Higgins of Ladenburg-Fallman. Your line is open.

Hi, guys. Thanks for taking the questions. Congratulations on the continued progress. Things seem to be going along as planned here despite the challenges of the year. Question for you is we look ahead to SR&T conference or SR&TE that's being posted online this year. How should we look for the KOLs and ourselves to learn about regular results given the online format of the conference? Are you expecting a webinar specific to these results to be provided with a Q&A portion, or how should we plan for this event?

I'll hand that one over to Cindy.

Well, we know the SR&P meeting will be virtual, so we expect that Natalie will be narrating her slides in detail for that presentation. I think we have discussed whether we would have a webinar afterwards, and it's interesting that you asked that question because that would be then something we could do afterwards within that month time period, very similar to what we did with the ORCA one. I see.

So kind of an analyst day post the SR&TE presentation.

Yes, we'd have to work that in with Natalie's schedule as well. Obviously, it's a little bit more problematic when you're looking at New Zealand. But yes, we've talked about how sadly some of us might have to be doing this in the middle of the night.

Yes. All right, well, obviously we're hoping for, during the day, for ourselves.

Yeah, the East Coast, definitely. I think, yeah, West Coast people that will be in the middle of the night, my guess is.

Understood. I feel your pain. Any progress for us on the EVAP study that you can relate to us? Didn't hear a lot on that in your prepared remarks, but obviously that's something we're all following as well. Thanks.

Once again, to ask a question, please press star 1 on your telephone keypad. Your next question is from the line of John Vundermosten of Vax. Your line is open.

Good afternoon, guys, and thanks for taking my questions. And also, congratulations on the capital raise. Great to see that almost $30 million balance you have there in finance. If I remember correctly, I think it was allocated about $15 million for the first ORCA, or I'm sorry, ORCA 2, and then another $15 for the second, if I'm remembering correctly. But can you just give me a sense of how much more capital you'll need to finish off both of the trials, given your current status on the cash side of things? John, do you want to do that one?

Yep, yep, absolutely. Thanks for the question, John. And yes, your memory is correct. The Phase 3 trial is an approximately $15 million study, which I think as we described on the call, you know, having close to $27 million on the balance sheet puts us in a great position to execute on that trial. And the second Phase 3 will be approximately the same capital requirements.

Okay, great. So you're pretty close to having what you need to finish this off. That's great news. Let's see. So Just an update on when we might see a generic competitor for Chantix. I think we might have discussed this last time and I think there was just a little uncertainty on how much the patent protection was providing for them. What is the latest view on that in terms of a Chantix competitor or Chantix generic coming out?

Yeah, I'll take that one. What we're looking at at the moment is really the expiry of the more important patent looks like it's around about May, June of 2022. So we're not actually, plus there's going to be additional protection from pediatric extension. So we're anticipating seeing some generic competition probably early part of 2023. Okay. Got it. Thanks for that.

That's great. That's great. And then You mentioned this, Rick, just a little bit about changes in smoking behavior. I mean, has there been any observations of how that has changed as the coronavirus has started? I mean, people have picked up a lot of different habits. I think people have been drinking more alcohol, but I don't know about trends for smoking. I know there's been a big health trend as well, but have you seen any data out there on actual smoking and how that might have changed since March of this year to present?

Thank you for joining us. Some of the issues and concerns around the lung disease associated with vaping. You've seen people who were attempting to quit move back towards cigarette smoking. So yeah, there is data out there which is supporting the idea that it's more in that area. I mean, there are 11 million vapers right now. Roughly half of those are youth. But it's the other half who are perhaps more and reformed smokers who now seem to be moving at least back towards cigarette smoking.

Okay, interesting, interesting shifts there. And last question on the vaping study that you guys were working on. Any progress there and any closer to getting that grant money for the study in that area?

Yeah, I mean, it's a highly competitive process. and, frankly, we didn't make the cuts as far as the NIH is concerned. But we continue to believe that a vaping study will add substantial value and we're seeking alternative funding sources. So it's an area that we're significantly interested in. Our KOLs are interested in pursuing that. But our capital is focused on the Phase III clinical trials. So we're looking at alternative sources of grant funding for that vaping study.

Okay, great. Thank you. I'll get back in queue.

I am showing no further questions at this time. I would like to turn the conference back to Mr. Rick Stewart, CEO of Achieve.

Well, thank you again for joining the call and your continuing interest and support in Achieve. and we look forward to talking to you again with our third quarter results. Thank you.

Ladies and gentlemen, this concludes today's conference. Thank you all for participating. You may now disconnect.