Good morning, and thank you for joining us again for the 38th Annual ROTH Conference. My name is Adam Walsh. I'm a Senior Research Analyst with ROTH, covering the biotechnology sector. Our next presenter is Joe Payne, CEO of Arcturus Therapeutics. Joe, thanks for joining us.
Adam, it's good to be with you. Thanks for the invitation.
To get started, why don't you set the table for us. Give us a little bit of an overview of kinda where Arcturus is, has been and where you're going in the current time.
Yeah. Well, Arcturus is a messenger RNA medicines company. Prior to the pandemic, we initiated a rare disease strategy for messenger RNA medicines toward, you know, directed towards rare disease applications. During the pandemic, we developed and got approved in 30+ countries a COVID vaccine. Now that it's post-pandemic, you'll notice that we're refocusing the company on where we were born and raised, and that's in the rare disease space. We have differentiating technologies that allow us to focus on rare diseases. If you'll look in the mRNA sector, some companies are focusing on oncology, for example. We're increasing our focus on rare disease applications, and the reason that is our technologies are differentiating, especially our delivery technology and our capabilities in manufacturing to produce a relatively pure mRNA.
These two differentiating factors in our intellectual property allow us to focus more on areas where you require repeated dosing, whether it's intravenously or inhaled applications. It really showcases our delivery technology that we call LUNAR. This is a lipid nanoparticle technology. That brings us to today, where we have an approved vaccine in Europe and Japan. However, our clinical development and value creation is focused in the rare disease space.
Hey, that's great. Why don't you talk a little bit about the ARCT-810 product for OTC deficiency, maybe set the table a little bit, and then I got some questions for you.
Great.
Tell us a little bit about that one.
Yeah. We have two programs. We have a rare liver disease called ornithine transcarbamylase deficiency that we're pursuing. This is the number one urea cycle disorder, and this field has had a lot of research directed to it over the last several decades, especially in gene editing and gene therapy. But our Arcturus is a messenger RNA therapy. It's a transient therapy, and this is a big opportunity for us, because the liver is a transient organ, it's regenerating. The lion's share of the commercial opportunity is ideally situated for this type of technology. You know, we've successfully completed multiple phase I trials and you know, multiple phase II trials in the U.S. and Europe. Now, people want to see a regulatory path to the severe disease.
This is the most significant unmet need in the space, the children that are suffering the most and have the most severe potential outcomes. Any sort of path that we can provide the market as to how we can get this drug into children and approved for the kids is gonna be value-creating for us, and that's where we are. As we're even though we've shown it's safe and well-tolerated and it's working in adults, people wanna see how when are you gonna get this exciting drug into the kids. That's a question that's being discussed in real-time in this year and in the next couple of months with the regulatory agency themselves.
That's helpful. You've emphasized pediatrics as the priority. When you sit down with the FDA, what do you believe is the minimum evidence package they would need to clear a path in severe children ages 0-6? Is a single-arm study with ammonia normalization realistic?
Oh, that's the big money question. I think it's safe to say that we have a bias at Arcturus. We definitely want to get this drug as fast as humanly possible into these kids that are dying. This is a very serious question, and we're pushing. I have nothing to report today 'cause that's where we are. We're in the middle of these Type C meetings that need to be scheduled, and the FDA gets a ton of material to review. You can have these meetings, and then there's minutes. During the discussion of these meetings, you know, you'd like to think that this is a positive development, but you need to have those minutes in writing so that we can communicate this clearly what our path is going forward.
That was a coy way of saying we're in the middle of this. It would be probably inappropriate for me to give clear granularity of what we're doing. Yeah, rest assured, we'd be interested in a relatively small trial in you know, children six and under, approximately. We would like to see a single-arm trial at some point and sooner than later. We believe we've got a great package that we've presented to the FDA because we've had multiple phase II trials in Europe and U.S., and we've shown safety and tolerability and some pretty convincing biomarker changes. We'll see, it's not for me to say whether that's enough. Of course, we're gonna present that, and we're interested to see what the FDA comes back with.
Joe, when do you think the minutes will give us clarity on the path forward?
