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Stealth BioTherapeutics Corp (NASDAQ:MITO)
Q3 2019 Earnings Call
Nov 14, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the Stealth BioTherapeutics Third Quarter 2019 Results Webcast. [Operator Instructions] I would now like to turn the call over to Mr. Henry Hess. Mr. Hess, you may begin.

Henry Hess -- Chief Legal Counsel

Thank you, and good morning.

I'd like to remind listeners that management will be making forward-looking statements on today's call, including, for example, expected timeline and plans for development of elamipretide and other pipeline programs, expectations related to our collaborations with Alexion, expectations for discussions and possible opportunities with potential partners and collaborators and discussions related to the Company's financial position. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of Stealth's latest 20-F filed with the SEC in April 2019. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so if our views change.

Now I'd like to turn over the call to Reenie McCarthy, Stealth's CEO. Reenie?

Reenie McCarthy -- Chief Executive Officer

Thank you, Henry. And thanks to everyone for joining us this morning for our inaugural earnings call.

Please join me also in welcoming Rob Weiskopf, our CFO, who joined our team in September. Also with us are Jim Carr, Chief Clinical Development Officer, and Brian Blakey, our Chief Business Officer, who will be available for Q&A.

So, I'd like to take a few minutes to highlight the progress that Stealth has made over the last few months as we've concluded dosing in our pivotal primary mitochondrial myopathy study, we've announced significant improvements in heart function with long-term therapy in our Barth program, we've progressed development of our pipeline with SBT-272 now poised to enter the clinic, expanded our team in preparation for our first potential product approval and taken strides toward the collaboration with Alexion that we believe positions us strongly for successful launch.

We are committed to improving the lives of patients suffering from diseases of mitochondrial dysfunction. With that we've prioritized three main goals: delivering elamipretide to patients rapidly, expanding our pipeline of mitochondrial medicines and scaling our commercial organization in an economical and efficient way.

Our agreement with Alexion is intended to facilitate all three of these goals. As we've disclosed, Alexion has an option to a 50-50 US co-promote and full ex-US commercialization rights with respect to PMM and any other indications approved for subcutaneous elamipretide administration. We believe that this partnership could be transformational for Stealth. With our deep experience in orphan mitochondrial disease and extensive relationships with key opinion leaders and advocacy and Alexion's substantial commercial foothold and track record of successfully launching products in the rare disease space, we expect to be able to deliver elamipretide more rapidly to patients within and, more notably, outside the US as well as to accelerate our time to peak year revenues and achieve deeper market penetration.

With the $30 million upfront payment received from Alexion in conjunction with the option in addition to substantial additional payments expected in conjunction with option exercise, near-term milestones and co-development payments, we believe we are well resourced to expand our pipeline development initiatives and build our commercial infrastructure. We are working closely with Alexion as we prepare for pivotal data from our Phase III MMPOWER 3 study expected in January of 2020.

In terms of our own pre-commercial build, we've made a number of key hires during the third quarter and we're continuing to expand our team going into year-end. Our medical science liaison team is on board and actively meeting with experts in the neuromuscular neurology field, with strong feedback and engagement from the over 100 specialists met so far this year. We've also made great strides furthering patient awareness and engagement through our educational website, thecharge.com, featuring interviews with, articles by and videos of Mito patients. Our systems integration work and supply chain planning are well under way so that we are poised to launch elamipretide post approval.

As a quick reminder, MMPOWER 3 enrolled 218 patients with primary mitochondrial myopathy and is evaluating the safety and efficacy of elamipretide versus placebo over a six month treatment period. The family of primary endpoints comprised of the six minute walk test and fatigue was informed by our two prior studies in this patient population and we can meet either primary endpoint with a p-value of 0.025 or less or both primary endpoints with a p-value of less than 0.05.

