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Eloxx Pharmaceuticals, Inc. (NASDAQ:ELOX)
Q1 2020 Earnings Call
May 7, 2020, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon everyone and welcome to the Eloxx Pharmaceuticals First Quarter 2020 Earnings Webcast and Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Barbara Ryan, Eloxx Investor Relations. Please proceed.

Barbara Ryan -- Investor Relations

Thank you, operator. Welcome and thank you for joining us this afternoon for a review of Eloxx Pharmaceuticals' first quarter 2020 financial results and business update. Joining me this afternoon are Dr. Greg Williams, our Chief Executive Officer; Neil Belloff, our Chief Operating Officer and General Counsel; Dr. Tom Haverty, our Chief Medical Officer; Dr. Matthew Goddeeris, our Vice President of Research; and Stephen MacDonald, our Vice President of Finance and Accounting.

Before we begin, I'd like to remind you that any statements made during this call that are not historical are considered to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these statements as a result of various important factors including those discussed in the Risk Factors section in our most recent annual report on Form 10-K filed with the Securities and Exchange Commission as well as our other reports filed with the SEC. Any forward-looking statements represent our views as of today, May 7th, 2020 only. A replay of this call will be available on the company's website www.eloxxpharma.com. It is now my great pleasure to turn the call over to Dr. Greg Williams, Chief Executive Officer of Eloxx Pharmaceuticals.

Greg Williams -- Chief Executive Officer

Thank you, Barbara and welcome to Eloxx's first quarter 2020 earnings webcast and conference call. We remain committed to advancing our clinical and scientific programs for our ERSG library. Our highest priority is to reach top line proof-of-concept data for ELX-02 from our Phase 2 cystic fibrosis clinical trial program, which we believe will be a substantial value inflection point for the company. That said, we previously announced that these trials have been temporarily paused in response to the COVID-19 global pandemic and in order to protect the health and safety of our employees, their families, our healthcare workers, our investigators, and cystic fibrosis patients. This is an unprecedented and fluid situation and we will continue to update you as we gain clarity on our clinical sites and their plans to reopen.

During the first quarter, we announced a leadership and organizational realignment in order to provide the company with sufficient capital to run through the end of 2021. This realignment ensures that we have the right resources and the strategic flexibility to accomplish our key priority, which, again, is to deliver top line Phase 2 proof-of-concept data for ELX-02 in cystic fibrosis. We are working closely with our investigators and clinical sites to ensure that we can resume and complete our Phase 2 program as quickly as possible.

We continue to be focused on delivering value to shareholders while fulfilling our mission to provide treatment options to patients with high unmet medical needs in the most safe and expeditious manner. Beyond ELX-02 in cystic fibrosis, our R&D team is continuing to develop other compounds from our ERSG library for additional indications including autosomal dominant polycystic kidney disease or ADPKD and inherited retinal disorders. We have a strong and experienced team with expertise in clinical drug development, basic research, regulatory affairs and I'm highly confident that we have the capabilities and the resources needed to deliver on our goals.

In cystic fibrosis, we are extremely pleased that we are conducting these trials at top CF clinical trial sites and the expressed level of interest and support from top investigators, trial sites, and patient advocacy groups has been tremendous. Our Cystic Fibrosis Foundation Program Advisory Group gave the positive results of the completed first cohort of our Phase 2 clinical trial for ELX-02 in nephropathic cystinosis and viewed the safety and efficacy data as very exciting for cystinosis patients and we're pleased that we met the primary safety endpoints. Together with the supportive pharmacokinetics from this trial, these data further de-risk our Phase 2 CF program.

Our CF Phase 2 program consists of two open-label trials, one for clinical investigators enrolling patients at sites in Europe and Israel. The second Phase 2 trial focuses on sites in the United States. The expansion of our cystic fibrosis program to the U.S. has been made possible in part by funding provided by the Cystic Fibrosis Foundation and the endorsement of our protocol by the Therapeutics Development Network. In Europe, our protocol has been endorsed by the ECFS Clinical Trials Network. Despite the current pause of our CF clinical trials, we expect that there will be a steady cadence of additional data, scientific presentations, and publications as we move through this year.

