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Presentation

Aclaris Therapeutics, Inc. beats earnings expectations. Reported EPS is $-0.4, expectations were $-0.44.

Operator: Good day and thank you for standing by. Welcome to Aclaris Therapeutics First Quarter 2023 Conference Call. At this time, all participants are in a listen-only mode. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Robert Doody, Head of Investor Relations. Please go ahead.

Robert Doody: Thank you. I am Robert Doody, Head of Investor Relations for Aclaris. Please note that earlier today, we issued a press release highlighting our first quarter 2023 financial results and other business matters. For those of you who have not yet seen it, you will find the press release posted under the press releases page of the Investors section of our website www.aclaristx.com. In addition, we will be referring to a slide deck entitled Q1 2023 investor conference call, which can be found on the Investor page of our corporate website and furnished as an exhibit to our Form 8-K that we filed with the SEC earlier this morning. Joining me today for the call are Doug Manion, our Chief Executive Officer; Gail Cawkwell, our Chief Medical Officer; Joe Monahan, our Chief Scientific Officer; and Kevin Balthaser,, our Chief Financial Officer.

Before we begin our prepared remarks, I would like to remind you that various statements we make during this call about the company’s future results of operations and financial position, business strategy and plans and objectives for Aclaris’ future operations, are considered forward-looking statements within the meaning of federal securities laws. Our forward-looking statements are based upon current expectations that involve risks, changes in circumstances, assumptions and uncertainties that could cause actual results to differ materially from those reflected in such statements. These risks are described in the Risk Factors section of Aclaris’ Form 10-K for the year ended December 31st, 2022 and other filings Aclaris makes with the SEC from time to time.

These documents are available under the SEC filings page of the Investors section of the Aclaris’ website www.aclaristx.com. All the information we provide on this conference call is provided as of today and we undertake no obligation to update any forward-looking statements we may make on this call on the account of new information, future events or otherwise. Please be advised that today’s call is being recorded and webcast. A link to the webcast can be accessed under the Events page of the investor section of our website. I’ll now turn the call over to Doug.

Douglas Manion: Thanks, Bob. Good morning, everyone. I hope you had a great weekend. It is my distinct honor to be speaking with you today, following not only my first quarter as CEO, but also the first quarter of operations for our new leadership team. For those who may be newer to the Aclaris Therapeutics story, we were originally founded as a specialty pharma company focused on dermatologic conditions. It is a great credit to my predecessors that a few years ago the company made the decision to acquire Confluence Life Sciences based in Saint Louis. The addition of this world class discovery group focused on the human genome, allowed Aclaris to pivot its focus on research and development efforts towards addressing areas of serious unmet need in immune-inflammatory diseases with oral or tissue specific agents.

As evidenced by a number of recent significant transactions in the INI space, including Pfizer’s acquisition of Arena, Takeda’s acquisition of the Nimbus TYK2 program and Merck’s acquisition of Prometheus. There is tremendous opportunity for significant creation of shareholder value in this space, and we find ourselves in the enviable position of having several key clinical stage assets targeting these potential diseases led by our potential first-in-class MK2 inhibitors zunsemetinib or ATI-450. If you could direct your attention to slide three in the slide presentation, we can discuss the agenda for our call today. We’re very pleased to be speaking with you today to provide an overview of our first quarter financial results, as well as an update of our timing and plans for the remainder of the year.

I’ll begin by providing a few opening remarks on the company’s performance to date for the year, and then we’ll turn the call over to Gail, who will provide updates on all of our progress across the clinical development programs. Following that update, Gail and Joe will provide an overview of the final results from the trial in hidradenitis suppurativa or HS, for which we reported top line results back in March. Kevin will then provide an overview of our financial results for the period. And finally, I’ll provide some closing comments prior to opening up the call to address your questions. Overall, I’m very pleased with the performance of our company through this first quarter of 2023. Our team is making tremendous progress, advancing all of our various clinical development programs, which is a testament to our team as we are a relatively small company in terms of size and overhead.

I also remain impressed with their team’s ability to continue to execute global clinical trials in a challenging macro environment that is continually taxed by economic downturn, choked supply chains and global conflicts. Despite all these headwinds, our team is continuing to prosecute these studies and demonstrating creativity and flexibility in the face of hurdles when they arise. And for that, I could not be more proud. During the first quarter this year, we completed and reported the top line results of our Phase 2a trial of ATI-450 in HS. Although we were disappointed that the efficacy results were not what we had hoped for in this challenging and still relatively misunderstood disease, our team delivered on time a well-executed trial.

Importantly, this trial further expanded our experience and understanding of ATI-450. The completion of this study has further demonstrated the foundation for the program from both a safety and pharmacodynamic perspective. Going into our next data readouts in rheumatoid arthritis and psoriatic arthritis. As a reminder, our company already had positive proof-of-concept data in array from a prior Phase 2a trial. Shortly, Gail and Joe will be providing more details on the final results of the trial, with a focus on how they inform our continued execution of the rest of the ATI-450 program. With that, I’m now going to turn the call over to Gail to begin the discussion on clinical development progress. Gail?

