All right. Welcome back to the Leerink Global Healthcare Conference 2025. My name is Lili Nsongo. I'm an analyst at Leerink covering Arcturus. Today we are hosting a discussion with Arcturus' management team, including CEO Joseph Payne and CFO Andrew Sassine. Thank you so much for joining us and for your time. Can you provide an overview of Arcturus, its platform, and the innovation it's leading?
Sure. Arcturus Therapeutics is an mRNA therapeutics and vaccines company. We have an approved vaccine product called KOSTAIVE. It is approved in 31 countries. It is a COVID vaccine that we are excited about. We also have a therapeutics franchise, a liver and a lung franchise, each led by a flagship asset for cystic fibrosis and a rare liver disease called ornithine transcarbamylase deficiency. We have unique technologies that differentiate us from the field that help contribute to these products and these clinical candidates. It is good to be with you. Thanks for the invitation, Lili.
Of course. Obviously, there are different elements of the Arcturus story, right? Obviously, you guys are pioneering the development of self-amplifying mRNA, which has led to an approved COVID vaccine within a partnered franchise that focuses on prophylactic vaccines. There is the internal pipeline that is more focused on rare disease. Maybe starting first with the vaccine franchise. Obviously, the first candidate approved was a COVID vaccine. Can you give us an overview of how you think about the COVID market and also a structure of the partnership and the economics for Arcturus?
Yeah, the COVID market is very familiar to most people before, during, and after the pandemic. A lot of considerable contraction in the opportunity post-pandemic, but we saw some stabilization. That's interesting to observe. Overall, the global market probably exceeds $10 billion. It's still an interesting market that we're entering with our partner CSL in Europe and the U.S., and also presently in Japan with Meiji. It'll be interesting to track this market going forward, but we feel that it's stabilized and definitely a significant market that we're entering. That's for sure.
Yeah, we're encouraged by the fact that we have one of the best, I think, players in the flu market. CSL is number one, two compared to Sanofi global basis for the flu market. We certainly have one of the top players that know how to commercialize this kind of product. That's, from our perspective, fantastic. Trying to manage a global marketplace is quite enormous and challenging. We get paid royalties for revenue on Europe, on the U.S., and the Rest of the World. Those total about a little over $3 billion, which will help us fund our programs and our company through various stages of development. We're very fortunate that we have that relationship in place. CSL has obviously been encouraged at being able to take a vaccine that has now appeared to show some superiority to the conventional mRNA.
This is kind of exciting because now they have potentially a better solution that has a smaller dose, that has a longer duration, that for all intents and purposes has broader coverage. They are kind of salivating at that opportunity and waiting for the right time to hit the market. The good news is that it is a competitive situation. They are strategically trying to be very coy about what they are going to do. When the time is right, I think the rest of the market will figure out what their strategy is. So will we.
You've talked about a little bit of the differentiation in terms of potentially longer, broader coverage. Can you give us a little more detail on the study that has demonstrated that?
Yeah, there's been multiple phase III studies that are comparison studies to known approved conventional mRNA vaccines. What we've consistently shown in each of these studies is that self-amplifying mRNA is more immunogenic, and it's broadly immunogenic, so it's a broader spectrum of antibodies that is generated with the technology. The higher and broader spectrum of antibodies produces a longer lasting vaccine. We've shown this and published on it in The Lancet in peer-reviewed publications that consistently shows a superior immune response and a broader spectrum and extended durability. We do this at a much lower dose level. As we continue to track data, as we proceed to distribute this vaccine with our commercial partners into large numbers of people, we will be able to continue to track the safety database. There's going to be some obvious benefits to our lower dose technology.
I think it makes sense to everybody that any dose-related toxicology associated with the pandemic vaccines can be addressed with a lower dose technology. There's a variety of things that we'll be tracking going forward with respect to the safety database. What is immediately understood is higher immunogenicity, broader immunogenicity, and extended time or durability of that immunogenicity. People want the implied protection and a longer lasting vaccine with this next-generation technology that provides that.
