Axcella Health Inc. (NASDAQ:AXLA) Q4 2021 Earnings Conference Call March 30, 2022 8:30 AM ET
Company Participants
Jason Fredette – Vice President, Investor Relations and Corporate Communications
Bill Hinshaw – President and Chief Executive Officer
Bob Crane – Chief Financial Officer
Margaret Koziel – Chief Medical Officer
Conference Call Participants
Ed Arce – H.C. Wainwright & Company
Thomas Smith – SVB Leerink
Daniel Wolle – JPMorgan
Robert LeBoyer – Noble Capital Markets
Operator
Good morning, ladies and gentlemen and welcome to Axcella’s Fourth Quarter and Year End 2021 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] And now for opening remarks, I would now like to hand the call over to Jason Fredette, Vice President of Investor Relations and Corporate Communications at Axcella. Please go ahead, sir.
Jason Fredette
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 and 1665 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 and our 10-K which we plan to file later today. These filings can be accessed on our website axcellatx.com or on the SEC’s website. All forward-looking statements represent our views as of today, March 30, 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, Jason and good morning, everyone. It’s a pleasure to be speaking with you again. Today, I plan to briefly recap what was the year of foundation lane and strong execution in 2021. I will then preview what we expect will be a transformative 2022 as we approach important clinical data readouts and other key milestones that are now on the near-term horizon. Following my opening remarks, our Chief Medical Officer, Dr. Margaret Koziel will share details about our ongoing Phase 2 trials in Long-COVID, non-alcoholic steatohepatitis or NASH, and overt hepatic encephalopathy or OHE. Our new Chief Financial Officer, Bob Crane, will then update you on the financials before opening the call to your questions.
We began 2021 with several aggressive goals as we continued our mission to tackle a range of complex diseases by capitalizing fully on the therapeutic potential of endogenous metabolic modulators, or EMMs. Our goal is included, first, to gain clearance from the FDA on our very first investigational new drug or IND filings. Following this, we sought to launch global clinical trials in both NASH and OHE. We are also intent on expanding our pipeline by leveraging key learnings on the research side of our business and emerging science. Thanks to the enormous efforts on the parts of our excellence, we achieved each of these goals. In early 2021, we were able to get the INDs cleared for both AXA1125 and AXA1665. Shortly thereafter, we launched EMMPACT, our global Phase 2b in NASH and EMMPOWER, our global Phase 2 clinical trial in OHE.
Now, as we were preparing to get these trials in motion, a core team within Axcella was focusing increasingly on a couple of key datasets that were emerging from the COVID pandemic. The first was the rapid increase in the number of Long-COVID cases that were being reported globally. And the second was the implication of mitochondrial dysfunction as one of the likely drivers of the condition. As most of you know, Long-COVID, also known as post-acute sequela of SARS COVID-2 infection or PAS, is a condition in which patients experience a broad range of symptoms for weeks, months and now literally, years after their infection with COVID. Research has shown that Long-COVID can be experienced regardless of vaccination, variants or severity of the acute viral infection. Overall, while estimates vary from publication to publication, we believe that 20% to 30% of patients who can track COVID go on to experience at least some Long-COVID symptoms.
If you simply apply these numbers to all of the confirmed cases to date, this equates to a Long-COVID population in the range of 17 million to 25 million people in the U.S. alone. And we are just now reaching the timeframe where those who contracted Omicron would be considered to have Long-COVID, 12 weeks post infection. Now, while there are literally dozens of Long-COVID symptoms, the most common is fatigue. In fact, this symptom is experienced by a majority of Long-COVID patients. Those impacted often describe the condition as crushing. So crushing in fact that many aren’t able to return to work or effectively care for their children.
It has been known for years that viruses trigger a cellular hijacking and a cascade of effects on the mitochondria, which is the powerhouse of our cells. SARS COVID-2 like other viruses, can switch to fuel source within our cells to inefficient glycolysis as it seeks to replicate. This, in turn, compromises bioenergetics, increases oxidative stress and inflammation and can impair the immune response. Most of the people who contract viruses recover from this cascade quickly and naturally. What is distinct about COVID is the number of people who have persistent symptoms, like long-standing debilitating fatigue. These individuals literally have no treatment options today.