Gail Cawkwell: Thank you, Doug, and good morning, everybody. I also want to take a moment to commend the Aclaris team on their execution of the hidradenitis suppurativa trial, but also on the tremendous work they’ve done in recent weeks to fully analyze all of the results from the study, thus enabling us to provide you with today’s overview. Directing you to slide four, the summary of our development pipeline. Let’s start with our Phase 1 stage clinical asset ATI-2138 and ITK/JAK3 inhibitor. Building on the successes of the ATI-2138 single ascending dose study. The multiple ascending dose study in healthy volunteers continues to progress well. We are very much on track to have pharmacokinetics, pharmacodynamics and safety results in the second half of this year.

As we previously announced, our first clinical trial of ATI-2138 in a patient population is planned to be a Phase 2a proof-of-concept study in ulcerative colitis. The planning is well underway so that we can be in a position to initiate quickly upon completion of the ongoing multiple ascending dose study. Later this year, we will provide you with more details on the ulcerative colitis study after we have the Phase 1 results and have fully finalized the design of this proof-of-concept study. Moving on to ATI-2231, our next-generation MK2 inhibitor, we’re moving closer with our prospective academic partners to get into the ultimate objective of setting ATI-2231 in metastatic breast cancer and in pancreatic cancer. Now shifting to slide six. For ATI-1777, our topical JAK1/3 inhibitor, which was designed for skin efficacy and minimize systemic exposure, we are conducting a Phase 2b study in atopic dermatitis as a follow-up to our successful Phase 2a study.

The objectives of the trial are to further evaluate the efficacy and safety of ATI-1777 and validate the limited systemic exposure seen in the Phase 2a study. We are also studying several dose strains, including the 2% twice-daily dose studied in the Phase 2a trial and several lower dose strains as well as assessing once and twice daily applications so that we know which formulation regimen will be best for progressing into Phase 3 development. We also expanded our study population in the study to include children down to age 12, given the importance of this disease in children. The primary endpoint of the trial is percentage change from baseline in the Eczema Area and Severity Index or (EASI) score at week four. The target enrollment is 240 patients.

We’ve been very encouraged by the success seen recently with other topical therapies in a broader array of patients and the meaningful medical need in some milder patients. As such, we recently extended the protocol to include not just moderate and severe atopic dermatitis, but some mild patients as well. And we want to assure we can enroll adequate mild patients to meaningfully evaluate them. This protocol modification is also important because as some of you may have seen reported from other companies conducting trials in atopic dermatitis, enrollment this past winter season have encountered some challenges, particularly driven by the mild winter in many locations, particularly in the southern and eastern portions of the US. Since the dryness associated with cold winter weather and heating can exacerbate atopic dermatitis.

In the first few weeks of this protocol amendment, which just went into effect we have already seen a meaningful increase in screening. We are updating our guidance in terms of timing of top line results to move from our prior guidance of midyear to second half of this year, and we will tighten up that guidance as we continue to learn more about the impact of the amended protocol. Moving to slide seven. As a reminder, in our Phase 2a trial, ATI-1777 achieved statistically significant results in the primary efficacy endpoint at week four, and positive trends were observed in secondary endpoints, including improvements of itch, percent of modified EASI-50 responders, IGA responder analysis and reduction of body surface area impacted by the disease.

Shifting to slide eight. Importantly, ATI-1777 was observed to have a favorable safety and tolerability profile and because of the soft topical approach, very low plasma levels of ATI-1777 were seen following the topical application with the average concentrations in patients never greater than 5% of the IC50 of JAK1/3, and only three patients had concentrations greater than 1/10 of the IC50. Now moving onto ATI-450. We’ll begin with a more comprehensive overview of the HS trial now that we have the full data set. As you all know from the top line results that we reported in March, ATI-450 did not fit either our primary or secondary efficacy endpoints in HS. As shown on slide 10, we randomized 95 patients into the study with 47 on placebo and 48 on ATI-450.

Overall, with 32 patients on the placebo arm complete the study and 26 on active treatment. As previously noted, the study did not demonstrate efficacy for ATI-450 in the treatment of HS. We saw a modest effect, which was overshadowed by an unusually large placebo effect. I do want to spend the majority of our time today on the elements from this trial that can be applied to our understanding of ATI-450 overall. These elements primarily fall into two buckets, safety and pharmacodynamics. I will discuss the safety elements in detail and then Joe will discuss the pharmacodynamics. Slide 11 shows the steady demographics and baseline characteristics. We are quite proud that we enrolled a trial that was very representative of real-world HS patient populations with more inclusion of historically underrepresented people.

From a safety perspective, on slide 12, we had no serious adverse events on ATI-450, no serious end organ toxicities and no serious or opportunistic infections. What we did see, unsurprisingly, given the lack of efficacy is a meaningful number of early discontinuations from treatment shown on slide 13. Overall, we have 15 patients in the placebo arm and active arm discontinued from study treatment. And we saw high discontinuation starting in the early days of the trial and this observation was the primary reason we made the decision to increase the enrollment last fall. Withdrawals due to loss to follow-up, withdrawal of consent, and investigator stated lack of efficacy were relatively balanced between the ATI-450 and the placebo-treated arms.

