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Eloxx Pharmaceuticals, Inc. (NASDAQ:ELOX)
Q2 2020 Earnings Call
Aug 6, 2020, 2:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, everyone, and welcome to the Eloxx Pharmaceuticals Second Quarter 2020 Earnings Webcast and Conference Call. [Operator Instructions]

At this time, I would like to turn the call over to Barbara Ryan, Eloxx Investor Relations. Please begin.

Barbara Ryan -- Investor Relations

Thank you. Welcome and thank you all for joining us this afternoon for a review of Eloxx Pharmaceuticals second quarter 2020 financial results and business update. Joining me this afternoon are Dr. Greg Williams, our Chief Executive Officer; Neil Belloff, 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, August 6, 2020, only. A replay of this call will be available on the Company's website, www.eloxxpharma following the call.

It is now my great pleasure to turn the call over to Dr. Greg Williams, Chief Executive Officer of Eloxx Pharmaceuticals.

Gregory Williams -- Chief Executive Officer

Thank you, Barbara. And welcome to Eloxx's second quarter 2020 earnings webcast and conference call. We are continuing to advance 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.

Earlier this week, we were pleased to announce that the U.S. FDA has granted an orphan drug designation for ELX-02 for the treatment of cystic fibrosis. The orphan drug designation confers several important benefits to support development for medicines for underserved patient populations or rare disorders that affect fewer than 200,000 people in the U.S. Orphan drug designation qualifies Eloxx for certain benefits, including eligibility for marketing exclusivity for seven years post approval, tax credits on qualified U.S. clinical trial expenses, potential grant funding opportunities that can be used for clinical trials and a waiver of the Prescription Drug User Fee required to submit an application for approval with the FDA, which is currently set at just under $3 million.

We had previously announced that our CF trials were temporarily paused in response to the COVID-19 global pandemic in order to protect the health and safety of our employees, their families, our healthcare workers, our investigators, and most importantly, cystic fibrosis patients. On June 17, we were pleased to announce that enrollment of our Phase 2 CF clinical trials in Europe and Israel had been resumed, while the trial in the U.S. remained paused.

We've maintained a high level of engagement with our clinical sites investigators to ensure that we can complete our Phase 2 program as soon as possible. We will continue to update you as we gain greater clarity on these activities. 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. We are also pleased to report that to date there have been no safety signal in these clinical trials.

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 U.S. 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 therapeutic development network. In Europe, Our protocol has been endorsed by the ECFS Clinical Trial Network.

We are also evaluating additional clinical sites in other countries, where patient enrollment may be feasible. The Company has sufficient capital to run through the end of 2021 and we believe 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 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 continues to advance other compounds from our ERSG library for additional indications, which we had previously spoken to you about, such as autosomal dominant polycystic kidney disease, or ADPKD, and inherited retinal disorders.

We have a strong, experienced team with expertise in clinical drug development, basic research, and regulatory affairs. I'm highly confident that we have the capabilities and the resources needed to deliver on our goals. We expect that there'll be a steady cadence of additional data, scientific presentations, and publications as we move through this year. We are pleased that a scientific manuscript detailing ELX-02s read-through specificity toward premature stop codons has been published in the August 2020 edition of The Journal of Pharmacology and Experimental Therapeutics. We're planning to present additional data for ELX-02 in cystic fibrosis at the North American Cystic Fibrosis Conference in late October.

As we previously shared, we presented data during the second quarter from our inherited retinal disorders program at the virtual Association for Research in Vision and Ophthalmology, or ARVO meeting. In a few moments, Dr. Goddeeris will update you on the continued progress in our inherited retinal disorders and ADPKD programs.

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. We are evaluating Usher syndrome and other disorders of the photoreceptors or retinal pigmented epithelium, recently demonstrating read-through of the most common nonsense alleles for the CEP290, MYO7A, and PDE6B genes.

Positive scientific data presented at last year's American Society of Nephrology, Kidney Week, from our completed renal impairment study supported the expansion of our research in the kidney into other areas such as ADPKD, where there's a high prevalence of nonsense mutation patients. The data also provides modeling necessary for dose adjustment based on renal function. Our screening programs continue to evaluate opportunities to advance ELX-02 and other novel molecules from our ERSG library for new indications. 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 continue to pursue partnerships where appropriate to expand our therapeutic footprint and accelerate our progress.

We ended the second quarter of 2020 with $37.1 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 pre-clinical activities for ELX-02 and our library of molecules in additional indications.

Before I turn the call over to Dr. Matt Goddeeris, our Vice President of Research, who will update you on the progress in preclinical programs in ADPKD and inherited retinal disorders, I'd like to ask Neil Belloff, our Chief Operating Officer and General Counsel, to provide you with an overview of how we are diligently and successfully navigating the challenges of the COVID-19 global pandemic.