The vaccine launched in Japan in October of last year. Can you talk a little bit about the launch progression and how should we think about the timeline to recognition of profit share for Arcturus?
Sure. They had a launch which started in December. Part of that profit sharing occurred in a two-tier kind of model that we have, CSL had with Meiji. We did not receive, but we have earned $28 million as our share. The good news is that that amount goes against the 40% of the development expenses related to the COVID vaccine. That enables us to start earning revenue sooner rather than later once we achieve that 40%. We have kind of guided the market that it probably will not be this year, but maybe next year. With respect to Japan, they were anticipating selling around 4 million doses. They recently brought down the guidance to less than half of that. Consequently, that is one of the reasons why they probably will not achieve the 40% of the development expenses.
The good news is that moving on to next year, and of course, with Europe coming online in the U.S. in a couple of years, that should enable us to have a nice runway of growing revenue in the next two, three, four years, right? They are planning for that. In a positive development, Meiji invested $20 million in our manufacturing JV, ARCALIS . They did not have to do that, right? I think that is a positive sign that Meiji believes in the future of the vaccine and the opportunity and the manufacturing of this vaccine. They are becoming more involved. They joined the board of ARCALIS . We maintained our 38% share. We are very encouraged because that implies a healthy valuation for our 38%. Consequently, we are fortunate that we have the support of the Japanese government.
I think that should be probably more prevalent in the near term.
One thing also to mention is that the launch of our vaccine in Japan was in a 16-dose vial presentation. This is something that we did during the pandemic. Makes sense. People were lined up for the vaccine at the time. We had multiple doses in a vial. That is not an ideal presentation for a commercial vaccine. What is more familiar in the Japanese market is a two-dose vial presentation. It is more familiar in the flu business there in Japan. It is a unique vial presentation, but we are just doing what our partners would like to see, that they understand the market there for endemic vaccines from their flu experience. We have had a formal application process for the two-dose vial. We anticipate that to be approved prior to the fall 2025 season. That should help.
I want to come back to the $28 million in the economics in Japan specifically. Can you kind of walk us through the number of doses that represents, the split that happens, and how we get to that $28 million? Also, how much of that, I mean, I know you have not disclosed specific numbers, but how much of the reimbursement does that represent? Are we halfway there through the reimbursement of the 40% of expense? Are we less than halfway? Can you give us a rough estimate?
Sure. The $28 million represents an order of 3.5 million doses from CSL. Hopefully you can kind of factor in what our share would have been, which is probably try to assume that Meiji would get half and CSL and Arcturus would split the rest. You can extrapolate the numbers and kind of figure out what the total revenues were from that initial purchase, right? We have kind of articulated that the $28 million represents at least a good portion of what we would have had to earn. That is why we are guiding towards next year before we achieve that hurdle, which is not too far off, relatively speaking. We are cheering on Meiji and hoping that they can create another level of order that will be similar with a two-dose vial, which is their strategy for launching next year.
Hopefully they can take share in a market that has been relatively stable historically, where an aging population in Japan, people over the age of 65, numbers in the 30-40 million range. That is a really healthy target market for CSL and Meiji to approach on an annual basis. We are very encouraged by that. Hopefully next year and the year after, we will be able to start realizing some follow-through revenues. Did that help?
Absolutely. Thinking about the coming year, as you mentioned, one source of potential kind of revenue inflow would be through the realization of the profit share split for the KOSTAIVE vaccine. The majority of the historical revenues were generated through the milestone with the collaboration with CSL. Can you give us maybe a little walk through how to think about the cadence of both development milestone as well as commercial milestone for the coming years for the collaboration?
Sure. On our last quarter call, or the last annual call, we guided the market that the CSL revenues will decline going forward because CSL is going to be taking a lot more of the development and manufacturing in-house. We have transferred our technology to them in their CDMOs. As a result, what we have provided is that it is going to decline going forward here. That is good news for us because managing those type of activities are quite challenging and much easier for a larger organization like CSL. We are grateful for that. Hopefully that will help kind of galvanize the development decline. Of course, we did announce that we are going to have earned some milestones from the European approval. We will have more clarity on that in the first quarter call, which will be around May timeframe.