Yesterday, May 6th, we presented data from our inherited retinal disorders program at the virtual ARVO meeting, and in a few moments, Dr. Goddeeris will update you on this data as well as the progress in our inherited retinal disorders and ADPKD programs. While our abstract for ELX-02 had been accepted for presentation at the European Cystic Fibrosis Conference in June, this meeting has been canceled due to the COVID-19 global pandemic and we've withdrawn the abstract. We still plan to present data for ELX-02 in cystic fibrosis at the North American Cystic Fibrosis Conference in late October.

We are pleased to report today that a scientific manuscript that details ELX-02 read-through specificity toward premature stop codons has been accepted for publication by the Journal of Pharmacology and Experimental Therapeutics. Our screening programs continue to evaluate opportunities to advance ELX-02 and other novel molecules from our ERSG library for new indications. Positive scientific data presented at last year's American Society of Nephrology Kidney Week from our completed renal impairment study support the expansion of our research in the kidney into other areas such as ADPKD where there is high prevalence of nonsense mutation patients.

The data provides modeling necessary for dose adjustments based on renal function. We continue to advance our work in ophthalmology and our team achieved an important proof-of-concept milestone demonstrating that our ERSG compounds can restore protein production in the eye when injected intravitreally in an animal model. We've built on this milestone with our ongoing formulation efforts, which show encouraging results across multiple strategies to sustain compound exposure across longer treatment periods.

We are evaluating Usher syndrome and other disorders of the photoreceptors or RPE, recently demonstrating read-through of the most common nonsense alleles for the CEP290, Myo7a and PDE6B genes. We are the most advanced company tackling the great challenge of developing potential new therapies for nonsense mutations and there is a high level of interest and enthusiasm in the scientific and clinical community for our programs as well as in the business community. We will continue to pursue partnerships where appropriate to expand our therapeutic footprint and accelerate our progress.

We ended the first quarter of 2020 with $44 million in cash and cash equivalents and with the realignment of our resources, our cash runway extends through the end of 2021. We are well funded to deliver top line data for ELX-02 in cystic fibrosis and to advance the preclinical activities for ELX-02 and our library of molecules in additional indications. In April of 2020, we applied for and received a loan via the U.S. SBA's Paycheck Protection Program, which was a component of the CARES Act signed into law in late March. I would now like to ask Dr. Matt Goddeeris, our Vice President of Research, to discuss our recent progress in ADPKD and inherited retinal disorders.

Matthew Goddeeris -- Vice President of Research

Thank you, Greg. We continue to advance our preclinical efforts across our ERSG library of molecules, working with our research partners to advance our programs while taking all steps necessary to operate within health authority recommendations for combatting the COVID-19 global pandemic.

We are happy to announce today that our scientific manuscript titled, ELX-02 generates protein via premature stop codon read-through without inducing native stop codon read-through protein, has been accepted for publication by the Journal of Pharmacology and Experimental Therapeutics. This manuscript demonstrates that while ELX-02 mediates read-through of premature stop codons, the fidelity of stop codons found at the end of healthy transcripts is maintained. This indicates that translation integrity is preserved with target therapeutic exposure of ELX-02, consistent with the favorable tolerability profile across our preclinical and clinical data sets. The prepublication version of this manuscript can be found within the Fast Forward section of the journal's website.

Our preclinical efforts in renal and ocular are progressing. Our team focuses on applying our understanding of read-through to the unique genetics of each disease and evaluating efficacy with a focus on protein function using assays versatile enough to enable our personalized medicine approach. As described by the two-hit hypothesis, most individuals with ADPKD are born with a single defective copy of either PKD1 or the PKD2 gene. For the disease, this is the primary genetic mutation or hit. In the kidney, a sporadic second hit will trigger a cyst formation throughout life, leading to ADPKD and potentially end-stage renal disease.

We are focused on those individuals whose primary hit is a nonsense allele. Using a reporter assay, we have already observed dose-dependent read-through with our ERSGs across the most common PKD1 alleles and have now demonstrated dose-dependent read-through across the most common PKD2 alleles. We are now applying this information to our functional model efforts in order to confirm that the read-through we observe has an impact on cyst formation and growth.

Our cystic fibrosis platform has highlighted the utility of organoid technology to assess function in a translational model. Similarly, for ADPKD, organoids derived from patient cells or induced pluripotent stem cells can be differentiated in a manner that recapitulates the cellular diversity of the kidney and generate the cyst characteristic of the disease state. Using a patient-derived organoid with the most common PKD2 nonsense allele, we have observed encouraging results of reduced cystogenesis. These results demonstrate that a read-through approach can have a direct impact on a meaningful metric of ADPKD progression, cyst number. We intend to evaluate additional models of ADPKD, and with positive results, advance toward IND submission.