Neil S. Belloff -- Chief Operating Officer, General Counsel & Corporate Secretary

Thank you, Greg. Protecting the safety of our workforce, health-care workers, and patients and their respective families are of paramount importance during this pandemic. With that in mind, we have been working diligently to ensure that we can operate with minimal disruption and mitigate the impact of the current healthcare crisis. To date, the COVID-19 pandemic has not had a material adverse impact on our financial condition, which Steve will speak to shortly, and we have not had to lay-off or furlough any employees.

Corporate operations continue even though our Phase 2 clinical trials in Europe and Israel were temporarily paused for a period of time and those in the U.S. remain on hold. We continuously evaluate our operations and risks and plan for possible alternative mitigation strategies in order to remain flexible, while complying with applicable government regulations and guidelines. Like most companies, we have made modifications to our normal operations, including prohibitions on business travel and meetings, permitting employees to work remotely, and implementing workplace safety guidelines.

We cannot predict the extent and severity of the future impact of the global health crisis on our business and clinical trials, which will be determined largely by the ability of patients to access trial sites, personnel from our CROs to perform in accordance with our trial protocols and our effective oversight and communication with our CROs, clinical sites staff and principal investigators. As Greg mentioned, we remain focused on completing our Phase 2 clinical trial program as soon as feasible. We will provide additional relevant updates when available.

I would now like to turn the call over to Dr. Matt Goddeeris, Vice President of Research.

Matthew Goddeeris -- Vice President of Research

Thank you, Neil. We continue to advance our preclinical efforts across our ERSG library of molecules, working with our research partners to advance our programs. As Greg mentioned, we are pleased 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 published in the August 2020 edition of 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 a favorable tolerability profile across our preclinical and clinical datasets.

Our preclinical efforts in kidney and ocular disorders continue to progress. 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. We continue our effort in establishing and evaluating functional models of ADPKD in order to confirm that the read-through we observe has an impact on cyst formation and growth.

Our cystic fibrosis platform has highlighted 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 characteristics of the disease state. Using a patient-derived organoid with the most common PKD2 nonsense allele, we have repeated encouraging results of reduced cystogenesis and also observed a reduction in cyst size. These results demonstrate that a read-through approach can have a direct impact on meaningful metrics of ADPKD progression, cyst number, and size. Furthermore, we continue to make progress in our efforts to CRISPR engineer induced pluripotent stem cells in order to model Common PKD nonsense alleles in organoids. We intend to evaluate additional models of ADPKD and with positive results to 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. 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 continue our efforts, exploring several biodegradable controlled release technologies and are encouraged by the intravitreal release rates achieved to-date which are consistent with our target release profile of one month to three months.

While we continue in our ocular program efforts, it is gratifying to observe that others are also reporting on the exciting potential of Eloxx compounds in this disease base. For example, the group of Bikash Pattnaik at the University of Wisconsin, Madison, recently demonstrated that ELX-03, also known as NB84, was sufficient to rescue Kir7.1 channel function in a nonsense allele cellular model derived from an individual with the form of pediatric blindness, Lebers congenital amaurosis. These results were published in the American Journal of Human Genetics. These promising results represent another example of how intravitreal delivery of an ERSG may have broad application across nonsense related inherited retinal disorders through restoring production of essential proteins.

I would now like to ask Steve McDonald, our VP of Finance and Accounting, to provide a review of our second quarter 2020 financial results.

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

Thanks, Matt. As of June 30, 2020, the Company reported total cash including cash equivalents and marketable securities of $37.1 million, which we believe will fund the Company's operations through topline data in cystic fibrosis and through the end of 2021. For the quarter ended June 30, 2020, the Company incurred a net loss of $7.9 million or $0.20 per share as compared to a net loss of $14.4 million or $0.40 per share for the same period in 2019.

Non-cash stock compensation expense totaled $2 million with $1.7 million allocated to G&A and $300,000 to R&D. Second quarter 2020 R&D expense totaled $3.5 million compared to $7.3 million for the same period in 2019. The quarter-to-quarter R&D expense decrease was driven by lower professional fees, largely due to the recent pause in our Phase 2 trials and reduced headcount and related salaries for the 2020 period. G&A expense for the second quarter of 2020 was $4.1 million, which decreased from $7 million for the same period in 2019, due to lower headcount and professional services costs.

Given the realignment effective in March, we expect that our quarterly cash burn will decline sequentially as we move through the second half of 2020 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 with some quarter-to-quarter variation.

In April of 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 June 30, 2020, were 40,135,000.

This concludes the second quarter financial comments, and I'll turn the call back to Greg.