We believe that 1125 has the potential to offer a real difference by essentially recharging the mitochondria. This belief stems both from our preclinical and our clinical work. Preclinically, we’ve seen 1125 ability to boost fatty acid oxidation and basal respiration in a statistically significant and dose-dependent manner. We have also seen its ability to shift the mitochondria back from an inefficient energy generating state to an efficient energy state.
These are some of the key mechanisms that underlie the strength of our data from two prior clinical studies of 1125 in subjects with presumed NASH, where we have seen marked reductions in key markers of liver fat, inflammation and fibrosis. With the emerging Long-COVID findings and our past data in hand, we rapidly prepared for and successfully launched a Phase 2a clinical trial of 1125 in late 2021, with the University of Oxford in the UK, a world leader in Long-COVID research and care to help patients with Long-COVID fatigue and muscle weakness.
All of these efforts set us up for what we expect will be a momentous 2022. We are expecting to complete enrollment in our Phase 2a Long-COVID trial in the second quarter of ‘22, setting us up for top line data readout in Q3. Seeing all goes well, we will seek an end of Phase 2 meeting with the FDA later in the year to discuss our plans to move as expeditiously as possible towards registration. A successful Phase 2a would also serve as a strong mitochondrial proof of concept for 1125, which could provide opportunity to address a range of other diseases that we will start considering in the back half of the year.
Following our Phase 2a readout, we also plan to share 24-week interim data from our EMMPACT Phase 2b trial in NASH in the third quarter of this year. This will be the most robust data set we’ve generated to date for 1125 and will be progressive on our past 12 and 16-week readouts from prior studies. We also plan to complete enrollment in EMMPACT in the second half of 2022, setting us up for a 2023 top line data readout. We were happy to report that at the start of the year, 1125 has received FDA Fast Track Designation for the treatment of NASH with liver fibrosis. This is useful as we prepare for our next set of regulatory discussions and a potential registration trial.
And finally, in OHE, we plan to provide an update on enrollment in our EMMPOWER trial later this year. The team here at Axcella is well prepared to continue its strong track record of execution, and we’re thankful to have a strong leadership team to advance our COGS. That starts with our Board, which currently includes nine directors with a broad and deep range of experiences. At our upcoming annual meeting, two of our longer-tenured directors, Gregory Behar and Stephen Hoge will be stepping down from the Board. We would like to thank them for all the wisdom and guidance that they have provided to the company in the years past. Our Nominating and Governance Committee has already identified a number of candidates with fresh and well-rounded experience, and we expect to nominate at least one of these candidates at our annual meeting in May.
We’ve also added a couple of new members of our executive committee in recent months to maintain our strong track record. Our new Chief Medical Officer, Dr. Margaret Koziel and our new Chief Financial Officer, Bob Crane. Margaret joined Axcella in 2019 and has been instrumental in our clinical group success ever since. She has a wealth of experience in both biopharma and academia and is the right leader to guide us through late-stage development.
Bob is a more recent addition having joined Axcella in February. He brings to us 30 years plus of experience, building and financing life sciences companies. Let me invite Margaret to provide a description of each of the trials we have in motion, before Bob fill you in on the financials. Margaret?
Margaret Koziel
Thanks very much, Bill. So let me share a little further background on the three trials that we have in motion here at Axcella. Let’s start with the one that we’ll be reading out first, our Phase 2a trial in Long-COVID. 40 subjects with Long-COVID fatigue and muscle weakness are being enrolled in this trial and are receiving either AXA1125 or placebo for 28 days. The single center study is enrolling very well at the University of Oxford of the United Kingdom. Oxford was specifically chosen for two key reasons. First, it is one of the premier Long-COVID research centers in the world. And second, the researchers we’re working with are world-leading experts in the measurement of mitochondrial function and muscle health.