Turning to inherited retinal disorders. Our library of compounds has demonstrated dose-dependent read-through using our in vitro assay platform, acceptable intravitreal tolerability, and restored protein production in an animal model via ERSG intravitreal injection. As Greg mentioned, some of these results were presented yesterday at this year's virtual ARVO meeting, which stands for the Association for Research in Vision and Ophthalmology. Our presentation, entitled Intravitreal administration of small molecule read-through agents demonstrate functional activity in a nonsense mutation mouse model, describes our studies in a mouse model with a naturally occurring nonsense mutation in the OCA2 gene, which results in a form of albinism present in human type 2 oculocutaneous albinism.

In this model, the R262X mutation results in a lack of OCA2 channel protein, which is needed to establish the pH of the organelle that produces pigment, the melanosome. The results showed a significant increase in melanin production, which validates the potential to promote read-through activity in our target tissue via intravitreal injection. Our intravitreal read-through approach provides the opportunity to reach the totality of the retina. To extend the duration of the delivery, our team is actively working to achieve the desired sustained-release formulation. We are exploring several biodegradable controlled-release polymer technologies and are encouraged by the in vitro release rates achieved to date, which are consistent with our target release profile of one to three months.

When this tissue exposure data is coupled with our ongoing sustained-release formulation efforts and the read-through potential we observed against nonsense mutations in disease-causative genes such as USH2a, Myo7a, CEP290 and PDE6B. We are encouraged that the intravitreal ERSG approach could provide restoration of critical proteins to preserve or restore visual function across nonsense-related inherited retinal disorders. I would now like to ask Steve MacDonald, our VP of Finance and Accounting, to provide a review of our first quarter 2020 financial results.

Stephen G. MacDonald -- Vice President of Finance and Accounting, Treasurer

Thanks, Matt. As of March 31, 2020, the company reported total cash, including cash equivalents and marketable securities, of $44 million, which we believe will fund the company's operations through top line data in cystic fibrosis and through the end of 2021. For the quarter ended March 31, 2020, the company incurred a net loss of $13.9 million, or $0.35 per share as compared to a net loss of $11.9 million or $0.33 per share for the same period in 2019. The first quarter 2020 results included a one-time restructuring charge of $4 million associated with our realignment, $2.1 million of which was non-cash stock compensation. Non-cash stock compensation expense from our ongoing operations totaled $1.9 million with $1.7 million allocated to G&A and $0.2 million to R&D. In 2019, we entered into an agreement with the Cystic Fibrosis Foundation to provide up to $1.6 million in funding contributing toward our U.S. Phase 2 cystic fibrosis study. In Q4 2019, we received the first payment of $400,000 and in Q1 of 2020 we received the second $400,000 payment.

First quarter 2020 R&D expense totaled $4.5 million compared to $6.0 million for the same period in 2019. The quarter-to-quarter R&D expense decrease was driven by lower professional fees and non-cash stock compensation, offset by an increase in headcount and related salaries for a portion of the 2020 period. G&A expense for the first quarter of 2020 was $5.2 million, a decrease from $6.0 million for the same period in 2019 due to lower non-cash stock compensation and infrastructure-related costs. Given the realignment effective in March, we expect that our quarterly cash burn will decline sequentially as we move throughout the year to reflect the company's reduced headcount, elimination of non-priority program spending, and targeted efficiencies. While the majority of cost savings will fall in G&A, there will be some reduction in our R&D spending. We expect that our cash burn rate will reach its low in the fourth quarter of 2020 and remain fairly stable throughout 2021.

In April 2020, we applied for and received a loan of approximately $800,000 via the U.S. SBA's Paycheck Protection Program, which was a component of the CARES Act signed into law in late March. PPP loans are eligible for partial forgiveness, which we will apply for, based on using the proceeds for payroll, maintaining headcount, and other specified costs. The remaining balance of the loan bears interest at the rate of 1% and is to be repaid commencing at the end of 2020. Also, for your modeling purposes, our total shares of common stock outstanding as of March 31, 2020 were 40,125,000. This concludes the first quarter financial comments and I'll turn the call back to Greg.