Gregory Williams -- Chief Executive Officer

Thank you, Steve. It is our highest priority to complete 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 assuring that we, our investigators, and clinical sites can complete this trial as soon as possible. We are pleased that enrollment has resumed in Europe and Israel and that to date, there have been no safety signals for ELX-02 in these trials.

We are gratified that the FDA has granted orphan drug designation for ELX-02 for the treatment of cystic fibrosis. As I mentioned earlier, the orphan drug designation confirms several important benefits to the ELX-02 program in cystic fibrosis, and 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. And we're pleased that our recent scientific manuscript on the specificity of ELX-02 has been published in the August 2020 edition of the Journal of Pharmacology and Experimental Therapeutics.

We will be making a presentation and hosting one-on-one meetings with investors next, Thursday, August 13, at the 40th Annual Canaccord Genuity virtual Growth Conference. On September 10, we will be hosting one-on-one meetings with investors at Citi's 15th Annual Biopharma Virtual Conference. We thank you for joining us on our second quarter 2020 earnings call and we 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

Thank you. [Operator Instructions] Our first question comes from the line of Michelle Gilson with Canaccord Genuity. Your line is open, please go ahead.

Veena -- Canaccord Genuity -- Analyst

Hi guys, this is Veena [Phonetic] here for Michelle. Congrats on the quarter and on resuming the study in Europe and Israel. Can you maybe just remind us about the studies in line and what would be a clinically meaningful result, specifically on the expected change in FEV1? And then, I have a follow-up question.

Gregory Williams -- Chief Executive Officer

Sure, Veena. Thank you so much for asking and for joining the call today. So, this is Greg, and the CF trial has four treatment groups. It's an intrapatient dose escalation design, where the first dose is 0.3 milligrams per kilogram, the second dose is 0.75 milligrams per kilogram, the third dose is 1.5 milligrams per kilogram, and the top dose is 3 milligrams per kilogram. The first three doses are administered for the duration of one week, each followed by a wash-out period, where pharmacokinetics and safety are evaluated by an independent safety review committee for the first two patients through and then the top dose is at two-week duration of administration.

The primary endpoint is safety. As you know, we're also measuring pharmacokinetics and pharmacodynamic endpoints. The key pharmacodynamic endpoint which is a secondary endpoint in this trial is sweat chloride,which is highly correlated with improvements in FEV1. And we are also following FEV1. In a small trial like this, our primary focus is on sweat chloride. And with a larger trial, we will get more data related to FEV1. In a small trial, where there is potentially a fair amount of inter and intrapatient variability with FEV1, it may be more difficult to tease out a signal.

Sweat chloride by comparison is much more consistent and again, it's highly correlated with FEV1. So we're primarily looking for differences in sweat chloride and those differences in sweat chloride could be as much as a change of 50 millimoles per liter or 60 millimoles per liter, that would correspond to normalizing sweat chloride. Smaller increments would also be potentially important therapeutically for patients. We would be looking for FEV1 changes that correspond to those improvements in sweat chloride. And so far, we are pretty confident that we are in the right dosage range based on previous data from our cystinosis trial and we look forward to providing results as we learn more.

Veena -- Canaccord Genuity -- Analyst

Okay, great, thank you. And then, I guess, from your interactions with the U.S. clinical site and given how clinical activity seems to be kind of resuming gradually in the U.S., do you have maybe anticipated timeline or kind of an estimate when will you be able to resume? And have you implemented any protocol changes, both in the Israeli trial or in the U.S. trial, kind of to try to mitigate potential COVID impacts in case of a second wave?

And then, I guess, when we're thinking of when you will report the topline data, do you plan to include also the U.S. study as well? I guess just trying to kind of get a better sense of timeline, should we expect data in 2020 or are we thinking of somewhere in 2021? Thank you.

Gregory Williams -- Chief Executive Officer

Sure. So there is a number of questions there. I will try to piece them out one at a time. So, first, as you know, we've resumed our trial in Europe and Israel. Across the world, we have kept in close touch with the investigators, CROs. We are really happy with their level of enthusiasm and we are continuing to move things forward as fast as we can. Since we've resumed in Europe and Israel, we've made good progress in spite of the uncertainty associated with COVID. We haven't made any COVID-related protocol changes, but of course we are carefully -- of course, we are carefully monitoring more patients as we normally would and our highest priority is protecting patient safety. As you know, our highest priority is to complete these trials as soon as we possibly can. Europe and Israel is ahead right now, since we remain temporarily paused in the U.S. and we will provide you with additional updates as they become available.

Veena -- Canaccord Genuity -- Analyst

Got it, OK. Thank you. And again, congrats on the quarter and we'll talk to you next week. Thank you.

Operator

Thank you. And our next question comes from the line of Joel Beatty with Citi. Your line is open, please go ahead.