As Bill said, we are seeking to restore mitochondrial function with 1125. Gauge its effect, we are using a magnetic resonance-based technique, which is the phosphocreatine recovery time. PCR is a very quantitative and precise measure of our ability to improve mitochondrial function. You can think the PCR like the battery health indicator in your smartphone. The more damage the battery is, the longer it takes to recharge. In normal healthy adults, it takes about 25 seconds for PCR to recharge. In order to meet our inclusion criteria, subjects in this trial must have a PCR recovery time of at least 50 seconds, so at least double the norm.
We are also looking at a range of other measures in the trial, including blood-based markers like lactate, which is an easily accessible common measure of how well muscles are functioning. Additionally, we are monitoring functional measures like the 6-minute walk and fatigue scores to help inform our next trial. As background, PCR recovery time has been correlated to the 6-minute walk and certain other diseases and conditions. To be clear about this Phase 2a readout, what we are hoping to achieve is a statistically significant improvement in the PCR recovery time and a positive trend in other measures. This would be a big win in the short-term trial. We look forward to sharing news of enrollment completion and our top line data in the months ahead.
Now, to our EMMPACT Phase 2b trial in NASH. NASH, of course, is the most serious form of fatty liver disease and it’s also among the most prevalent, impacting up to 40 million people in the U.S. alone. Despite this, there are no approved NASH medications today. We and many others in the medical field believe that addressing the needs of this large heterogeneous population will require a combination therapy approach. At the same time, given the chronic nature of this disease, potential short and long-term safety risks must be taken into account.
Consisting of five amino acids and a derivative, 1125 is a combination therapy in and of itself. Given its multi-targeted mechanism and multifactorial activity, its oral route of administration and its safety and tolerability to date, we believe EMMPACT could firmly establish 1125 as an ideal first-line NASH candidate. This belief is backed by feedback that we have received directly from investigators regarding our modality and our clinical data to date.
EMMPACT will include approximately 270 subjects with biopsy confirmed F2 or F3 NASH, who will receive one of two doses of 1125 or placebo for 48 weeks. We have activated nearly 60 sites globally and enrollment is progressing well. The primary endpoint in the trial is the proportion of subjects achieving a biopsy-confirmed two-point improvement in the NASH score, with secondary endpoints focusing on NASH resolution and a one stage or greater improvement in fibrosis. We will also examine a whole host of noninvasive biomarkers such as MRI-PDFF, ALT and Fibroscan, which will further inform our development program and will serve as the basis for the 24-week interim analysis in Q3 that Bill touched on.
Now, let’s turn to over hepatic encephalopathy or OHE and our EMMPOWER trial. OHE is a rare but devastating state, a pocket of dysfunction that stems from cirrhosis. These events can result in the inability of patients to care for themselves and can ultimately lead to death. Many of these same patients experienced sarcopenia or muscle wasting that severely reduces their quality of life. While there are only two approved OHE medications in the market today, they focus on only one of the drivers of the conditions, namely ammonia removal and do not address muscle wasting, which is a completely unmet need.
1665 seeks to address these shortcomings with a multi-targeted mechanism, oral roots of administration and an endogenous approach. Our EMMPOWER Phase 2 trial is enrolling 150 subjects who have experienced at least one prior OHE event, with each receiving either 1665 or placebo for a 24-week treatment duration. The primary endpoint is the proportion of subjects who achieve at least a two-point improvement in the psychometric hepatic encephalopathy score, or PHES, which is a well-validated measure of neurocognitive function in cirrhotic patients.
Secondary endpoints include the proportion of subjects experienced in OHE breakthrough event, time to first OHE breakthrough events, including time to hospitalization, changes in physical function and patient reported outcomes. We initiated enrollment in mid-2021 and earlier this year, we implemented certain changes to ease the inclusion and exclusion criteria while still maintaining a homogeneous well-controlled patient population. We’re now monitoring the success of these efforts and plan to provide an enrollment update later this year. So as you might surmise, these are very busy and exciting times here at Axcella as we gear up for the readouts ahead.
With that, let me turn the call over to our new CFO, Bob Crane, to provide an update on the financials.