The divergence and discontinuations was noted for withdrawals due to an adverse event, with four withdrawings in the placebo arm and 11 from the ATI-450 arm. When we talk a bit deeper, however, we noted that the majority of patients in the active arm who withdrew due to an adverse event, seven of the 11 were not seeing treatment-related efficacy. Their AN count was either worse or no better than at the start of the study. While most of the adverse events leading to discontinuation of treatment were only moderate in intensity, it is not surprising that patients who are not seeing a benefit had a little incentive to continue treatment. Further, the adverse events that led to discontinuation were most commonly related to worsening HS like new growing abscess, subcutaneous abscess or worsening acne, which is closely related to HS.

We also had a few subjects withdraw due to headache or dizziness, which is a known phenomenon that occurs in some patients early in the treatment period and typically resolves even when patients continue treatment. And with further investigator education on this topic, we saw no further discontinuations for this reason. And of course, we also provided this education to investigators for the ongoing rheumatoid arthritis and psoriatic arthritis trials. It’s important to note pertaining to our current rheumatoid arthritis trial, we are well into an advanced stage of our enrollment process, and we are seeing a discontinuation rate in the trial that is quite stable and below our model projections when we initiated the trial. Now let’s move on to the other topic that captured attention from the top line results, elevations in creatine phosphokinase or CK, which is shown on slide 14.

When we issued our press release, we noted that there were 10.4% or five patients that had reported treatment-emergent adverse events of elevated blood CK level. Subsequent to top line, as we finalized our data, we learned that one of these patients had their elevated CK prior to receiving study drug, so this was not a treatment-emergent event. And as such, that patient has been removed from that category, which brings the percentage down below the 10% threshold that we reported. Overall, though, CK elevations were covered in patients both on ATI-450 and on placebo with 19 patients with reported elevations of CK levels in laboratory drawers during some point in the study. Six of these were on placebo and 13 on ATI-450. The majority of these were modest elevations, however, as you can see on study drug, we also had three Grade 2, two Grade 3 and one Grade 4 CK elevation.

However, moving to slide 15, the treatment-emergent CK elevations that were Grade 2 and above where most typically transient and most typically return to baseline even when patients continued on treatment. Many of them were associated with a history of exercise. More importantly is what the CK elevations were not associated with. There were no associated adverse events that would suggest something more severe was going on. For example, no reported muscle pain, weakness, kidney abnormalities or CK elevations that were not from the skeletal muscle source. We do know that benign CK elevations have been seen with other effective anti-inflammatory treatments like TNF inhibitors and JAK inhibitors. Moving to slide 16. Overall to date, we are very pleased with the safety profile we see with ATI-450 through the current stage of clinical development.

The adverse event profile has continued to be as expected. We’ve seen transient CK elevations in some patients that generally disappear with continued treatment and do not have any muscle-related symptoms. We’ve seen no meaningful effects on kidney or liver or cytopenias and no serious or opportunistic infections. Lastly, it is important to note that in preparation for Phase 3, we have completed our chronic toxicology studies and with all of the pathology results now available, there are no issues of concern identified. With that I’d like to turn the call over to Joe to discuss the pharmacokinetic and pharmacodynamic findings from the HS study. Joe?

Joseph Monahan: Thanks, Gail. Good morning, everyone. Let me start by saying that at the outset, we believe mechanistically ATI-450 had a chance of demonstrating efficacy in the HS study. However, we believe it is likely that the disease is perhaps driven more locally in the skin than through systemic pathways. I would now like to share what we have learned from the HS study pharmacokinetic and pharmacodynamic analysis. Briefly, the PK for ATI-450 behaved as expected with a modest accumulation across the first week of dosing and peak and trough drug levels similar to those observed in the Phase 1 MAD study and the Phase 2a RA study. For PD, we took two approaches to understand ATI-450 pharmacodynamics in HS patient blood, as shown on slide 18.

First, we conducted an analysis of cytokines in ex vivo stimulated patient blood on a small sample subset of five patients from two sites. We compared samples from both placebo and ATI-450 treated HS patients with healthy donor controls analyzed in parallel. We looked at four pro-inflammatory cytokines, TNF alpha, IL-1 beta, IL-6 and IL-8 after the first dose and then again at the end of the study. If you direct your attention to slide 19, you can see we provide side-by-side comparisons across three of the ATI-450 studies completed to date. The seven-day MAD study in volunteers, the 12-week RA Phase 2a study and the 12-week HS study. ATI-450 inhibited all four cytokines analyzed, while the data shown focuses on inhibition of TNF alpha and IL-1 beta.

On day one, near complete inhibition of these two proinflammatory cytokines is observed across all three studies, suggesting that their production in healthy subjects RA patients and HS patients is similarly dependent on the MK2 pathway and sensitive to ATI-450. Also important to note here is that ATI-450 potently inhibits the cytokines at the end of each dosing period, either seven days or 12 weeks, consistent with the lack of pathway reprogramming and taciphylaxis across all of these studies and continued dependence of inflammatory cytokine production on MK2. Our second analysis consisted of evaluating the impact of ATI-450 on endogenous plasma cytokines in HS patients. We carried out this analysis on all 95 patients at time points where it was confirmed that subjects were dosed along with healthy donor controls, evaluating samples at day one pre-dose and at trough.