The good news is that we reiterated our guidance for the first quarter of 2027. We have $300 million of cash. We burned $55 million last quarter. We told the market that we're going to burn more this year as we ramp up with CF and OTC. Even if you assume a midpoint somewhere around $75 million-$80 million just for hypothetical purposes, you can tell that we're relatively cautious about our guidance. We hope to be able to achieve that relatively easy with respect to the amount of cash we have and what we're going to be burning with our internal program.
For the year.
Yeah.
Before we move on to the internal rare disease program, maybe one last question on the collaboration, the flu program. Obviously, the flu market is one that's adjacent to the COVID one. You have assets for both of those that are within that partnership. Can you give us an update or at least when we should expect an update for the program?
For the seasonal flu program or the bird flu program?
The seasonal flu.
Okay. The seasonal flu program, we have a lot of activities associated with CSL, our partner. The flu program and the flu business is very important to CSL. Of all the programs we're working with them, this is the one that we defer to them to guide on with respect to strategy. It is just because there's a lot of opportunities in the flu pertaining to not only the flu shot itself, but how it could be subsequently combined with other infectious diseases. It is just inappropriate for us to guide specifics around that. They've asked us to not be open and disclose all the details with respect to strategy around the flu shot. I can't really effectively answer that question, but encourage people to talk to CSL. Anything else to add, Andy? I don't know if that's accurate.
No, no. It's pretty much spot on. They're the number one two player in the market. Obviously, they don't want us to share their strategy. That makes a lot of sense.
All right. Moving on into the rare disease pipeline. Starting with the cystic fibrosis program. Maybe can you give us a, I mean, there is increasing competition in this space, especially as it relates to modulator non-eligible patients. There are a lot of different strategies that are in development. Can you give us an overview of your approach and how it's differentiated from other competitors?
Sure. There is a lot of approaches to CF that are being pursued. You're referring to like gene editing, gene therapy, and transient mRNA therapeutics. It's our strong view that a transient mRNA approach is most appropriate for what can be considered a transient organ like the lung or the liver. These organs that are regenerative, that recycle, I think it's important that dosing is more frequent, more regular, chronically dosed. Adjustable dosing is also very important in these areas because there is now approaching thousands of different versions of cystic fibrosis. It is important that you have a transient, attenuable dosing. I think we fit very well there. Within the inhaled mRNA community, we are differentiated from the others because we have our delivery technology that's chemically different and has been proven in preclinical models to be differentiated.
I think we have a very clear and different lipid nanoparticle technology that we're investigating in our phase II trial here. With respect to other differences, we've modified our mRNA construct to improve expression. We think that that could be a differentiating feature. Also, what's also very important on the toxicology side of the equation is purification and how you manufacture and purify the construct is very important, especially for inhaled therapeutics and to compromise lungs of CF patients. It's important that those impurities are controlled. We have a proprietary and trade secret aspects to our manufacturing processes that set us apart. I think they're different. From an efficacy perspective, we focus on the delivery technology that's different. We've showcased that in preclinical animal models. From a toxicology perspective, it's the purification technology.
There are other interesting elements to our innovation that include the design of the molecule that could also be considered to be different in a good way. If you couple all that together, that is a significant amount of differences that we are hoping will prove to be fruitful in the data we are collecting in the phase II study.
Digging into the phase II study. For that study, you moved on from initially, I think in the phase I study, patients were receiving two doses four days apart, if I'm not mistaken. For the phase II, you're moving into daily dosing. Can you talk about that transition, the reason that led you to decide on that?