Joel Beatty -- Citi -- Analyst

Hi, team and thanks for the helpful overview today. First question is -- and it's good to hear that there is no safety signals so far. Are you able to provide context in terms of at what dose levels there has been no safety signals? How many escalating doses has there been or how many patients that no safety signals have been seen in?

Gregory Williams -- Chief Executive Officer

Hi, Joel. There are -- so, thank you for your question and for calling in. We've got a number of patients proceeding through the protocol across dose levels. It's great to see that there are no ELX-02 related safety signals at this point and as we generate additional data, we will provide you further updates.

Joel Beatty -- Citi -- Analyst

That's helpful. So I guess with the number of patients, does that mean they've been through three or four -- I guess, all four dose levels. Is that what you mean?

Gregory Williams -- Chief Executive Officer

So, at this point, that is a level of detail that we're not sharing, Joel. I appreciate you're asking. As we generate additional data and as we have a better handle on the total number of patients in each region and timelines, we will provide a more comprehensive update.

Joel Beatty -- Citi -- Analyst

Okay, got it. Yeah, fair enough. Then, I guess a question on the sweat chloride endpoint. That seems like you will be in accordance for moving on to further development. I guess how many -- I guess can you give some more context into how variable that is from patient to patient or given the trial design? How confident can you be that it is a real effect from the drug? How many patients would be enough to give confidence there, if you are able to share that?

Gregory Williams -- Chief Executive Officer

So, as we look at sweat chloride, the diagnostic value for patients having CF would be 60 millimoles per liter. Patients with nonsense mutations have reportedly had sweat chloride values of well over 100. So if we are looking at incremental differences that bring us down to 60 or even potentially below that, there is a lot of room to really make an important difference for these patients. Since this is an open-label trial, we're going to continue to monitor the data as they come in and when we have further information, we will be happy to share it with you. Until we really quantify the inter and intrapatient data values, it's hard for me to give you a statistical mathematic response, but between the patients that are available, both in Israel and Europe and the U.S., we are highly confident that we'll have more than enough patients to have clinically meaningful and statistically significant results.

Joel Beatty -- Citi -- Analyst

Great, that's helpful. Thank you very much.

Gregory Williams -- Chief Executive Officer

You're welcome.

Operator

Thank you. And our next question comes from the line of Ted Tenthoff with Piper Sandler. Your line is open, please go ahead.

Ted Tenthoff -- Piper Sandler -- Analyst

Great, thank you very much and thanks for all the detail on the update on the CF trial. I wanted to get a sense for some of the other preclinical efforts, specifically with some of the stuff that you reported that are rolling the retinal disease. How has COVID sort of impacted preclinical work and appreciating that the focus right now is on CF, just wanted to get an understanding of how those programs are advancing and whether may be they offer partnering opportunities. Thanks so much.

Gregory Williams -- Chief Executive Officer

So, Ted, we are always talking to potential partners and we're certainly open to those conversations. We routinely evaluate opportunities and we will continue to do so. COVID has slowed down a number of businesses around the around as you know, but our preclinical activities have proceeded very well. And I'd like to ask Matt Goddeeris to give us a little more color.

Matthew Goddeeris -- Vice President of Research

Yeah, thanks, Greg. So, appreciate the question, Ted. Early on, we did see some delays in regards to COVID and that says the different CROs and academic institutions we work with came up with their own plans for how they were going to mitigate risk, but we've seen pretty much across the board labs reopening. There are definitely safety plans put in place in order to handle it. And the only delays we observed that impacted any of our projects dealt with animal studies and that was in and around getting some of the studies up and running again with the IACUCs somewhat being on hiatus. So, I would say the initial pause did affect us for a few weeks and as people got a handle on it, we were able to get right back to it. So, it's pretty much business as usual in terms of the preclinical efforts.

Ted Tenthoff -- Piper Sandler -- Analyst

Great, thank you very much for that update.

Operator

Thank you. And I'm showing no further questions at this time. And I would like to turn the conference back over to Mr. Greg Williams for any further remarks.

Gregory Williams -- Chief Executive Officer

Thank you. Thank you all for tuning in today. Thank you for your questions. We will look forward to talking with you again on August 13 at the Canaccord Conference and then again on September 10 at Citi. We look forward to continuing to update you and look forward to talking again soon. Bye-bye.

Operator

[Operator Closing Remarks]

Duration: 32 minutes

Call participants:

Barbara Ryan -- Investor Relations

Gregory Williams -- Chief Executive Officer

Neil S. Belloff -- Chief Operating Officer, General Counsel & Corporate Secretary

Matthew Goddeeris -- Vice President of Research

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

Veena -- Canaccord Genuity -- Analyst

Joel Beatty -- Citi -- Analyst

Ted Tenthoff -- Piper Sandler -- Analyst

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