Yeah. We said the first half of this year, and we're already in, you know, approaching the Q2 . I think it's fair to say that, you know, in the Q2 this year that we'll be able to get that feedback. It's not just getting the feedback, but internalizing it, discussing it, and then communicating it. We have a pair of Type C meetings too. It's not just about the pediatrics. Of course, this is a drug that could be fantastic for the stable adults as well, but it's a different path. The biomarker or the regulatory path is just gonna be different because it's a different patient population. One is stable and the other is not, so with the kids.
They are two different approaches that are being presented and we look forward to sharing the results of those Type C meetings in a couple of months here.
For the Type C outcome scenarios that we're discussing, investors, as you mentioned, are waiting for regulatory clarity. Can you walk through what a positive outcome from the Type C meeting looks like versus a disappointing outcome, and how each would affect your development approach and timelines?
Yeah. Oh, no, that's a great question. Well, right now, because of where we're trading, I think any clarity at all would be viewed positively. If that clear path is a shorter path to approval, then that would be even viewed more positively. We're at a place right now where we lack clarity on the regulatory path. I think any clarity would be the objective here. We just want to hear from the FDA exactly what they need to see for us to get this into the kids, and what biomarker strategy would be acceptable with the adults. Once we have that in place, I think that's value-creating. Of course, the shorter the path to approval, the more significant that value is. It's just too early to see what.
You know, you can imagine that we're presenting aggressive timelines, 'cause we care about these kids and, of course, everyone suffering with this disease. So we'll see what the FDA has to say.
If the pediatrics is the priority, where does the stable adult population fit? Is that a label expansion post pediatric approval or a parallel track?
Well, it could be a parallel track. That's one of the questions we're looking at with the FDA. It could be a parallel track, it could be sequential. There's been some success recently in the OTC deficiency field. Ultragenyx is getting close to getting marketing authorization there for stable adults with a gene therapy. That's a viral vector-delivered DNA medicine. It's different from what we're providing. Our initial commercial strategy with the adults is non-responders to the Ultragenyx therapy. Then any folks that, because the liver is a regenerating organ, if there's any patients that would like to utilize a transient therapy like mRNA, we'll be there to receive them as well.
Ultimately, we could be very successful in this field, but the initial commercial strategy will be focused on the kids. Then we'll hear back from the FDA whether we can develop this in late trials or pivotal trials for both adults and kids in parallel or if that's sequential. Our priority is the children.
Okay. How do we think about the market sizing in terms of the children versus the adults, both in terms of, you know, overall numbers and in terms of what proportion of the revenue for ARCT-810 would be generated by each of those market segments?
Well, it's definitely the most significant commercial opportunity within OTC deficiency. It's the highest unmet need, and so that usually impacts pricing. I think it's too early to give, you know, a clear direction on that. We look to analysts like yourself to pontificate and speculate.
I think it's safe to say it's a fantastic opportunity that you know, the ammonia scavenger business has always been dedicated to a proportion or a small percentage of urea cycle deficiencies and you know, Horizon's a fantastic company that was you know, a double-digit billion-dollar company built on a product like this. I think it's a very meaningful product in terms of valuation. It won't surprise me if it captures interest from many you know, companies that would like to you know, put this program into their pipeline as well. We'll see.
You mentioned Ultragenyx and their DTX-301 therapy, and you talked a little bit about competitive positioning given the different modality that you have. In terms of the non-responders that you mentioned, I know in the earlier trials there were some data. We don't have the full data set yet, but can you remind us what that non-responder patient population looks like? Is it significant? Kind of elaborate a little bit on the opportunity there in the adults.
In the adults? It's still being worked out. I definitely refer people to Ultragenyx's communications on their opportunity in stable adults. Our view is simply that a transient mRNA medicine will be applicable to the majority of people. We would like it to be available to all, frankly, because it's applicable to all genotypes, and we have, you know, shown time and time again that our lipids degrade. They're biodegradable. They're non-accumulating. So, knock on wood, but we haven't seen any significant safety concerns that would be alarming. But I think we could get the lion's share of the OTC deficiency market if this is proven successful, especially in the children.
Excellent. Let's pivot toward 032 for cystic fibrosis. You said the 12-week study that's upcoming is designed to show lung function improvement. What magnitude of FEV1 or LCI change would you consider a success, and how does the CF Foundation natural history study factor into powering a phase III?
