Axcella Health Inc.

Good morning, ladies and gentlemen, and welcome to Accela's third quarter 2022 conference call. Please be advised that today's call is being recorded and that all participants will be in a listen-only mode until the question and answer session. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then 1 on your touch-tone phone. To withdraw your question, please press star and then 2. Now, for opening remarks, I would like to hand the call over to Bob Crane, Chief Financial Officer at Accela.

Please go ahead, sir.

Thank you very much, Operator, and good morning, everyone. We would like to advise that certain remarks we will make on today's conference call, such as those relating to our cash runway and our ongoing clinical trials of AXA 1125, include forward-looking statements that are subject to various risks and uncertainties. These risks and uncertainties are detailed in our SEC filings, including our most recent Form 10-Q, which we plan to file later today. These filings can be accessed on our website, accelatx.com, or on the SEC website. All forward-looking statements represent our views as of today, November 1st, 2022, it should not be relied upon as representing our views as of any subsequent date. We undertake no obligation to update these forward-looking statements. With that, let me turn the call over to our President and CEO, Bill Hinshaw, to begin the discussion. Bill?

Thank you, Bob, and good morning, everyone. It's a pleasure to be speaking with you again. This has been an extremely exciting period for Accela. And today, I will briefly review the progress we've made during the past quarter. Following my opening remarks, Bob will then update you on the financials. Through the third quarter, we made important progress in our clinical development of AXA 1125 and strengthened our balance sheet with a new financing. On August 2nd, we announced positive top-line results from our Phase 2a study of AXA 1125 in long COVID. Long COVID is a persistent and growing challenge of the pandemic, affecting an estimated 100 million patients worldwide with fatigue as the most common symptom reported. Indeed, Time Magazine has described long COVID as the greatest mass disabling event in history. The fatigue that is experienced by long COVID patients, which is both mental and physical, is often so severe that they are unable to work exercise, or engage in normal activities of daily life. And until our study, no previous pharmaceutical agent had demonstrated the ability to improve outcomes for patients with long COVID in a randomized controlled trial. So we set out to develop AXA 1125 to offer treatment options to seriously ill long COVID patients who previously had none. And we found that subjects who received AXA 1125 had improvements in measures of mental and physical fatigue that were both highly statistically significant and clinically relevant compared to those who received placebo. The mean changes in total physical and mental scores in the CFQ11 versus placebo were minus 4.30 with a p-value of 0.0039 minus 2.94 with a p-value of 0.0097, and minus 1.32 with a p-value of 0.0097 respectively. Finally, there was a statistically significant correlation between improvement in fatigue score and increase in distance achieved in the six-minute walk time with a p-value of 0.0027. This is an objective measure of physical ability that was only observed in subjects who received AXA-1125. And on September 29th, we reported results of a pre-planned interim analysis of data from our Phase IIb trial of AXA-1125 in the treatment of non-alcoholic steatohepatitis, or NASH. And while NASH has its primary manifestation in the liver, It is a systemic disease driven by multifactorial dysregulation of pathways associated with metabolism, inflammation, and fibrosis. An estimated 40 million people in the U.S., including approximately 10% of U.S. children, are afflicted by this disease. When NASH worsens, it can cause scarring of the liver, which leads to cirrhosis. and NASH is one of the most common causes of end-stage liver disease worldwide. The results of the interim analysis outline the effects of AXA 1125 administration on selected outcome measures after 12 and 24 weeks of treatment. The findings were extremely encouraging. At 24 weeks, there were statistically significant improvements in the liver stiffness measurement, or LSM, compared to placebo for subjects in the high-dose arm. Absolute changes in LSM were 0.13 minus 2.01 for a p-value of 0.0992 compared to placebo, and minus 4.07 kilopascals, or kPa, for a p-value of 0.0096 compared to placebo in the placebo, low, and high-dose arms. These results were supported by statistically significant improvements in other non-invasive measures of liver fibrosis, ELF and FIB4. We also saw statistically significant improvements in ALT at both weeks 12 and 24 in all subjects. And all subjects experienced significantly greater changes from baseline in MRI-PDFF at 12 weeks compared to the baseline from, or change from baseline in placebo And a placebo-adjusted difference of minus 18.98% for a p-value of 0.0082 and minus 21.24% for a p-value of 0.0014 for the low and high-dose arms, respectively. In sum, these findings indicate that administration of AXA 1124, excuse me, 25 over 24 weeks, leads to statistically significant improvements compared to placebo in biomarkers for metabolism, inflammation, and fibrosis. Inconsistent with prior clinical trials, type 2 diabetics showed results comparable to non-diabetics. Now, in addition, and consistent with all previous results, AXA-1125 was found to be extremely safe and well-tolerated. Now, I'd like to take a moment and place these findings in context. Given the COVID trial results, 1125 has become the first therapeutic to improve patient fatigue in a randomized trial. The NASH trial results indicate that 1125 has market-leading levels in effects on liver stiffness. And across both indications, the overall safety and tolerability profile of 1125 is also best in the market. Collectively, the trial results provide further support of our view that AXA 1125 has extremely effective and safe multi-targeted impact on pathways that are dysregulated in complex conditions such as long COVID and NASH. Now, here at Accela, we are heartened to be playing a leading role in the effort to provide treatment options for patients suffering from these difficult-to-treat diseases. Our extensive research and encouraging trial results, along with our EMM platform, give us an attractive and differentiated profile and position us as the leading company in treating complex multifactorial conditions. Investors found these trial results very attractive. This past quarter, we completed a new round of financing about which Bob Crane, our CFO, will provide details shortly. And simultaneous with the financing, we made two new appointments to our board of directors. Robert Rosiello and Torben Strait-Neeson have become board members, and Mr. Rosiello has also become chairman of the board. As the company advances towards late stage clinical trials, we are pleased to have the additions of Mr. Rosiello and Mr. Strait-Neeson to our board. And after five years of service, David Epstein has stepped off the board, and we thank him for his many contributions, and he will continue to support the company as a consultant. Now, in the coming months, we will continue to pursue a focused strategy of executing on our clinical program and engaging with investors. We are also intent on broadening our pipeline by leveraging key insights we have gained from our clinical trials and the emerging science. Now, let me invite Bob to provide a review of the details of the financing and our overall financials for the quarter. Bob?