Yeah. Daily dosing is simply because the CFTR transporter that we're expressing, that we're making with this mRNA molecule does not last very long. It only has a 12-hour half-life. It makes sense, I think, for the best to increase the likelihood of success in a phase II trial. We believe that daily dosing is the best path forward there just due to the half-life of CFTR. We may adjust that going forward. We have the flexibility to do that, to adjust it to every other day dosing. We think that the best shot on goal is daily dosing just because of the PK associated with the half-life of CFTR.
The dose levels that we're pursuing in our multiple ascending dose was guided by the 39 subjects of data that we've collected to date in our phase I and phase I- B and that we've shared publicly. We've got a nice safety database building considering this is a rare disease. We feel confident that the doses that we've selected for our phase II trial should be safe and well tolerated. The last remaining question is, can we see some improvements in lung function after 28 daily doses? Relative to our phase I- B study, which was only two administrations, we did see some promising early teasing amounts of data there, but it was a safety study. What's different is this is 28 doses over 28 days.
That is going to be a lot more drug onboarded, a lot more CFTR potentially expressed and built in the lungs and the cells of these recipients. We are giving ourselves the best chance possible to see something. We hope to see an improvement in lung function as measured by FEV.
Can you provide an update of enrollment since you've initiated the study and also the type of data or the breadth of data that we should expect at the upcoming readout next quarter?
Yeah. We initiated dosing in December. That can imply that we've continued the study without suspending any activity. I believe that's a positive update there. With respect to the amount of sites that we're engaging, the approximate number is 13. This is accessible on clinicaltrials.gov. There are some updates there. The CF Foundation does an excellent job providing transparency to all the trials that are going on in the CF space, not just us, but the entire competitive field, frankly. I encourage people to look to the CF Tracker, it's called by the CF Foundation. There you'll see that we have 13 sites that we're engaging at different levels and different stages in the process of activation. The total number of patients that we're recruiting for this phase II study is 12.
This number is relatively small, but it also showcases, it shows what we've negotiated already with the FDA, that this is a sufficient number for us to advance to the next stage in development. We have the flexibility to improve, to increase that number from 12 to higher. Given the fact that we're in the process of engaging around 13 sites, we think that we have a sufficient number of sites to support this effort that we're doing.
For the upcoming readout, should we expect data for the first cohort? Do you anticipate also having patients in the second cohort that may already be through that 28-day of treatment?
Yeah. It's a multiple ascending dose study. That's right. There are multiple cohorts. What we said on our recent call was that we intend to share data that has multiple dose levels involved and multiple subjects at each dose level. Any other detail than that, we haven't provided. That's what we mean by an interim data cut. It is likely, highly likely it won't include all 12 subjects. It'll be a subset of that. It'll involve multiple doses, multiple subjects. It gives us the opportunity to show not only some sort of FEV proof of concept, but also a potential dose response, which would be received positively.
Where do you see the bar for success for this interim readout?
The bar that we're communicating right now is 3% FEV as a minimum. This wasn't determined by us. This was determined by the field, the modulator space. There's just a copious amount of trials that have been done in the modulator space for cystic fibrosis. The very first successful modulator had approximately 2.6%, 2.7% FEV improvement. Because of that precedent, us and others and competitors have been communicating that the threshold of 3% is what's needed to continue the program forward, to advance it. That's a relatively low bar. We do appreciate that. Nonetheless, we're first movers in this new inhaled mRNA therapeutic space. If we hit that mark, that will be viewed positively to continue the program.
Something I'd like to emphasize, not just to the mathematicians and statisticians that are looking at how we power a phase III study, but if you look past the math and look at the customer, what does the customer want? The customer is folks that do not respond to modulators. This is 18% of the CF community. When you engage these people and talk to these folks, you understand that their lungs continuously deteriorate. When you hear from them, what they want is that to stop. They want the deterioration to discontinue and that to be reversed and to have elevated lung function. The customer just simply wants a positive FEV result, whatever that number is, whether it's 1% or 21%. The customer wants that to see that corrected.
The mathematician, going back to what we would like to see to know what's needed statistically to power a phase III study, is that minimum threshold of 3%.