If you turn your attention to slide 20, you can see that endogenous plasma pro-inflammatory cytokines and CRP at baseline were lower in the HS Phase 2a study compared with the RA Phase 2a study, which appears consistent with a lower level of systemic inflammation in these HS patients. The next slide provides comparisons between the RA and HS Phase 2 studies, analyzing the impact of ATI-450 on endogenous plasma levels of TNF alpha, IL-6, IL-8 and MIP-1 beta. While pre-dose levels of cytokines were lower in HS patients compared to RA patients in the Phase 2a studies, a similar persistent decrease in cytokine levels near to or below healthy donor levels was observed in both studies. Directing your attention to slide 22, you can see the comparison between both studies evaluating the anti-inflammatory cytokine IL-1 receptor antagonist, which is elevated in both HS and RA patients, and is not inhibited in either study by ATI-450.

These data demonstrate a pro-inflammatory selective modulation of endogenous plasma cytokines in both RA and HS patients. Lastly, I would like to direct your attention to slide 23, which shows sustained inhibition of the plasma acute phase systemic inflammation marker, CRP in HS patients following ATI-450 treatment. This inhibition of CRP is similar to that observed in the ATI-450 Phase 2a RA study. CRP levels were reduced to the upper limit of normal after seven days of dosing, and this inhibition was retained through study completion at 12-weeks in both the HS and RA 2a studies. To summarize on slide 24, the ATI-450 dependent ex vivo stimulated cytokine inhibition in whole blood demonstrated consistent results across three studies with marked and sustained inhibition of pro-inflammatory cytokines and clear evidence of MK2 dependence and durability of response.

In terms of the endogenous pharmacodynamic plasma biomarker analysis, we saw a subset of cytokines elevated in HS blood relative to healthy donors, but to a lesser extent than observed in the RA study, which suggests that HS is perhaps less systemically driven than other diseases such as RA. ATI-450 inhibition trends with proinflammatory cytokines were similar in both HS and RA Phase 2a studies, reducing levels near two or below healthy donor levels. The elevated anti-inflammatory cytokine, IL-1 RA was not modulated by ATI-450 in either study suggestive of a pro-inflammatory cytokine specific effect. The acute phase systemic inflammation marker CRP demonstrated persistent inhibition patients administered ATI-450 in both the HS and RA studies in contrast to the effect previously observed with global p38 inhibitors.

These data are consistent with ATI-450 demonstrating a similar systemic anti-inflammatory effect on both HS and RA patients, and we believe correspond to positive efficacy readouts from our completed RA trial, however, not HS. I’ll turn it back over to Gail.

Gail Cawkwell: Thanks, Joe. Before I turn the call over to Kevin to touch on our financials, I’d like to finish up with the ATI-450 clinical program. I’m pleased to let you know that we are in the later stages in terms of enrollment for the rheumatoid arthritis Phase 2b trial, and everything is very much on track. We expect to have top line results from this 240-patient international trial in the fourth quarter of this year. It is also worth noting that we have an independent data safety monitoring committee that meets regularly and to date that committee has not raised any issues related to safety from this trial. Lastly, touching on the Phase 2a psoriatic arthritis trial. Since this trial was the last of the 450 trials to get started, it was also going to be running a bit behind the rheumatoid arthritis and HS trials.

This study is also heavily dependent on recruitment in our numerous Polish clinical trial sites. Based on some of the tensions in the region surrounding Ukraine, it took a little bit longer than anticipated for site activations. However, we’ve recently seen good momentum in screening and enrollment from our Polish sites. And as a result, we are adjusting our guidance for top line results of this trial from end of 2023 into the first half of 2024. This assumes we fully complete the enrollment towards the end of this year. Overall, despite various hurdles, I am very pleased with the professionalism of our development team as well as all of our various partners and trial sites and the commitment of so many physicians and patients. I look forward to reporting the results to you.

Let me now turn the call over to Kevin to discuss our first quarter results.

Kevin Balthaser: Thank you, Gail, and good morning, everyone. Our financial highlights are projected on slide 25. Let us begin with our cash position. We ended Q1 with cash, cash equivalents and marketable securities of $204 million, which was compared to $230 million at year-end. Additionally, near the end of Q1 we sold 3.4 million shares under our ATM facility for aggregate net proceeds of $26.7 million. This transaction closed in April after the close of the first quarter, so those funds will be recognized as part of our second quarter results. With the addition of those funds, we believe that our current cash, cash equivalents and marketable securities will continue to be sufficient to fund our operations through the end of 2025.

We do like to note that our cash runway projection does not contemplate the costs associated with conducting a Phase 3 development program for ATI-450. Regarding our financial performance for the quarter, our net loss was $28.2 million for the first quarter of 2023 compared to $18.8 million during the first quarter of 2022. This difference is primarily driven by the advancement of our ongoing clinical programs. Total revenue for the quarter was $2.5 million compared to $1.5 million in the prior year’s quarter. This increase was driven by higher licensing revenue, primarily from royalties earned on out-licensed intellectual property during the first quarter of 2023. R&D expenses were $22.6 million for the first quarter of this year compared to $14.3 million in the first quarter of 2022.

As previously mentioned, this increase has been driven by the advancements of ATI-450, ATI-1777 and ATI-2138. General and administrative expenses were $8.8 million during Q1 of 2023 versus $6.1 million during the same period in 2022. This increase was primarily driven due to increased compensation expenses related to increased headcount to support our growing development initiatives. With that, I will now turn the call back over to Doug for closing remarks. Doug?