Bob Crane
Thank you, Margaret, and good morning, everyone. First, I want to say how very pleased I am to have joined the company about 6 weeks ago. As I was considering a new opportunity, my ideal vision was to find a platform company that had the potential to address patient needs and with multiple programs in the clinic. One that was guided by a strong, experienced management team and board, and one that has the opportunity for tremendous value creation, both in the near-term and long-term. Axcella fit all of those criteria and with the closing of our recent registered direct offering, we’re even better positioned to execute our plans for 2022.
Turning to the financials, we ended 2021 with approximately $55 million in cash and marketable securities, which compares to $107 million as of the end of 2020. As I just touched on, we recently closed a registered direct offering that yielded $25 million in gross proceeds, which has helped 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 $12.5 million and $43.1 million for the 3 and 12 months ended December 31, 2021. This compares to $10.6 million and $37 million for the comparable periods of 2020, with the year-over-year increase primarily related to the initiation of our Long-COVID, EMMPACT and EMMPOWER clinical trials. General and administrative expenses were $4.7 million and $18.7 million for the 3 and 12 months ended December 31, 2021. This compares to $3.9 million and $16.8 million for the same period of 2020. These increases are primarily the result of greater non-cash-based compensation and benefit-related costs.
Axcella’s net loss for the quarter and year ended December 31, 2021 was $17.9 million or $0.46 per share and $64.6 million or $1.70 per share, respectively. Our net loss for the fourth quarter and year ended December 31, 2020 was $15.2 million or $0.40 a share and $56.5 million or $1.78 per share.
That concludes our formal remarks. Now, operator, would you please open the line for questions.
Question-and-Answer Session
Operator
[Operator Instructions] The first question comes from Ed Arce with H.C. Wainwright & Company. Please go ahead.
Ed Arce
Hello, good morning. Thanks for taking my questions and congrats on continued progress. Wanted to ask about the Long-COVID trial, I think as you are approaching the initial readout, as you mentioned PCr later this year. Wondering if you could – and this question is directed to Margaret. Just any sense for how the progression of the trial is going? I would imagine that you have regular interaction with the investigators there in Oxford. And any sense for evolving or changes to the patients as additional variants of COVID emerge? And then I have a follow-up.
Margaret Koziel
Thanks, and good morning, Ed. We have had a fantastic partnership with Oxford. We have continued to enroll well into the study. As Bill had said, we anticipate releasing those results in the third quarter that will be our first readout coming up. To-date, we have not seen any impact of the variants in terms of the subject disposition or their presenting features. Again, most of these individuals have had symptoms for prolonged periods of time, and that’s why they are particularly interested in this trial. As you know, Omicron has really only been on us since December, so at least in the United States and UK, it was a bit earlier. So, we are just going to see the beginning of the impact of Omicron. As Bill also said, we anticipate that the numbers of Long-COVID will go up from here because of the large numbers of individuals who had COVID during this past winter surge.
Ed Arce
Right. And then as a follow-up, Margaret, the primary endpoint, as you mentioned, is the PCr, and you had stated that you are looking for statistical significant improvement in that, but only positive trends in some of the other measures, important measures that would help inform future development. I am wondering if you could discuss further that perspective in light of the relatively short treatment period and other factors that may go into that expectation.
Margaret Koziel
Sure. Thank you. So, in designing the trial, we wanted an early and precise readout in terms of the mitochondrial function. And we believe that based on some of our other data generated to-date, that we would be able to see that signal within a short period of time. So, we did discuss the issue about how long it might take to see an improvement in 6-minute walk, and that’s why, as you appropriately know, we are looking for trends. We are looking for directional signals that move in concordance with the primary endpoint, which is a precise measure of mitochondrial function. So, looking for trends, looking for trends in improvement in 6-minute walk and in the patient-reported outcome of fatigue, which is the symptom that we are studying.
Ed Arce
Right. Okay. And one last one. And this is for your OHE study. As you noted, there has been a little bit of amendments to the inclusion/exclusion criteria to perhaps, allow for a little bit easier enrollment there. I am wondering if you could give us some detail on exactly what was eased and if that would affect any other parts of design of the study.