Greg Williams -- Chief Executive Officer

Thank you, Steve. It's our highest priority to resume our Phase 2 proof-of-concept clinical trials in cystic fibrosis and to report top line data, which we believe will be a major value inflection point for the company. We are laser-focused on ensuring that we have our investigators and our clinical sites ready to complete this trial as soon as possible. We look forward to presenting data on ELX-02 at the North American Cystic Fibrosis Conference in late October. Beyond cystic fibrosis, we continue to advance our portfolio of novel ERSG molecules. Several of these compounds demonstrate encouraging levels of read-through activity and tolerability supporting their further therapeutic development.

Dr. Goddeeris shared with you some of the latest scientific data from our preclinical programs in ADPKD and inherited retinal disorders. Yesterday, May 6th, we presented some of these data from our inherited retinal disorder preclinical activities at the virtual ARVO meeting. We're pleased that our recent scientific manuscript in the Journal of Pharmacology and Experimental Therapeutics can be viewed in the Fast Forward section of the journal's website. We thank you for joining us on our first quarter 2020 earnings call and look forward to continuing to update you on our progress. Thank you very much. Operator, you may now open up the call for questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Michelle Gilson with Canaccord.

Michelle Gilson -- Canaccord -- Analyst

I was just hoping you could maybe give us some clarity. Given the results you saw in cystinosis, can you just remind us all why these data are de-risking for cystic fibrosis and what is most important to you with respect to the read-through of those data? And then, maybe just remind us some of the differences in trial design as well and why ELX-02 in cystic fibrosis is so different from cystinosis as well, the program? Thank you.

Greg Williams -- Chief Executive Officer

Sure. Thank you, Michelle. Appreciate your question. So firstly, with the nephropathic cystinosis trial, we saw a couple of things. This was the first time that we have employed our daily dosing dosage regimen in healthy volunteers or patients. We got exactly the pharmacokinetics that were anticipated through three different doses in cystinosis, so that is excellent news. Secondly, we saw a clean safety profile. The data were reviewed by an independent safety review committee. They approved us to go forward with a second cohort of patients that included peds. We've since paused that trial and decided not to continue the trial because there were issues with the study design that complicated interpretation of the data.

From an efficacy perspective, we saw that the first dose of ELX-02 was not effective in the nephropathic cystinosis patients. We did see, in the second dose, that we saw a statistically significant reduction of white blood cell cystine, which was the key pharmacodynamic measure in that study. The third cohort was somewhat mixed and that was because of some baseline drift across those patients over time. There had been a lengthy period of time between administration of ELX-02 for the second cohort and beginning of that third -- excuse me, second treatment group and beginning for administration for the third treatment group.

So the issue with the design related primarily to baseline drift associated with some particularly severe nephropathic cystinosis patients and overall, the data are very encouraging though because we did see reductions directly attributable to ELX-02. They are clear signs of biologic activity. We saw a favorable safety profile. We saw pharmacokinetics exactly as we anticipated. So for all of those reasons, these help to de-risk our CF program. In fact, in a conversation with our CFF advisory group, they were very enthusiastic about what these results mean, potentially for nephropathic cystinosis patients as we go forward.

Now, in contrast to the nephropathic cystinosis study, patients in the CF trial, our primary efficacy pharmacodynamic assessment is going to be on sweat chloride. Sweat chloride doesn't really drift. It doesn't really bounce around the way white blood cell cystine does. So the issue that we had with study design in cystinosis is not going to recur in the CF trial. In cystinosis, we looked at three different doses. They were dose escalation within patient. So it was 0.5 milligram per kilogram, 1 milligram per kilogram, escalating to 2 milligrams per kilogram. In the CF trial, we're looking at four different doses for dose escalation. We're starting at 0.3 milligram per kilogram escalating to 0.75 milligram per kilogram. After a week's [Phonetic] treatment, up to 1.5 milligram per kilogram for a week of treatment, and then up to 3 milligrams per kilogram in those patients for a duration of two weeks. So the safety and the pharmacokinetics can be directly inferred from cystinosis to cystic fibrosis and the clear indication of biologic activity in the nephropathic cystinosis trial is very supportive of what we expect to see in our CF trial and the issue that we had with baseline drift in the cystinosis trial is not going to be present in the CF trial.