Maybe another way of phrasing those two groups of very important people, right? You have the patients and then you have the regulators.
Yeah.
Before getting to the patients, obviously, you have to get to the regulators, right?
Of course. Yeah.
In that regard, what do you see as the next step following this phase II study? How should we think about potential pivotal design?
Good question. It depends largely on the degree of success in our phase II study. The higher the FEV number, the lower the amount of participants that would be required in a phase III study. We'd have to discuss this and agree upon with the FDA on the exact number. If you look at historical precedents in the modulator space, usually with a 3% FEV, you're looking at hundreds of patients. If you increase that FEV to, let's say, 5%, you could reduce that number to about 50 subjects. That exact number would have to be negotiated tightly with the FDA. The precedent suggests that you can adjust that number accordingly based on FEV. With respect to placebo control, that takes into consideration the patient feedback, not just the FEV number.
If you have patients that are feeling a lot better and respond very well in phase II and a reasonably high FEV number, then you have leverage to negotiate with the FDA with respect to placebo. It would be unethical to give a placebo, for example, if everyone responds very well to the drug. Versus something that's modestly working, we may have to implement a placebo and to what degree we'll be able to provide. We have placebo strategies that we've speculated on, but we can't provide details until we see the details of the phase II study.
All right. In the time we have left, I also want to make sure we also spend some time talking about the second phase II program within the rare disease pipeline, your OTC deficiency program for urea cycle disorder. Can you give us an overview of the market opportunity there?
The market opportunity. Some analysts have communicated it's a billion-dollar market opportunity. OTC deficiency is annually. OTC deficiency is the number one urea cycle disorder. This is a very commercially meaningful program for a company of our size, for sure. There are 10,000 subjects, prevalence and growing, just in the U.S. and Europe. That is a fairly large number. You can look to the ammonia scavenger field. They do not have a large penetration into those 10,000 folks, but with the small numbers, and they are charging over $1 million per patient. You can see that it is a very meaningful commercial opportunity. The short answer is it is about a billion dollars, is what some analysts are saying.
Just to add to that, what's important here is that the challenge in the industry has been getting the mRNA into the liver safely. Arcturus had developed a technology called LUNAR. It's an LNP that's biodegradable. That has enabled us so far to safely, intravenously inject over 40 patients. Now we're going to 0.5 mg/ kg. That's a pretty substantial dose increase from our European trial at 0.3 mg/kg. What I'm trying to convey here is that if we're able to successfully get into the liver and get out in a reasonable time frame without toxicity issues, that could open up the door to an additional 39 other rare liver disease indications. It's not just the OTC potential market. It's the ability now to get into the liver safely and effectively and deliver additional therapeutic opportunities.
Hopefully that can summarize the total opportunity for us.
Absolutely. You will be sharing an update for the program. For both the European study and the extended U.S. study, can you give us an overview briefly of what we will be seeing at the update?
Yeah. The update is not only some biological proof of concept, but people are also going to look at our biomarker strategy. Right now, in the field of OTC deficiency, there is not a very clear biomarker strategy because ammonia historically was the biomarker tracked, but now everyone's on ammonia scavengers. What is our biomarker strategy going to be? Is it going to be a cumbersome phase III trial or something more focused and biomarker-driven? What we plan to share at this next update is not only some data that establishes proof of concept, but what is our biomarker strategy going forward into some what is the pivotal trial going to look like, that kind of stuff.
Are those discussions you're currently having with regulators?
Yeah. Yeah. The regulatory agencies understand what our biomarker strategy is right now. They're excited to see the data. So are we. If that data is positive, it increases the likelihood that we can use that sort of biomarker strategy to be a key endpoint in our pivotal study.
The data will be shared in the second quarter as well, right?
Yeah. Yeah. That's our intent.
All right. We look forward to both updates in terms of CF as well as OTC deficiency. We are at the top of our time. Thank you so much for your time.
Yeah. Thanks again, Lili.