Okay, there's a lot there. You know, last year we showed some early clinical signals. We saw mucus plug reduction at 10 mg dosing, and that was daily for 28 days. What we're starting here shortly is a 12-week trial at the same dose, 10 mg dosing, except it's extended the duration of treatment from 28 days to 12 weeks. Instead of a small trial, it's going to be targeting 20 subjects, and most of which will be Class I CF subjects. Even though we've established and shown safety and tolerability and some early signals of mucus plug reduction, Wall Street and the community and regulatory agencies like to see lung function improvements as well. There's two lung function measurements that have been utilized to get approvals in the CF space.
One is FEV. This is where you can imagine yourself forcing lung out of your. That's what FE is, it's forced expiratory volume. So you can imagine blowing into a box, into a straw type thing, where you measure how fast you can exhale, basically. That's an older technology, though. It's actually very old. Today, when CF patients visit clinics, they use more cutting-edge technology, the later technology, which is called lung clearance index. This is a different type of measurement that's also a lung function measurement. In this example, instead of blowing into a box, which can be kind of subjective depending on the mood of the patient or, you know, how aggressive they're feeling that day and how aggressive they blow into the box, right? So instead of a subjective measurement, it's passive.
This is a measurement where people inhale 100% oxygen for a period of time. They fill their lungs with 100% oxygen, and then they transition to normal air, which is about 20% oxygen, the rest is nitrogen. That time to equilibrate your lungs back to normal air, that time is measured, and it requires cycles of breathing. It's all passive. They don't even know they're being evaluated, basically. You have a mask on, and you start unknowingly that it's 100% oxygen, and then they switch it to normal air, and then they just time how long it takes to equilibrate your lungs. It's very sophisticated, very accurate. It's much more sensitive, and it tests cycle times. There's no units associated with this.
If we could cut that, you know, time by, you know, a unit or something, that would, like one unit of time, that would be great. This is what was done in pediatrics. If you just cut that time to equilibration by, you know, one cycle time, then that was approvable. We're looking at FEV. This is again changing in lung function before and after and during the treatment, we're tracking how well you can exhale volume out of your lungs, and that's FEV, and that's well understood and validated, but also LCI. What's exciting about the LCI component is it's already very clearly validated and correlates very nicely with mucus plug reduction.
Our earlier trials, we didn't in phase II, our first three cohorts, we did not look at LCI, but we saw mucus plug reduction, and it was actually surprising. The reason we were looking at CT scans was not to detect mucus plug reduction because it was only 28 days, so we weren't expecting it, but we were looking for toxicology, right? Are we getting inflammation? Just looking at the lungs. We were very pleasantly surprised to see mucus plug reduction. Why is that exciting for us? Because there is a nice correlation between mucus plug reduction and LCI, and this is detectable in especially kids. If you're ever dealing with CF patients that have minor to little changes in FEV, you can still detect a LCI. What's our objective here?
Of course, we'd like to see both FEV and LCI changes. If you happen to see just FEV or just LCI, then we have a path forward to get this approved, and that would be exciting. We're collecting both shots on goal.
As sort of a follow-on to that, with respect to LCI in adults, you mentioned you're collecting LCI along FEV1. Has FDA signaled openness to LCI as a pivotal endpoint in adults? Why might LCI be a better fit for inhaled mRNA therapeutics than FEV1?
Yeah. Well, LCI was an ideal fit for kids because only small changes are detected. Right. Children have less advanced disease. In your mind's eye, I would ask everyone listening to this is imagining a small child has small mucus plugs. It makes sense, right? They don't have as advanced disease as these adults. When you've treated these diseases that respond to modulators, you'll see these small mucus plugs go away. Although you don't see FEV improvements, you do see LCI improvements, you know, 1-2 units of improvement. That was approvable. Why is this exciting for us in adults? Unlike the modulators, this is where it gets a little complicated, but hopefully people listening will understand what I'm saying.