Douglas Manion: Thanks to you, Gail, Joe and Kevin, for those comprehensive overviews. Before we shift the call to addressing your questions, I’d like to make a few final comments. I’m very pleased with the quality and execution of our entire team here at Aclaris. We’re blessed to have a world-class large pharma quality research engine that is very atypical for a biotech company of our size. The conference team continues to deliver unique and novel potential medicines against targets addressing significant unmet medical needs. The fruits of that labor include ATI-450, ATI-1777, ATI-2138 along with ATI-2231 with more to come. We’re very optimistic about the broad potential of ATI-450 and very eager to complete and report on the current clinical trials.

We took a shot at a very difficult disease in HS knowing that we already had positive RA data in hand. We’re now laser-focused on the completion and timely reporting and results of our ongoing trials in RA and psoriatic arthritis. The planning for Phase 3 studies for those indications and the continued exploration of the MK2 mechanism in other INI indications. Importantly, we continue to execute on these programs in a fiscally prudent and conservative manner. It is also gratifying to see that several top-tier investors have either taken or increased their positions in our stock recently. These are very exciting times for Aclaris, and the next several quarters are no exception. We have a lot of work in front of us, but we have the right team in place to execute, and we look forward to apprising you of our progress as we continue forward.

Operator, we now would like to open the line for questions.

Operator: Thank you. And our first question comes from the line of Louise Chen with Cantor. Your line is now open.

Louise Chen: Hi. Congratulations on all the progress this quarter and thanks for taking my question. So I wanted to ask you first on the read-through from HS to your RA study and a lot of people are anticipating results from that at the end of this year. And I’m wondering how you think about that elevated CK level, if you might see that in the RA study? And then second question I wanted to ask you was on the atopic dermatitis enrollment. And did any of that have to do with more drugs being available really just the winter season? And if you move into milder patients, how well do you think the drug will do in milder patients or what kind of efficacy have you seen in that patient population? And the last question is just on UC, how did you come to choose this as your first indication? And how quickly can you get to proof-of-concept since this market is rapidly evolving? Thank you.

Douglas Manion: Thanks, Louise, it’s Doug here. So regarding the read-through from HS to RA, not focusing on CPK, and we see nothing but positive. So we have significantly more confidence in the safety profile of the drug and there’s really no red flags. I developed dozens of drugs, and it’s a real luxury to have one that is looking as this one is. Obviously, we have to complete the program. But so far, it’s tracking to be — to have an extremely attractive and we think competitive safety profile. And the drug works systemically exactly as we thought as it would in HS and as it did in the RA Phase 2a. So we’re very bullish in terms of what all that means in terms of the RA study that’s going to read out in the fourth quarter of this year.

Regarding CPK, I mean, I think Gail did a great job of kind of elaborating what we did and didn’t see in the study, but — we just need to just be cognizant, elevations of CPK are clinically irrelevant. I mean most people would not even follow these in regular clinical practice, they go up and down based on exercise, and your overall level of activity. The concern would be if there was any associated symptoms with it, muscle weakness, muscle pain, none of which we saw or if, in fact, it looked like it was a cardiac origin, and we’ve looked at the CK fractionation on many of these patients, and there’s been no elevations of CK-MB. So we do not think that we have a CPK issue. As we mentioned, there’s a data safety monitoring board that’s overseeing the RA study.

They’ve not raised any red flags at all in terms of the prosecution of the study. So I think we’re in good shape. Moving on to the atopic dermatitis enrollment question. We’ve been following the space and lots of other companies have experienced the same things that we have. It’s a little ironic for people who live in the west part of the country because we had a very, very snowy winter. But in the areas of the U.S. that we’re doing the AD Phase 2b study, which is mostly in the Northeast and the Southeast, in fact, it was a very mild winter, and we and everybody else we’re seeing slowed enrollment. We do think that expanding the enrollment criteria to mild is going to certainly enhance the uptick in terms of recruitment, and we’re confident in terms of the time lines that we issued today.

We don’t have data. The Phase 2a study was done in moderate to severe atopic dermatitis. We believe a drug is going to work very effectively in those mild patients and we’ll look forward to see the results in the second half of this year. And then lastly, regarding ulcerative colitis. That was a very nice deal for Merck and Prometheus and I think they have some interesting data in UC. But my experience is you don’t ever kind of throw in the towel because there are other folks that are kind of hunting in the same area. We think that mechanistically ATI 238 looks very attractive in the indications that we’re seeking UC initially and a whole bunch of other T cell diseases subsequently, and we’ll see how the market evolves. But if you look at the Prometheus deal and the Arena deal, with Pfizer.

There’s an awful lot of people investing in IBD, and we think that we’re going to be very competitive in that space.

Louise Chen: Okay. Thank you.

Operator: Thank you. One moment for our next question. And our next question comes from the line of Corinne Jenkins with Goldman Sachs. Your line is now open.

Corinne Jenkins: Yeah, good morning, everyone. You alluded to this a little bit on the prepared remarks, but could you further contextualize how the CK elevations compare relative to other oral therapies that are approved and in development for the similar indications, including like the JAKs, TYK2s and TNF alphas. And then have you sought or received any feedback from KOLs regarding what’s tolerable there? And then I have a follow-up.

