Axcella Health Inc. (NASDAQ:AXLA) Q3 2022 Earnings Conference Call November 1, 2022 8:30 AM ET
Company Participants
Bill Hinshaw – President & CEO
Bob Crane – CFO
Margaret Koziel – CMO
Conference Call Participants
Thomas Yip – H.C. Wainwright
Operator
Good morning, ladies and gentlemen, and welcome to Axcella’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. [Operator Instructions]
Now, for opening remarks, I would now like to hand the call over to Bob Crane, Chief Financial Officer at Axcella. Please go ahead, sir.
Bob Crane
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 AXA1125, 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, axcellatx.com, or on the SEC website. All forward-looking statements represent our views as of today, November 1, 2022, and 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?
Bill Hinshaw
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 Axcella, 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 AXA1125, and strengthened our balance sheet with a new financing. Now, on August 2, we announced positive topline results from our Phase 2a study of AXA1125 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, just 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 AXA1125 to offer treatment options to seriously ill long COVID patients who previously had none.
Now, we found that subjects who received AXA1125 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 CFQ-11 versus placebo, were a minus 4.30 with a P value of 0.0039, minus 2.94 with a P value of 0.00 or 0.0097, and minus 1.32 with a P value of 0.0097, respectively. Now, 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 AXA1125. And on September 29, we reported results of a pre-planned interim analysis of data from our Phase 2b trial of AXA1125 in the treatment of Non-Alcoholic Steatohepatitis or NASH. Now, 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 US, including approximately 10% of US 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 AXA1125 administration on selected outcome measures after 12 and 24 weeks of treatment. The findings were extremely encouraging. At 24 weeks, there was statistically significant improvements in the liver stiffness measurement, or LSM, compared to placebo for the subjects in the high-dose arm. Absolute changes in LSM were 0.13 minus 2.01 for P value of 0.0992, compared to placebo, and minus 4.07 kilo pascals 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 FIB four. 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 some, these findings indicate that administration of AXA1124 – excuse me, 25, over 24 weeks, leads to statistically significant improvements compared to placebo and biomarkers for metabolism, inflammation, and fibrosis. And consistent with prior clinical trials, Type 2 diabetics showed results comparable to non-diabetics. Now, in addition, and consistent with all previous results, AXA1125 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 AXA1125 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 Axcella, 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 incurring gene 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. Now, 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 Straight Nissen, 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. Straight Nissen, 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 focus 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?
Bob Crane
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 EMMPACT clinical trials. General and administrative expenses were $3.9 million and $12.3 million for the quarter and nine months ended 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.
Axcella’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 $58.2 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 $0.41 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?
Bill Hinshaw
Right. Thank you, Bob. And Operator, at this point in time, we’ll move over to questions from the attendees.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question is from Thomas Smith of SVB Securities. Please go ahead.
Unidentified Analyst
Good morning, this is (indiscernible) on for Tom Smith. Congrats on the progress in the recorder. We have a few questions. First, could you provide additional color on the regulatory interactions regarding 1125 in long COVID, and when can we expect more details on the (indiscernible) and regulatory path? And have a follow up.
Bill Hinshaw
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 government, as they understand how important an issue long COVID is.
Unidentified Analyst
Got it. And what’s the progress on the enrollment of the Phase 2b EMMPACT study in NASH? Do you expect enrollment completion by year end ‘22?
Bill Hinshaw
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 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.
Unidentified Analyst
Got it. And okay, last question and I’ll hop back on the queue. So, what’s your strategy to alleviate the financing overhang in 2023?
Bill Hinshaw
So, Bob?
Bob Crane
Yes. thank you. So, we are – as you know, we’ve recently raised in the register direct, $34.2 million. And as we’ve 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.
Unidentified Analyst
Got it. Thank you so much and congrats on the progress.
Operator
Thank you very much. The next question is from Ed Arce of H.C. Wainwright.
Thomas Yip
Hi. Good morning. This is Thomas Yip asking a couple of questions for Ed. Thank you very much for taking the questions. First question, can you discuss current thoughts on primary endpoint for long COVID Phase 3 study or registrational study, whether it includes any endpoints from the Phase 2a specifically the fatigue question here or the six-minute walk test?
Bill Hinshaw
So, good morning, Thomas. We’ll have Margaret, our CMO, answer that question. So, Margaret,
Margaret Koziel
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 that is – 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 walk as 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 3.
Bill Hinshaw
Yes, 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.
Thomas Yip
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 any – both US and ex-US as well?
Bill Hinshaw
Yes. 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 US and the UK, where we obviously already have work ongoing, and as you know, we have a global Phase 2b in NASH. So, we’ve demonstrated our ability to execute on that scale.
Thomas Yip
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 a opportunity in the Type 2 diabetes subpopulation in the NASH space for 1125?
Bill Hinshaw
Yes. 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 on the trial, and that’s encouraging for us already. And as you know, this is an interim analysis, with 30% of the patient 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 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 asset.
Thomas Yip
Got it. Thank you again for taking questions and looking forward to progress on both programs.
Operator
Thank you very much. [Operator instructions]. We have no further questions, and would like to turn the call back to Mr. Hinshaw for some closing remarks.
Bill Hinshaw
Okay. Thank you, operator, and thanks 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.
Operator
Thank you very much, sir. Ladies and gentlemen, that concludes today’s conference. You may all disconnect your lines at this time. Thank you for your participation.
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