Margaret Koziel
Sure. Thank you. Thanks for asking that question. So, what we did really was to minimize the burden on investigators. I will give you the biggest change and the most concrete one was about the documentation of prior overt hepatic encephalopathy or OHE. So, we required this to be within the previous 24 weeks, and the investigators were noting that while they were having individuals come in with clear-cut histories of OHE, they were simply unable to obtain that documentation. I think you may know the medical system has been under a little stress recently, and it has been difficult to just get paperwork from other facilities. So, that’s the kind of change that we made. Again, it’s really aimed at decreasing the burden on investigators as they enroll subjects into this trial, remembering that OHE of itself is a rare condition. So, those are – that’s just an example of some of the changes we made.
Ed Arce
Great. That’s very helpful. Thank you, Margaret.
Operator
The next question comes from Thomas Smith with SVB Leerink. Please go ahead.
Thomas Smith
Hi guys. Good morning. Thanks for taking the questions. A couple on our end, first, on Long-COVID, looking forward to the data this year, can you just talk a little bit about some of the regulatory activities that you are tackling in the backgrounds as you think about trying to expand the scope of this program beyond the University of Oxford? And then on the Phase 2b NASH study, can you talk a little bit more about how enrollment is going there? I know we have heard from some other companies enrolling these paired biopsy studies that they have seen some slowdowns. And so just wondering what steps you are taking to make sure you are on track to complete enrollment here in the second half? Thanks.
Bill Hinshaw
Yes. So, good morning Tom, and I appreciate the questions here. In terms of Long-COVID, yes, we are very excited for closing enrollment and then the data. In terms of regulatory activities, as you are familiar, we had an excellent interaction with the MHRA, which allowed us to open the trial quickly. And we are set up for end of Phase 2 discussions with the MHRA and the FDA. We will then be having robust discussions about the best way to move that program forward as expeditiously as possible. And given the high unmet medical need, the profile of the product that we have, the amount of data that we have there, we anticipate that, that will be a very engaged discussion to support us in that effort. So, Margaret, maybe comment on the EMMPACT study and the enrollment there.
Margaret Koziel
Yes. Good morning Tom. So, yes, it’s going very well. Again, we have had good engagements. Yes, enrollment into these paired liver biopsy studies is always challenging, but we continue to make good progress. We continue to help the investigators by providing the latest information about how to minimize the screen failure rate, which is always challenging in these trials. And clinical characteristics, whether that comes from our own data or data reported in the literature, we are continually providing feedback to those investigators about we do that, just makes it efficient for everybody to move on. But we haven’t really seen significant slowdowns in terms of the pace of enrollment over the last couple of months.
Thomas Smith
Okay. Great. Yes, appreciate the color. And congrats guys on the progress. Looking forward to the data.
Operator
[Operator Instructions] The next question comes from Daniel Wolle with JPMorgan. Please go ahead.
Daniel Wolle
Good morning everyone. Thanks for taking our question. In your prepared remarks, you have commented that the study site is enrolling very well for the Long-COVID study. So, what is driving the timeline for a data readout to 3Q when considering the number of available patients, as well as the 28-day study?
Bill Hinshaw
Yes. So, good morning Daniel, thanks for the question. A couple of pieces here. So, one is, as you noted, there is the actual enrollment period and dosing period. Then there is the data collection, preparation and then communication of this. Now, one of the other aspects that we have in this particular study, well, I would say it’s two aspects. One is we are doing the very precise measure of PCr MRS, which does require sophisticated MRI machine and access to that. The other piece is Margaret and the team worked with Oxford about these patients because they are quite fatigued, that is their baseline. And so enabling and supporting their progress through the study is where we find measuring that appropriately. So, from that standpoint, we are on track, we are doing well and we anticipate being able to share the data in the third quarter and communicate it at that point. We are very excited for the results of what it means for this program, as well as for other areas of mitochondrial disease or post viral infection.