Douglas Manion: Yeah, so let me start. First, nice to hear your voice, Corinne. So and Gail is going to elaborate in terms of the impact of CPK of other mechanisms in the INI space. But the CPK issue, for lack of a better word, in our clinical trials has been a bit of a nothingburger for investigators. So dermatologists and rheumatologists understand that asymptomatic CPK elevations are really nothing to worry about. Some have even asked us why it is that we’re measuring them, but it’s kind of standard procedure to do so. So we’ve seen zero concerns from clinicians that this is a clinically significant finding. Gail, do you want to elaborate about the CPK elevations with other mechanisms?

Gail Cawkwell: Sure. So I think one of the things to just recognize is, while not necessarily covered in the label because it doesn’t seem to be a safety concern at all. If you look through the literature, particularly TNF and JAK inhibitors and particularly in rheumatoid arthritis, juvenile arthritis and inflammatory bowel disease, but also in skin diseases. You see these what’s sort of been termed benign CK elevations where the CK seems to be going up as a way of showing muscle regeneration and improvement in muscle bulk and muscle function as you decrease inflammation. There’s been some basic science research as well with JAK inhibitors that supports that differentiation is an important element of what may be going on here. And that’s, I think, pretty typical of what we would expect to see and what we have seen to date with really no evidence of anything pathologic happening.

Corinne Jenkins: Thanks. And then you noted but didn’t really show an evaluation of other endogenous cytokine just among others IL-17, IL-12 and IL-23. And maybe could you just speak qualitatively to what you saw there and comment on whether you’re seeing an emerging profile with respect to the cytokine knockdowns that can inform future development decisions.

Douglas Manion: I’ll let Joe take that.

Joseph Monahan: Yes. So with the two cytokines that you mentioned, with IL-17, there was a subset of patients where IL-17 was measurable and was elevated. And in those patients, ATI-450 resulted in a reduction in the level of IL-17. With IL-12, IL-12 was elevated in HS patients and endogenous and ATI-450 did result in a reduction in IL-12 as well. So in both those cytokines there was a reduction in the measurable levels of those by ATI-450.

Corinne Jenkins: Okay. Great. Thanks. Thanks for that.

Joseph Monahan: Thanks, Corinne.

Operator: Thank you. One moment for our next question, please. And our next question comes from the line of Thomas Smith with SVB Securities. Your line is now open.

Thomas Smith: Hey, guys . Good morning. Thanks for taking the questions. I guess, first on the HS study and the CNS adverse events, dizziness, headache, tremor. Do you have a sense for the etiology though these signals? And can you clarify if there were any discontinuations due to the CNS events?

Douglas Manion: Yes. Hey, Tom, Doug here. So in animal studies, at least, we do not believe our drug crosses the blood-brain barrier. So it is a little bit of an enigma to us, if there’d be any such symptoms. But I’ll let Gail speak on ramification.

Gail Cawkwell: Yes. So I’d start by saying that, that signal of some headaches, some dizziness we’ve seen also — we’ve seen throughout our program. We’ve seen it in our Phase 1 unit studies where patients have very careful monitoring because they stay in the unit for several days or even a few weeks and in those cases, it tends to be really both not unusual but also transient. So in most of the cases, when they’ve been looking at this, there hasn’t been any real rationale for why patients may feel this way. As Doug already said, we don’t have evidence that ATI-450 crosses into the CNS. Other things that might cause headache and dizziness like changes in blood pressure have really not been seen in any of our studies, including those where patients were very closely monitored in those Phase 1 unit settings.

I think the good news is when patients know that it’s going to be something that may occur and is likely to resolve what we found is patients are willing to stay on the treatment.

Thomas Smith: Okay. Understood. That’s helpful. And then on the RA study, you provided some color on the discontinuation, right? Can you just elaborate on that at all? And if you can’t provide an exact number, can you maybe characterize it relative to the HS discontinuation rate? Is it roughly in line or half or 1/3? Like how should we think about that discontinuation rate?

Douglas Manion: Yes. So we can’t elaborate. It’s a blinded study, but suffice it to say, we based our power calculations on precedent Phase 2b and Phase 3 studies, and we’re tracking at or below the discontinuation rates that have been seen in competitive studies.

Gail Cawkwell: And I’d only just add to that, that rate has been very stable over time.

Douglas Manion: Thank you.

Thomas Smith: Okay. Great. Got it. Appreciate it. Thanks for taking the question, guys.

Douglas Manion: Thanks, Tom.

Operator: Thank you. One moment for our next question. And our next question will come from the line of Alex Thompson with Stifel. Your line is now open.

Alexander Thompson: Hey, thanks for taking my question. Just one more quick one on the CK elevation. I wonder if you could sort of comment on where the four treatment emergent adverse events sort of fit in that table on slide 14 in terms of what grade if CK elevation was observed and then maybe if Joe could comment a little bit on PK and what kind of target coverage you’re seeing in this study and the prior studies as well and the consistency there. Thanks.

Douglas Manion: Yes. So let me start. So it’s always clinician that run lots of clinical studies. It’s always strange to me that some people, some investigators will choose to tick off as a clinical adverse event and asymptomatic laboratory adverse event. And so we really don’t have an explanation as to why those four events were toggled as such, there were elevations of CPK in patients on placebo, where just by luck they happen not to have them be adverse events. I’ll let Gail elaborate regarding the magnitude of the elevations.