For the six-minute walk, we've enriched the Phase III patient population to include the most likely responders on the six-minute walk test. We've employed a CRO specializing in six-minute walk test standardization, and we've powered the study with 90% confidence to see a p-value of 0.025 or less with a 30 meter improvement from baseline versus an expected decline of approximately 10 meters as informed by the natural history that we've collected.

For fatigue, our second primary endpoint, our Phase II trial of 30 PMM patients demonstrated an approximate 20% reduction in fatigue with a p-value of 0.0006. So we believe we are overpowered on this endpoint.

While we believe that achieving either of these endpoints would carry tremendous value to patients whose primary symptoms are debilitating fatigue and exercise intolerance, we are confident that we've designed the trial to maximize the likelihood of success on both endpoints.

Encouraging new data from our ongoing Barth open label extension trial, which suggests that the longer duration of elamipretide therapy may provide greater benefit to patients, gives us confidence that the longer six months duration of MMPOWER 3 versus only one month of dosing in our Phase II may further amplify therapeutic signals. Speaking of Barth, you'll be seeing a few upcoming presentations of data from the extensive 2D and 3D echocardiogram protocol, including this weekend at AHA.

Barth is an ultra-rare and lethal disease in which early mortality is typically due to cardiomyopathy. After 36 weeks of therapy during the double blind and open label portions of our TAZPOWER trial, we observed a statistically significant improvement from baseline in average cardiac stroke volume. Stroke volume, as you know, measures the amount of blood pumped by the heart's left ventricle per contraction. So this finding implies an improvement in cardiac function. Importantly, these improvements were observed in the vast majority of patients included in the trial.

We're looking forward to discussing these new data and our planned natural history study with the FDA. We received feedback from the FDA regarding our natural history protocol in which we are comparing data from historic controls to our open-label data. Although a natural history study of this nature does not account for expectational bias around subjective endpoints we do think it may be informative, including particularly in the context of the cardiac improvements, and we've informed the FDA that we will be prepared to discuss data from that protocol with them when we meet for an end of phase meeting early next year. We look forward to providing further updates following our end of phase meeting.

We're continuing to progress our ophthalmic indications as well. We expect to complete enrollment of ReCLAIM-2b, our Phase IIb clinical trial evaluating the effect of elamipretide in patients with geographic atrophy associated with dry AMD during the first part of 2020. Visual function endpoints include low luminance visual acuity for low light vision, which we've discussed with the FDA as a primary efficacy endpoint. We're also looking at geographic atrophy progression, measured by optical coherence tomography and fundus autofluorescence. We plan to submit our Phase III protocol for elamipretide in Leber's hereditary optic neuropathy, our second ophthalmic program, by year-end.

Finally, we're thrilled to move our new product candidate, SBT-272, into the clinic. SBT-272 is an orally bioavailable mitochondria targeted product candidate with significantly greater blood-brain barrier penetration than elamipretide. It is being evaluated for neurodegenerative indications. We recently presented data from a mouse model of ALS, demonstrating significant sustained function, prolonged lifespan and decrease in neurofilament light chain, a biomarker of external damage in male mouse following treatment with SBT-272.

We are also expanding our rich library of over 100 proprietary compounds as well as advancing preclinical studies of lead candidates within that pipeline, and we have continued to grow our discovery team to support those initiatives.

Now I'd like to introduce our CFO, Rob Weiskopf, who will review the financial results from the quarter.

Rob Weiskopf -- Chief Financial Officer

Thanks, Reenie, and thank you, all, for joining us today.

Research and development expense for the three months ended September 30, 2019, was $9.8 million compared to $16.2 million for the same period in 2018. The decrease was primarily due to a $3.4 million net decrease in clinical trials due to timing of trials that ended in 2018, a $0.4 million decrease in discovery related expenses due to the timing of their activities and a $3.4 million decrease in contract manufacturing. These decreases were offset in part by an increase of $0.8 million in employee and consultant related costs.