Thank you, Bill, and good morning, everyone. We finished the quarter ending September 30, 2022, with approximately $25.4 million in cash and marketable securities, which compares to $55 million as of December 31, 2021. On October 13, 2022, we announced a registered direct financing of approximately $34.2 million. This amount included $6 million received as the cancellation of indebtedness upon the conversion of promissory notes held by flagship pioneering. The financing occurred at a market price of $1.64, and the company sold 20,847,888 shares of common stock to a combination of current investors, new investors, company directors, and management. This financing helps to further bolster our balance sheet. We expect that our current cash balance will be sufficient to meet our operating needs into 2023. Turning to the income statement, our research and development expenses were $13.3 million and $43.7 million for the quarter and nine months ended September 30, 2022. This compares to $10.1 and $30.7 million for the comparable periods of 2021 with the year to year increase primarily related to the initiation of our long COVID and impact clinical trials. General and administrative expenses were $3.9 million and $12.3 million for the quarter and nine months ended June 30, September 30, 2022. This compares to $4.8 million and $14 million for the same periods of 2021. These decreases are primarily the result of lower non-cash stock-based compensation expenses. Excella's net loss for the quarter and nine months ended September 30, 2022, was $17.8 million, or $0.34 per basic and diluted share, and $0.582 point $2 million or $1.19 per share respectively. Our net loss for the third quarter and nine months ended September 30, 2021 was 15.6 million or 41 cents per share and $46.7 million or $1.23 per share. This concludes The review of our finances, let me turn the call back to Bill. Bill? Thank you, Bob.

And operator, at this point in time, we'll move over to questions from the attendees.

Thank you very much, sir.

Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question, please press star and then one on your telephone keypad. A confirmation tone will indicate your line has entered the question queue. You may press star and then two if you would like to remove your question. For participants using speaker equipment, it might be necessary to pick up your handset before pressing the star key.

Our first question is from Thomas Smith of SVB Securities. Please go ahead.

Good morning. This is Nat Chuan-Sib on for Tom Smith. Congrats on the progress of the quarter. We have a few questions first. Could you provide additional color on the regulatory interactions regarding E125 along COVID? And when can we expect more details on the trial design and regulatory path and have a follow-up?

Okay, great. So, thank you. Now, in general rule, we don't comment on details of regulatory interactions. In this case, we're in a very good position. We've already had initial engagement with the MHRA. And we are in a position to communicate and receive appropriate feedback this year. And we look forward to being in a position to advance the clinical program in the near term next year. So we're very well positioned and continue to have excellent interactions with the governments as they understand how important an issue long COVID is. Got it.

And what's the progress on the enrollment of the Phase IIb impact study in NASH? Do you expect enrollment completion by year 2022?

So, again, we don't comment on specifics of enrollment on an ongoing basis. We'll update you appropriately. Enrollment is continuing well, and we are obviously encouraged by the results that we saw across liver stiffness, inflammation, and metabolism, and continuing to show a first-line safety profile, as are the investigators. We had projected enrollment closure in 23, and that's where we still plan to be, so we're consistent with that.