Gail Cawkwell: Yes. And what I can say is your best looking at slide 15 in our deck in the graph on the right. You’ll notice there we have one CK elevation in bright blue that occurred at baseline and did not occur on treatment at all. That was one of our originally reported ones that is no longer being considered a treatment-emergent adverse event because it was not treatment emergent. And you can see that one which didn’t happen on treatment was almost the highest CK elevation that we saw in the study. The second highest when we saw in the study, and these were both higher grade elevations is that yellow one. And again, this was a single increase in CK, patient had a history of exercise and had no symptoms whatsoever. And when it came back on lab, she came back in.

It was already down. And by the next follow-up that it is entirely down to normal. So these CK elevations that were reported as adverse events are in that graphic to the right excluding the blue one, which turned out to, of course, not be treatment emergent. But I think you can see that there’s a range there of moderate to higher elevations. And then, of course, interestingly enough, there’s just one patient in purple, where the CK elevation at — on treatment was no higher in terms of grade of toxicity than the CK elevation before treatment. So that was considered sort of a grade zero change.

Douglas Manion: And to address the question about the target for PK and PD with the study. So we have targeted the 50 milligram dose to generate PD inhibition of greater than 80% at trough. And the pharmacokinetics in the HS study demonstrated that. And I think if you look at the data that we had on the ex-vivo cytokine production, you’re seeing that at day 85, at trough and at peak, we’re seeing greater than 90% inhibition of TNF alpha and greater than 80 some percent inhibition of IL-1 beta. So I think we achieved that.

Joseph Monahan: And just to close on the CK question, so we now have chronic tox other through 26 to 39 weeks in — we didn’t see any muscle toxicity in any of the preclinical toxicology studies that have been run to date. We’ve had zero symptomatic CK elevation in any humans today. And you see the date on slide 15 that these are transient. They go away while on drug. We don’t believe that we have we’ll continue to monitor in the rest of the program, of course.

Alexander Thompson: Okay. Thanks.

Operator: Thank you. One moment for our next question, please. And our next question comes from the line of Roger Song with Jefferies. Your line is now open.

Roger Song: Great. Thanks for taking the question and I appreciate all the details for the HS data. Maybe just one quick one. I know a lot of questions about the CPK and just anyone, hopefully, that’s not too much for you. And in terms of the — I understand this — the CPK elevation transient and the kind of sales results, and it’s very good, you don’t have the symptoms associated. Just curious how long usually takes patients to develop any symptoms while they have some on and off for the CPK elevation? And how concerned we should be if you take the longer term therapy and they may have this kind of episodic elevation event? Thank you.

Douglas Manion: Yes. And so to date, we only have safety data in humans through week 12 in our program. We now with the chronic tox studies having been completed, we’ll be able to dose beyond 12 weeks. But there’s nothing in the profile of CPK that we’re seeing to date that would suggest that there’s going to be any long-term issues with it. It would be different if there was smoldering elevations at CPK through 12 weeks, then you might think that there’s something chronic going on, but that isn’t the profile that you’re seeing at all here. So I think the likelihood is relatively low. But of course, let’s do the studies and do the longer-term follow-up. Gail, anything you want to add on that?

Gail Cawkwell: The only thing I’d add is measuring CK is not like measuring blood pressure. And you know if your blood pressure goes up and stays up that, that can cause harm. And of course, we haven’t seen any blood pressure changes in our studies that are meaningful, of course. But with CK, it’s a normal biologic thing. It’s something that sits in your muscle cells. And when you do things day to day that may impact your muscles, you get increased turnover of those muscle cells and your CK can go up. And that’s not associated with any harm unless there’s something underlying going on or something else going on in your body, and we have no evidence of that. So even transient CK elevations over a long period of time such as these are something I would expect to see in you or in me in the course of our normal daily life in any case.

Roger Song: All right. Great. Yes, that’s comforting. In terms of the cytokine, maybe can you just let us know for your RA Phase 2b study. Anything you can make a comment related to the baseline cytokine consistent with your prior or the disease background? Or have you ever seen those kind of cytokine data yet?

Douglas Manion: Yes. And so this is a blinded study. So we have not looked yet, and we wouldn’t look anyway, until we look at the top line results. But Joe, anything you want to add about what we’re actually going to be looking at in terms of cytokines in the Phase 2b RA study.

Joseph Monahan: Yes. So on the Phase 2b study, we will be looking at endogenous cytokine levels. we won’t be doing the ex vivo analysis and that we’ve already demonstrated in the IIa study, the dependence of these ex vivo cytokines on MK2 and the sensitivity of ATI-450.

Roger Song: Excellent. Thank you.

Joseph Monahan: Thank you.

Operator: Thank you. One moment for our next question, please. And our next question comes from the line of Dipesh Patel with H.C. Wainwright. Your line is now open.

Dipesh Patel: Thank you, guys. Just standing in for Raghuram Selvaraju, H.C. Wainwright. Several questions. How do you see the competitive landscape shaping up in atopic dermatitis? And what do you consider to be the key differentiators for ATI-1777?