Michelle Gilson -- Canaccord -- Analyst

Okay, thanks. And if I might, just one follow-up. How quickly, when sites start to reopen, can you get the cystic fibrosis study back up and running? And are there going to be any changes that you anticipate in the way that you monitor patients and collect data?

Greg Williams -- Chief Executive Officer

So we're not anticipating any changes to the established protocols either in Europe, Israel or in the U.S., but that said, the timing is not entirely clear. I mean, as you know, this is really a fluid, unprecedented time. There has been huge societal changes as a result of the COVID global pandemic. It's fantastic that countries are now starting to reduce their social distancing policies. It's great that countries are starting to open up. It's great that hospitals appear to be on the verge of starting to not only are they able to manage the COVID patients, but the COVID patient load has dramatically reduced. They're on the verge of starting to consider resuming clinical trials, and this is for everybody in the industry, not just us. So for the time being, I can only tell you that our highest priority is to complete enrollment, to deliver top line data as soon as possible and that we will keep you informed as we know more.

Operator

Our next question comes from Yun Zhong with Janney.

Yun Zhong -- Janney -- Analyst

So first question is about the Phase 2 studies in cystic fibrosis. I don't believe you have disclosed the number of patients that have been enrolled in the study, but are you able to tell, once you are able to reopen the studies, how soon you will be able to complete patient enrollment?

Greg Williams -- Chief Executive Officer

Hi, Yun. Thanks for the call. As I just shared with Michelle, it's a really unprecedented time. Today we can't say exactly when we will be able to resume enrollment, but what I can tell you is that it is our highest priority to get enrollment completed to report top line data. We'll certainly let you know as we know more going forward and we do look forward to presenting data at the NACFC meeting in October.

Yun Zhong -- Janney -- Analyst

Okay, yes. I understand the timing is probably uncertain, but another question is, with regard to those patients who had been enrolled in the study, probably already got part of the treatment, what happens to those patients? Will those patients still be included in data analysis or do you expect that you'll maybe have to enroll additional patients than what you had planned so that you can have a sufficient data set?

Greg Williams -- Chief Executive Officer

Yes, the data that we've collected so far will be included in our data set as we go forward and when we know more and as we approach completion of enrollment, we'll certainly fill you in on some of the additional details.

Yun Zhong -- Janney -- Analyst

Okay, thank you for the answers.

Operator

[Operator Instructions] We do have a follow-up from Yun Zhong with Janney.

Yun Zhong -- Janney -- Analyst

Thank you for taking the follow-up question. So just want to confirm -- for the ADPKD program, is the plan still the same that you will likely use ELX-02 given that you have already tested in the kidney for the ADPKD program as well? And are you comfortable with the read-through efficiency so that you can get sufficient level of protein expressed in the kidney?

Greg Williams -- Chief Executive Officer

Well, thanks again, Yun, for your follow-up. It's not clear whether we will use ELX-02 or one of the other compounds in our ERSG library. We've got a number of compounds that show favorable read-through characteristics in the kidney and we would anticipate with all of them that there's a large upside opportunity for read-through and for safety. We are in the process now of continuing our IND-enabling trials and sorting out which compound we would go with as we approach clinical trials. Dr. Goddeeris, would you care to add anything further there?

Matthew Goddeeris -- Vice President of Research

Thanks, Greg. At this point, I think the biggest concern is that we're choosing the right molecule for read-through within the kidney and as you may know from our results in ELX-02, we found that this molecule based on its PK profile has really good exposure to the kidney and so it does lead it to be a possible choice within this mix, but because we have active molecules that also show good activity and read-through against relevant ADPKD mutations, we're not ruling these out just yet.

Yun Zhong -- Janney -- Analyst

Okay, great. Thank you again for the information.

Operator

And I'm not showing any further questions at this time. I'd like to turn the conference back over to our hosts.

Greg Williams -- Chief Executive Officer

Well, thank you all very much. We really appreciate your interest in Eloxx. It's going to be a fantastic quarter and we look forward very much to being able to reopen our trials and to provide you with additional information as we go forward. Bye-bye.

Operator

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.

Duration: 32 minutes

Call participants:

Barbara Ryan -- Investor Relations

Greg Williams -- Chief Executive Officer

Matthew Goddeeris -- Vice President of Research

Stephen G. MacDonald -- Vice President of Finance and Accounting, Treasurer

Michelle Gilson -- Canaccord -- Analyst

Yun Zhong -- Janney -- Analyst

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