Got it. And, okay, the last question, and I'll hop back on the queue. So, like, what's your strategy to alleviate the financing overhang in 2023? So, Bob? Yes, thank you.

So we are, as you know, we've recently raised in the registered direct $34.2 million. And as we stated in the past, we're engaged in both business development discussions with possible collaborators, as well as discussions with investors going forward. I can assure you that what we'll be doing is what's in the best interest of the company and stakeholders as we go forward. although I can't offer any specifics at this time.

Got it.

Thank you so much, and congrats on the progress. Thank you. Thank you very much. The next question is from Seth Aker of HC Wainwright.

Hi, good morning. This is Thomas Yip asking a couple of questions for Ed. Thank you very much for taking our questions. First question, Can you discuss current thoughts on primary endpoint for long COVID phase 3 study or registrational study? Would it include any endpoints from the phase 2a, specifically the fatigue questionnaire or the six-minute walk test?

So, good morning, Thomas. We'll have Margaret, our CMO, answer that question. So, Margaret?

Good morning. Thanks for the question. Yes, we anticipate carrying forward the measurement of fatigue. Again, this is a validated instrument, a patient-reported outcome, and such measures are well accepted by the FDA and other health authorities. In addition, we intend to carry forward an assessment of physical function. The precise tool that we're using for that will be a discussion with the agency. It is unlikely that we would continue with the six-minute block of feedback we have gotten indicates that it is not reflective of the patient experience. So that's what we'll be discussing. But in general, we're in a very good position to move our endpoints forward into phase three.

Yeah, Thomas, the six-minute walk represents a certain impact on physical function, but this is a post-exertional fatigue that these patients really feel. So there are more sophisticated ways to demonstrate the impact of 1125 going forward at scale.

Got it. Thank you for the additional details. And then staying on long COVID, given the size of the opportunity, what are your current plans to fund the Phase 3 study and also both U.S. and ex-U.S. as well?

Yeah, so as you note, the size here is quite significant. We believe there's blockbuster potential in the United States And unfortunately, because of the size and need, very rapidly to achieve that as we're leading in this field and really have the opportunity to be the only product in the market for long COVID fatigue for some time. In terms of the approach, we're well positioned to execute the next trial in terms of our capabilities and our ongoing support. We will, of course, look at the optimal way strategically, as Bob alluded to, as to how we can either accelerate or expand our ability to reach more patients faster, and we're in active engagements both with potential collaborators as well as governments as to the best way to bring this program forward to reach beyond the U.S. and the U.K., where we obviously already have work ongoing. And as you know, we have a global Phase IIb in NASH, so we've demonstrated our ability to execute on that scale.

Got it. Perhaps last question from us, switching to NASH. We saw the interim data was quite encouraging, but did not see better results in type 2 diabetes patients, as we did in the 16-week study. What are your thoughts on the main reasons behind that, and if you still believe there's an opportunity in the type 2 diabetes subpopulation in the NASH Baseball 1125?

Yeah, so, Thomas, thank you. It's an important question because type 2 diabetics are roughly 40% or more of NASH patients and are historically difficult to treat. And actually, what we did see is that the results in type 2 diabetics were consistent with the overall results so far in the trial. And that's encouraging for us already. And as you know, this is an interim analysis with 30% of the patients, subjects reaching 30 or 12 weeks. So we're actually encouraged, and we have, as you know, two previous studies where we demonstrated impact in type 2 diabetics, and we'll continue to evaluate if this is an important differentiator. Like we believe, our overall profile sets us up for a first-line position because of the multi-targeted, the safety, and well-tolerated, the oral dosing. And we think populations like type 2 diabetics and adolescent pediatrics offer potential differentiation for the assets.

Got it. Thank you again for taking our questions, and looking forward to progress on both programs.

Thank you, Thomas.

Thank you very much. Ladies and gentlemen, again, if you wish to ask a question, please press star and then 1 on your touch-tone phone.

We will pause a moment to see if we have any further questions. So it would appear we have no further questions, and I would like to turn the call back to Mr. Hinshaw for some closing remarks.

Okay. Thank you, Operator. And thanks to everyone who tuned in today. We are certainly energized by the opportunity to help address the substantial needs of patients who have long COVID fatigue and NASH. We're looking forward to our upcoming milestones and progress that we'll make across the programs, and we expect to help drive value for our shareholders. So we look forward to speaking with you again. So, operator, this concludes our call.

Thank you, and everybody be well.

Thank you very much, sir. When that concludes today's conference, you may disconnect your lines at this time.

Thank you for your participation.