Turning to general and administrative expense. It was $6.3 million for the three months ended September 30, 2019, compared to $4.8 million for the same period in 2018. The increase in administrative expense was primarily attributed to an increase of $0.6 million in employee and consultant related costs, associated in part with build-out of the pre-commercial and compliance functions, $0.5 million in professional services activities related to operating as a public company and $0.4 million in pre-commercial activities, including building market disease awareness.

Other expense was $0.4 million for the three months ended September 30, 2019, compared to $1.7 million for the same period in 2018. The decrease in other expenses primarily attributed to a $5.5 million decrease in interest expense related to convertible debt, which was converted into ordinary shares in conjunction with our initial public offering, an increase in interest expense of $0.1 million, offset in part by $4.3 million change in period over period fair value adjustments derivative liability associated with the convertible debt.

Net loss was $16.5 million or $0.04 per basic and diluted net loss per ordinary share for the three months ended September 30, 2019, as compared to $22.7 million or $0.33 basic and diluted net loss per ordinary share for the same period in 2018.

Finally turning to cash. Cash and equivalents were $37.2 million at September 30, 2019. And in October 2019 we received a $30 million payment associated with the Alexion option and share purchase agreements announced on October 10, 2019.

With that, I'd like to turn the call back to Reenie.

Reenie McCarthy -- Chief Executive Officer

Thanks, Rob.

Before we open up for questions, I want to reiterate again how pleased we are with the progress we've made not only over this past quarter but throughout the year. As we look into 2020, I am confident in our team's ability to continue this momentum and transition successfully into a commercial stage company. We look forward to finishing the year on a strong foot and to reporting back on our various upcoming milestones in the following months.

Thank you again for taking the time to join, and I'm happy to open up the call for questions.

Questions and Answers:

Operator

[Operator Instructions] And our first question comes from Charles Duncan with Cantor Fitzgerald. Please go ahead.

Charles C. Duncan -- Cantor Fitzgerald -- Analyst

Good morning, Reenie and team. First of all, congratulations on all the progress this year and thanks for taking my questions. So I had a couple of operational ones and then some pipeline. So maybe I'll start with the operational one. Regarding the Alexion option, can you provide any more color on -- I guess you mentioned an option payment and then a near-term milestone when that option was exercised. Could you anticipate any of those occurring over the course of, say, the next 12 months?

Reenie McCarthy -- Chief Executive Officer

Yes, we could. So, certainly on option exercise, and then those near-term milestones, we do anticipate the potential for significant near-term milestones over the next 12 months.

Charles C. Duncan -- Cantor Fitzgerald -- Analyst

And can you order of magnitude those in terms of size maybe relative to the upfront?

Reenie McCarthy -- Chief Executive Officer

So it would be at a multiple of the upfront amount. And we're not giving specific guidance on the amounts that are due as we've discussed with Alexion. But what we've indicated previously, and I can reiterate again, that we do believe that with the payments coming in from the Alexion transaction over the next 12 months, we will be positioned strongly for commercial launch.

Charles C. Duncan -- Cantor Fitzgerald -- Analyst

Okay, perfect. Yeah, I figured you wouldn't give us actual numbers. That's OK. But that helps. Maybe moving on to the pipeline. First of all, with regard to elamipretide and MMPOWER 3, can you give us any color on the patients that have been enrolled with regard to the six-minute walk test enriching paradigm, how do you feel if you look across the patient population on a blinded basis, about, call it the quality of patients? Hate to use that word, but how do you feel about that?

Reenie McCarthy -- Chief Executive Officer

Yeah. Absolutely. Jim, maybe we've given -- I think we've previously shared the baseline six-minute walk data, so which was successfully enriched. Jim, maybe you can speak to that a little?

Jim Carr -- Chief Clinical Development Officer

Yeah. So the baseline six-minute walk test performance was a stringent 30 meters and we have shared that at scientific congresses in the past. So that certainly is reflective of our desire to focus on the low walkers. We do believe that based on our previous experience with the drug in the Phase II population that the low walkers respond better. But also just as important from my perspective is the fact that they displayed less variance between walking. So we win in a couple of ways by focusing on walkers. There's less variability each time they walk, and again we feel like they respond better to treatment.