Unlike the modulators, which are systemically delivered, meaning you take these pills, the modulators, and they go to all the lung cells at the same time, that is not our therapeutic. Our therapeutic is inhaled, it's topically delivered, and there's only so much of the disease that's available to see the drug. So you're only correcting it. It's like you're peeling away a diseased onion, and it's one small bit at a time. Because we're dealing in small bits, that's ideal for LCI. Interestingly, that's what we saw with our data that we've collected too, is that we saw, you know, mucus plug reduction. We just don't know how well that correlates with LCI yet. That's the purpose of this study that we're going into.
With respect to duration versus dose, you saw mucus clearance at 10 milligrams over 28 days.
Yes.
Is the 12-week study designed to test whether duration of exposure drives FEV1 improvement? At what point would you consider escalating to the 15-milligram dose, which is an option for you?
Yeah. No, I've been in the business for, and you have as well, for many decades. I've worked at a lot of companies, big and small. What I've learned over and over again in my career is that there's drugs out there that are dose responsive, and there's drugs out there that are duration responsive. The drug that Arcturus is developing is you would theoretically expect to be duration responsive because it's inhaled, it's topical, and you're peeling away an onion. Of course, the longer you're peeling away this diseased onion, you're healing the lung one layer at a time, you would think that this is a duration responsive drug. We think that we've identified the appropriate dose, 10 milligrams, daily.
The key question we're asking is, by extending this treatment to 12 weeks, will this be meaningful? You know, we think it sure could be, but we got to prove it. In terms of the dose response, you mentioned that we do have flexibility to increase dose if we'd like to. It's just all the theory right now in our collective data that we've been working on this program a long time in animals and humans, we think that this is really a question of duration. All the previous failures, just so you know, Adam, and everyone who's listening here, you know, three decades of failures for inhaled drugs have always been safety and tolerability.
Right. Right.
We're now dosing at 10,000 micrograms daily. Our vaccine that's approved is five micrograms once a year. The CF product is 10,000 micrograms daily. Why we're at these levels is attributed again to the differentiating technologies that we have at Arcturus, the lipid nanoparticle tech and also our purification capability to have, you know, these impurities in manufacturing can cause undesired immune responses. We've addressed that concern considerably with our technology and our know-how on manufacturing too. These are the key issues.
Beyond Class I, you've mentioned modulator non-responders and incomplete responders as potentially addressable. How do you think about the broader franchise opportunity once you have proof of concept?
One of the massive benefits of this, you know, mRNA therapeutic is it's not only beneficial to those that have Class I CF, but it could be beneficial to essentially everyone in the CF community. Just to explain that further, Class I CF subjects do not have any CFTR protein in their lungs, so they're called nulls or N-U-L-L, null for the CFTR. There's nothing there to modulate, so they do not have access to these amazing modulator drugs in the CF space. They're the first group to focus on because that's where the most unmet medical need is. Remember, we are in the business of not modulating. We're in the business of building a brand new CFTR that's different.
Now if you're someone who's on modulators, why not get a brand new CFTR? Why are you getting a modulated CFTR? I think it's only a matter of time before everyone will appreciate if it's successful in Class I subjects. I think the entire community will want a brand new CFTR in their lungs, and to figure out what that feels like, you know, instead of driving around a fixed up modulated
Makes sense.
Broken CFTR. Yeah.
Makes a lot of sense. In terms of your capital needs, I believe you've disclosed that your runway extends into the Q2 of 2028, excluding milestones. If both programs enter pivotal trials, when would you anticipate needing additional capital? How are you thinking about timing relative to catalysts?
Well, that's a great question. Arcturus hasn't raised capital for several years. We do have a platform technology that is monetizable through business development. We've done this in the you know with liver therapeutics and gene editing and different small deals, and we did a big vaccine deal with CSL. We often will consider doing additional business development to bring in non-dilutive monies. We do have a product that's approved in 31 countries, the COVID vaccine. We'll see what kind of legs and capabilities that will have to bring in non-dilutive monies. In terms of the financing capability, right now we have the runway to get significant value creation in both of these programs.
I think it's safe to say we don't have enough money to take both of these programs all the way to completion and through a phase III trial. We'll have to think strategically at some point. It's too early to guide when we'll, you know, need to look at that more aggressively.
Well, Joe, thank you so much for coming to the ROTH Conference. Really appreciate it. That's a great story, and we'll be following with interest. Thank you.
Thanks, Adam.