Daniel Wolle
Got it. And then regarding the primary endpoint, you mentioned still significant difference in recovery time. Is there a specific proportion of patients expected to have their PCr recovery time within the normal 24 plus or minus 5 seconds for you to consider advancing the product into late-stage development?
Bill Hinshaw
Margaret?
Margaret Koziel
Yes. Thanks for that question. No, we – I understand the question in terms of whether we will normalize mitochondrial function. Again, going back to the comment I made earlier, we wanted to make this trial relatively small and precise. And so we powered it around the change in the endpoint as opposed to absolute normalization. I think in all honesty, again, we didn’t want to continue this trial for a long period of time. And so we didn’t want to continue to treat people until we saw that benchmark. Again, what we are really trying to do here is do we impact mitochondrial function and does the measure that we have correlate with functional measures as opposed to seeing a normalization around that MRS signal.
Bill Hinshaw
Yes, Daniel. I will build on that and say this is exactly as Margaret outlined a clear study to demonstrate the mechanism and the direction of the impact in a statistical fashion. Then, what we will be working with, and this bridges a little bit to one of Ed’s questions as well, there is obviously a large and growing body of evidence out there for the Long-COVID patients in terms of their baseline where they start and the opportunity to move them towards normal and then hopefully, return a number of them to normal. The timing of that is what we will then be working on in determining in the next steps.
Daniel Wolle
Okay. Got it. And one last financial question. Does the cash runway guidance take into account the recent $25 million equity raise? Thank you.
Bob Crane
Yes, it does. So, the – with the cash at year-end of $55 million, plus the $25 million that we raised with the registered direct, we have sufficient funds to get us into 2023.
Daniel Wolle
Okay. Great. Thank you very much.
Bill Hinshaw
Thank you.
Operator
[Operator Instructions] The next question comes from Robert LeBoyer with Noble Capital Markets. Please go ahead.
Robert LeBoyer
Good morning, just a question about the FDA and their current priorities in terms of COVID and Long-COVID, since we have seen a change over the last year from approvals based on emergency use to shifting towards full trials and Long-COVID being a recent development. Is there any details or anything you can discuss about the FDA’s priorities on Long-COVID? How they are defining it, or what kind of requirements or approval that would be since this is such an emerging condition?
Bill Hinshaw
Yes. Robert, good morning, thanks for the question. So, in general, we don’t speak in detail about our interactions with the regulatory authorities. What I can share with you is that the FDA and other health authorities around the world have obviously been exceptionally responsive to dealing with the pandemic, working collaboratively with the companies while maintaining a high standard quality. In the case of the focus, obviously, the mortality, morbidity associated with acute infection led to prioritization of the vaccination and acute treatments. We have had excellent interactions with the MHRA in our initial discussions and we see focus and energy expanding to include Long-COVID at this point in time. And that’s because of the size of the population you heard in our remarks. We are talking, now, getting close to 0.5 billion confirmed infections around the world, which translates into Long-COVID numbers estimated 17 million, 25 million in the U.S. already. And so the needs there are evolving. As we have outlined in the past, you have a clear physiological mechanism measure in the PCr. We have functional measures, which will clearly be an important part of Long-COVID approval in terms of fatigue score, 6-minute walk, and those have regulatory precedent across a number of diseases. So, we feel we will have a very constructive end of Phase 2 conversation post the data with the FDA and other regulators. And I am sure you have seen the continued growth in stories and energy around Long-COVID. It is a huge issue that people are looking to deal with, and we are excited to be able to help support that effort.
Robert LeBoyer
Okay. Great. Thank you for taking the question.
Operator
This concludes our question-and-answer session. I would like to turn the conference back over to CEO, Bill Hinshaw, for any closing remarks.
Bill Hinshaw
So, thank you, operator, and thanks to everyone who tuned in today. We are energized by the opportunity to help address the substantial needs that people with Long-COVID, NASH and OHE are facing today. And we are looking forward to our upcoming data readouts and other key milestones we expect will help drive value for our shareholders. We look forward to speaking with you again in the soon, in the future. That concludes our call, operator. Thanks. Everyone, have a great day.
Operator
The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
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