Charles C. Duncan -- Cantor Fitzgerald -- Analyst

Okay. Yeah. That makes sense. Appreciate the added color. With regard to data timing, could we still anticipate first quarter and can you provide any color on any granularity with regard to that first half of the first quarter or anything? And then, is there any other additional non-clinical work that you could anticipate to enable an NDA? Then I'll hop back in the queue.

Reenie McCarthy -- Chief Executive Officer

Great. So good questions. We are expecting data still in January of 2020 for our MMPOWER 3 clinical data. So we do expect still to be on track for January for announcing that data, and we are not anticipating further non-clinical work to enable our NDA submission.

Charles C. Duncan -- Cantor Fitzgerald -- Analyst

Perfect. Thanks for the added information.

Reenie McCarthy -- Chief Executive Officer

Great. Thanks for the questions, Charles.

Charles C. Duncan -- Cantor Fitzgerald -- Analyst

Thanks.

Operator

Thank you. Our next question comes from Christopher Marai with Nomura. Please go ahead.

Christopher Marai -- Nomura -- Analyst

Hi. Good morning, and thank you for taking the questions. I would say congratulations on the cardiac dataset for Barth. I think that's really encouraging [Technical Issues] the potential for the drug and really indicative of [Technical Issues]. So I was wondering if you could comment maybe on, number one, in Barth trail [Technical Issues] and then two, in MM trial, are you stratifying patients by cardiac involvement? Is there any indication perhaps that this drug would have a better outcome whether a six-minute walk test or [Technical Issues] patients with cardiac involvement and maybe -- could you somewhat quantify for us just how many patients in [Technical Issues]? Thank you.

Reenie McCarthy -- Chief Executive Officer

Sure. Thanks, Chris. So I'm going to take some of the first part of that and then ask Jim to kind of elaborate. With respect to the Barth trial, we are really excited by the improvements we're seeing in cardiac function. As you -- as we said, that's really the leading cause of early mortality in that disease, and it's a very tough disease. We have seen strong correlation between the improvements in cardiac function and improvements in fatigue, six-minute walk, muscle strength in open-label extension. And one of the things I think that we are -- the trial has really informed us [Indecipherable] I mean, this is a very sick patient population, but the longer duration of therapy, the greater the magnitude of those improvements across all of those endpoints.

So when we look forward to MMPOWER 3, where we're treating now for six months versus only a month in the prior trial and only five days in the one before that, we do think that that longer duration of therapy may be important in terms of amplifying therapeutic benefit on fatigue as well as on six-minute walk test. You asked about cardiac involvement in the MMPOWER 3 clinical trials. So we didn't -- we really weren't capturing the cardiac endpoints in that trial.

Jim can speak a little bit to the fact that frankly across the whole mitochondrial disease population, cardiomyopathy is really a leading cause of early mortality. But in that particular trial we are focused on the skeletal muscle function. Jim?

Jim Carr -- Chief Clinical Development Officer

Correct. Chris, as Reenie mentioned, there was no particular focus on the patients with primary mitochondrial myopathy that had a concomitant cardiomyopathy. So we were -- frankly we're indifferent to the cardiac status. Based on the literature, one can expect that 20% to 40% of patients with mitochondrial disease could have a coexisting cardiomyopathy, likely secondary to the mitochondrial disease. So this I think will be of key interest to us moving forward. But with respect to the Phase III trial, we did not pay particular attention to the cardiomyopathy that may have been coexisting.

Christopher Marai -- Nomura -- Analyst

Okay. Thank you. Congratulations on the quarter [Technical Issues].

Reenie McCarthy -- Chief Executive Officer

Thanks, Chris.

Operator

Thank you. Our next question comes from Matthew Luchini with BMO Capital. Please go ahead.