Douglas Manion: It’s a great question. Thanks. The landscape, in fact, is getting more attractive. I think we’ve all been pleasantly surprised with the successful launch of the insight topical JAK. And by the way, that topical JAK is basically just the oral JAK that’s been applied on the skin. So not surprisingly with it, you do see a fairly high level of systemic exposure, which I think is why the FDA opted to give them the class labeling with the black box, so the number one area of differentiation that we’re seeking with our soft topical JAK program is to have similar, if not better, efficacy to Opsilura, but with minimal systemic exposure and thus a significant decreased likelihood of us getting the class labeling. We don’t know what’s going to be in the label until we have the label in discussions with the U.S. FDA, and that will be based on finalized Phase 3 data.

But just if you look at what we have from our Phase 2a study, there are minimal de minimis exposure seen in patients, I think, is tracking well to the asset profile that we’re trying to achieve.

Dipesh Patel: Great. And then just switching gears to psoriatic arthritis. What might be possible to reaccelerate enrollment in the zumsemeinib psoriatic arthritis trial?

Douglas Manion: And just to point out, it is a difficult part of the world to be doing these types of studies. We’ve seen quite an uptick in enrollment just in the last few months as we’ve been able to get through regulatory hurdles with the Polish government. So I think we are on track to achieve what we set out to do. But Gail, anything you want to add in terms of enrollment for it?

Gail Cawkwell: I’d only say that, like all of our studies, we track them very closely in terms of enrollment and take actions as it makes sense. In this particular study, as I said earlier, we started this a bit later. There was a challenge in the part of the world with Ukraine and then with many, many companies switching over to having more studies in Poland. But at this point, the study is going well. We’re tracking the enrollment we expected. We’re seeing screening continue to improve. So I think we’re on track at present.

Douglas Manion: And lastly, we have a high level of investment enthusiasm for this. So it isn’t for a lack of enthusiasm, but there are some headwinds in that part of the world that we’re dealing with.

Dipesh Patel: Great. Thank you so much for the color there.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Julian Harrison with BTIG. Your line is now open.

Julian Harrison: Hi. Good morning. Thank you for taking my questions. First, on the HS data, while it wasn’t the primary endpoint, I’m curious if you could comment on what the placebo rate of high score 50, 75 and 100 were, and then on the topical JAK ATI-1777, just curious if you could talk more about the specific changes to the inclusion criteria behind that protocol? And then how much would you expect this to affect baseline characteristics for the overall study population.

Douglas Manion: Yes. So we’re not going into a lot of more details regarding the results for HS. Suffice it to say that placebo had a very good day on basically every endpoint. In fact, placebo did better in this study than active did in some of the more successful Phase 3 studies that have already been published. Atopic dermatitis, do you want to comment about that?

Gail Cawkwell: Sure. So on the atopic dermatitis study. First, I’d start by saying we carefully look through the literature and where there was available data on response rates, in mild patients. And the feeling was that we did not need to repower the study. Certainly, having Opsalura clinical trial data helped us come to those kind of decisions. What we did do is we kept the upper range as it was with the moderate and severes, but we included the IGA Class 2, which is mild in the study. We also dropped body surface area from greater than equal to 5 to greater than equal to 3, and for easy inclusion, we also dropped this from greater than or equal to 5 greater than or equal to 3. So across the board, we simply move to including a somewhat milder population as well. And as we said, screening is going great there.

Julian Harrison: Great. Thank you.

Douglas Manion: Thanks, Julian.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Tim Lugo with William Blair. Your line is now open.

Lachlan Hanbury-Brown: Hey. This is Lachlan on for Tim. Thanks for taking the question. A quick follow-up on the enrollment for atopic dermatitis. Are you limiting the proportion of patients in the trial that could fall into that sort of new milder cohort. If you could just talk about that. And then Gail, on the CK elevations, you mentioned a lot of them seem to be associated with exercise. So I’m wondering in the RA and PSA studies are there any sort of limitations or restrictions on things like patients exercising before a visit.

Douglas Manion: Gail will take both of those.

Gail Cawkwell: Sure. So in terms of the — in terms of the atopic dermatitis study, excuse me, what was the question. You got to tell me. Somebody remind me?

Lachlan Hanbury-Brown: Are you limiting the number of trials?

Gail Cawkwell: Yes, sorry. Yes, in terms of that, no, not at all. the study enrollment study was well enrolled at the point where we’re at. We certainly still have room to enroll, but we want to make sure we get adequate number of mild patients. We’re not doing any kind of stratification for mild, moderate or severe. And at this point. My hope would be that we see plenty of mild patients enrolling. In terms of the CK question. The reality is that if you look at the HS study, it is a much younger population. Our mean age is in the mid-30s, most RA studies, including our 2a study is anywhere from mid-50s to mid-60s as a mean age. Also, RA as a disease where people are entering with moderate to severe muscular skeletal disease with significant arthritis.

It’s unusual for it to have quite the same type of problem with people just deciding to go out and do a really intensive exercise regime. That said, you always want to keep things as real world as possible in these studies. And CK elevations like we saw in the HS study with the intermittent increases that resolved on treatment are really not indicative of a concern or a reason to restrict anything in the study.

Douglas Manion: Operator, any more questions?

Lachlan Hanbury-Brown: That’s it from me. Thanks.

Operator: I will turn the call back over to Mr. Manion for closing remarks.

Douglas Manion: All right. There’s no further questions. I just want to thank everyone again for their time, interest and continued support as our company continues to make strides of growth for the future. Have a great day.

Operator: This concludes today’s conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day.