Na Sun -- BMO Capital Markets -- Analyst

Hey guys, this is Na on for Matthew. So two questions from me. And congratulations on the progress so far. Can you just give a little bit more specific color on the -- how Alexion can help you bring forward the peak sales and deeper penetration? Is that a function of similar call points, especially since Alexion also has a commercial footprint in the rare neurology space, so like maybe a similar call point?

And then the second question is for SBT-272 which looks very interesting. And I know that the deal with Alexion is for subcutaneous product and this is an oral agent. But is there a possibility, like, are they waiting on maybe Phase I, Phase I/II data before they can extend that option also to SBT-272? Thanks.

Reenie McCarthy -- Chief Executive Officer

Thanks, Na. I'm going to answer your second question first and then turn it over to Brian. The option that Alexion has is only to subcutaneous elamipretide. They do have the potential to extend that to a local ophthalmic formulation of elamipretide. But SBT-272 and all of our pipeline assets other than elamipretide are outside of the option arrangement with Alexion. So those are all fully owned by Stealth and there is no option that Alexion currently has to expand any rights into that pipeline that we own.

So with that, I'll push over to Brian to speak to the commercial synergies.

Brian Blakey -- Chief Business Officer

Yeah. So now that we have been working diligently with Alexion in multiple meetings, they've been very professional and very good to work with, I think we have around 30 sub-teams already up and running to make sure that we're engaged and working synergistically. I think three key areas that they're going to assist us in and going faster and deeper in penetration in the US market. One is with payers. They've already engaged with payers on the orphan area for their therapies and will help us because they have relationships which we will be hiring new people to go in there.

I think secondly, as you mentioned, neuromuscular -- Reenie has said that we have started to get into that area pretty significantly and we certainly know the mitochondrial care network and we know the mitochondrial docs. But they have that footprint into the neuromuscular specialists. So that should assist us. And third, we have been working closely and consistently with the MitoAction and the UMDF as far as the patient advocacy groups. And I think that from speaking with Alexion, they have great ways to target patients, particularly ones that may be earlier in their journey -- in their patient journey and accelerating that patient journey into activation, diagnosis and treatment.

Na Sun -- BMO Capital Markets -- Analyst

Very helpful. And thank you.

Operator

Our next question comes from Yi Chen with HC. Please go ahead.

Yi Chen -- H.C. Wainwright & Co. -- Analyst

Thank you for taking my question. Just to clarify, when you says that the FDA end of phase meeting for Barth syndrome first part of 2020, does that mean first quarter 2020?

Reenie McCarthy -- Chief Executive Officer

We are hoping first quarter. We don't have specific guidance to give on that. But we would anticipate that it could be within the first quarter, yes. I mean, it really kind of depends on the FDA's calendar more than ours.

Yi Chen -- H.C. Wainwright & Co. -- Analyst

Okay. Got it. And at this point, do you expect any potential [Indecipherable] elamipretide in 2020 at all, potentially generate from [Indecipherable] in Barth syndrome and primary mitochondrial [Indecipherable]?

Reenie McCarthy -- Chief Executive Officer

Yeah. I mean, obviously, this is all regulatory timing dependent. But we still think that there is a potential for revenue in 2020 for elamipretide, yes.

Yi Chen -- H.C. Wainwright & Co. -- Analyst

Okay. And regarding the commercial rights outside the US that Alexion could potentially obtain, have they reviewed any geographic areas that they would preferentially target initially?

Reenie McCarthy -- Chief Executive Officer

We would -- we haven't discussed in depth with them. But based on our preliminary conversations, we would certainly expect Europe, given their significant footprint there.

Yi Chen -- H.C. Wainwright & Co. -- Analyst

Okay. Thank you. That's all.

Operator

Our next question comes from Maury Raycroft with Jefferies. Please go ahead.

Maury Raycroft -- Jefferies -- Analyst

Hi, everyone. Good morning, and congrats on the progress, and thanks for taking my questions. Just wondering for the Barth meeting with regulators in the first part of '20. What are the potential outcomes from that? I guess would they potentially decide approval around that time frame? Or would they set a PDUFA date? I guess, what should we expect coming out of that meeting?

Reenie McCarthy -- Chief Executive Officer

I mean, it's really an end of phase meeting for us to review all of the open label extension data with the new division that we're sitting in. So we actually haven't had a face to face meeting with the new division yet. We've had correspondence and interaction, but this will allow us to go in and review all of our open label extension data, which is getting stronger and stronger, and particularly with the cardiac data, which frankly is not on the FDA's radar yet. That's new data that we've really just announced.

So what we would expect coming out of that meeting is, it's really just informing our path forward, do we need a pre-NDA meeting before we file the NDA, do we go straight to NDA. But it's really just to kind of introduce the agency to the full dataset from open-label extension.

Maury Raycroft -- Jefferies -- Analyst

Got it. Okay. And then for -- on the Alexion update call, you mentioned you and Alexion were both blinded to the Phase III data. But just wanted to clarify if either you or Alexion had any access to full blinded data as the study advances?

Reenie McCarthy -- Chief Executive Officer

Yeah, I mean, we'll, obviously before database lock, be conducting blinded data review to make sure that we've accounted for any missing data -- really just as part of normal housekeeping around the close-out of a trial. But that's something that is yet to occur.

Maury Raycroft -- Jefferies -- Analyst

Okay. Okay. And then I'm guessing you can't provide too many more specifics around timing for when Alexion would make an opt-in decision after the Phase III readout. But I'm wondering if it's fair to assume this would happen before a regulatory approval decision is made or if you can talk about potential mechanisms for Alexion to extend the opt-in time frame and whether this could be extended to after a regulatory decision is made?

Reenie McCarthy -- Chief Executive Officer

We would expect a decision to be made before a regulatory decision is made based on the terms of our agreement, and we do not anticipate any mechanisms for extension at this time.

Maury Raycroft -- Jefferies -- Analyst

Got it, OK. My last question is just on LHON. If there is any highlights from that Phase III protocol that you want to mention, that would be interesting.

Reenie McCarthy -- Chief Executive Officer

Not anything in particular. I mean, we did have a meeting with the FDA where we talked to them about endpoints. So I think this is just to kind of reflect our discussions with the FDA about endpoints. FDA was very interested in multiple parameters of visual function based on our Phase II data, certainly supportive of looking at visual field, which as you know in LHON being a disease of central vision. The visual field becomes very important for those patients. Also interested in color vision based on the Phase II data as well as the fairly robust patient perception of change video protocol that we shared with FDA where a number of patients were reporting improvements in color vision, materially impacting their quality of daily life.

So I think that the purpose really of the protocol submission is to just really reflect those discussions with FDA in a protocol. The division of ophthalmology at the FDA is very engaged and very collaborative with sponsors and so we think it's important that we continue that strong dialog and alignment before initiating the study.

Maury Raycroft -- Jefferies -- Analyst

Got it. Okay. Thank you for taking my questions.

Reenie McCarthy -- Chief Executive Officer

Sure.

Operator

[Operator Instructions] And at this time we have no further questions.

Reenie McCarthy -- Chief Executive Officer

Great. Thank you, everyone, so much for joining the call today. Look forward to talking to you early next year. Thank you.

Operator

[Operator Closing Remarks]

Duration: 33 minutes

Call participants:

Henry Hess -- Chief Legal Counsel

Reenie McCarthy -- Chief Executive Officer

Rob Weiskopf -- Chief Financial Officer

Jim Carr -- Chief Clinical Development Officer

Brian Blakey -- Chief Business Officer

Charles C. Duncan -- Cantor Fitzgerald -- Analyst

Christopher Marai -- Nomura -- Analyst

Na Sun -- BMO Capital Markets -- Analyst

Yi Chen -- H.C. Wainwright & Co. -- Analyst

Maury Raycroft -- Jefferies -- Analyst

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