Arena Pharmaceuticals Inc (ARNA) Q4 2018 Earnings Conference Call Transcript

Additionally, we expect to file an Investigational New Drug Application or IND for our preclinical assets APD418 in decompensated heart failure in the second half of this year.

So, let me start with the Etrasimod. Etrasimod, is a well-characterized in-house developed next-generation, once-a-day, oral S1P modulator with unique and best-in-class receptor selectivity in pharmacodynamics. We believe it is the only next generation S1P modulator and has the potential to be the preferred oral option for patients suffering from a broad range of T-lymphocyte-mediated immune and inflammatory disorders, such as IBD.

Last month, we reported positive long-term data from the open label extension of the Phase 2 OASIS trial evaluating Etrasimod, the treatment of ulcerative colitis or UC. The Etrasimod demonstrated clinical, response and durable long-term clinical remission, as well as favorable long-term safety and tolerability.

Importantly among subjects achieving clinical response or clinical remission on two milligrams of etrasimod for 12 week endpoint OASIS. Sustained treatment effect of 46 weeks was observed, with 93% of patients experiencing sustained clinical response and 75% experiencing sustained clinical remission at both 12 and 36 weeks.

These data reinforce our belief in etrasimod as an important feature therapy in IBD and our commitment to improve lives of patients suffering from these grievous conditions. We've received feedback from regulatory agencies confirming the details of our registrational program, which will enable us to initiate our Phase III program around mid-year. We look forward to updating you on all the additional program details as we finalize them.

Moving on to other indications for etrasimod, we're also working on an aggressive development plan in Crohn's disease and we are finalizing plans from adapted Phase 2b III program. Announced last quarter, we are planning a path forward in atopic dermatitis.

Current therapies have efficacy in limited set of patients and range from simple emollients, to new injectable biologics and other topical therapies. We believe there is significant opportunity move this field forward to a once-a-day oral regimen that may impact not only the dermatological manifestations but potentially the systemic implications of atopic dermatitis as well.

We expect to initiate a Phase II trial this year with data read out in 2020. We are excited to further evaluate etrasimod in multiple indications going forward and continue to believe that it is the only next generation S1P modulator in development in improved pharmacology and pharmacodynamics and demonstrated improved safety and efficacy offering tremendous promise in the treatment of broad range for the new and inflammatory mediated conditions.

Moving onto Olorinab, our peripherally restricted, highly selective, full agonist CB2. We believe that this product has the potential to have significantly advance in the treatment of visceral pain. In light of the positive Phase 2a results that were delivered in September, we continue to advance olorinab program targeting GI pain. We expect to initiate a multi-dose randomized, double-blind, placebo-controlled Phase 2b clinical trial program targeting the treatment of irritable bowel syndrome pain this year.

We look forward to updating you on the progress throughout the year. In January, we completed our global license agreement with United Therapeutics for ralinepag. Received an $800 million upfront payment and are eligible to receive up to $400 million in regulatory milestone payments, plus low double digit tiered royalties. This deal allows us to maintain focus on our pipeline and secure strong cash position, which Kevin will discuss further in the call.

Moving on to corporate updates. In December, we appointed life science, Industry Finance Executive, Manmeet Soni to our Board of Directors. Manmeet adds deep financial and business experience to our Board and our Audit Committee. His leadership abilities and senior finance experience within the life science industry will be instrumental as we strategically advance Arena toward its next stage of growth. Manmeet is currently the Chief Financial Officer of Alnylam Corporation and has previously served as the CFO of multiple pharmaceutical companies including ARIAD and Pharmaceuticals.

In November, we appointed Robert Lisicki as Executive Vice President and our Chief Commercial Officer and Dr. Paul Audhya, as our Senior Vice President, Medical Affairs. With these hires, we initiated the build of our footprint into the Boston area. Rob brings close to 30 years of experience in biopharmaceutical management, sales and marketing to Arena, a part of Arena, Rob held executive level commercial positions at several life science companies including Regeneron Pharmaceuticals, Daiichi Sankyo, Amgen and Johnson & Johnson.

Paul, who will be leading our Medical Affairs function has over 20 years of clinical development and global medical affairs leadership experience across a broad range of therapeutic areas and disciplines including rare diseases. Paul has held executive and senior management positions at Vertex, Hospira, Reata Pharmaceuticals where he stood as Chief Medical Officer, Abbott Laboratories, Amgen, Bristol-Myers and Janssen. As we continue to strategically scale our team, our objective is to identify individuals with the passion, experience and ability to rapidly advance our business. Given Manmeet, Rob and Paul as extensive expertise in their respective areas, we believe their appointment significantly strengthen our ability to deliver our transformational medicines to patients. We are thrilled to welcome them to the Arena team and we're excited about our expansion into the Boston area.

So, with that let me turn the call over to Kevin for review of our financials.

Kevin R. Lind -- Executive Vice President and Chief Financial Officer

Thank you, Amit. I will provide a brief review of our fourth quarter and full year 2018 financial results here while more detailed results are discussed in our press release from earlier today and in our 10-K, which will be filed later this week.

Revenues for the fourth quarter were $8.6 million consisting of $6.9 million in collaboration revenue and $1.8 million in royalty revenue. In terms of costs, research and development expenses totaled $37.9 million. General and administrative expenses totaled $15.4 million. We burned approximately $36 million in cash this quarter excluding one-time items.

A change in our deferred tax valuation -- asset valuation allowance resulted in an income tax benefit of $110.3 million. Net income for the quarter was $68.7 million or $1.39 per share on a basic per share basis and the diluted earnings per share was $1.35. At December 31, 2018, cash, cash equivalents and investments balance was $528 million and approximately 49.4 million shares of Arena common stock were outstanding.

For the full year 2018, revenues were $18.0 million, consisting of $11.4 million in collaboration revenue and $6.6 million in royalty revenue. R&D expenses totaled $115 million, G&A expenses totaled $47.7 million, net loss was $29.4 million or $0.63 per share. As of February 1, 2019 Arena's cash, cash equivalents and investments balance was over $1.3 billion. As we think about 2019, we expect to record the United Therapeutics upfront payment as revenue in Q1 '19.

Now, I'll turn it back to Amit.

Amit D. Munshi -- Director, President and Chief Executive Officer

Thanks, Kevin. We believe that three things are necessary to drive long-term success in the biotechnology organization, best in class or first-in-class products that have a meaningful impact to patients, capital support a growth plan over the long term and highly skilled management team. We are in a unique position at Arena today and we firmly believe that we have all three of these key ingredients for growth. We put a tremendous effort in over the last few years in the turnaround Arena and feel that we currently have the hallmarks necessary to build a vibrant sustainable enterprise. We look forward to updating you on our robust best in class pipeline and we continue to make progress and we look forward to an exciting next few years for Arena's as we continue to grow the business.

I will now turn the call over to the operator to begin the Q&A session. Operator?

Questions and Answers:

Operator

Thank you. (Operator Instructions) And our first question is from Jessica Fye with JP Morgan. Please go ahead.

Daniel -- JP Morgan -- Analyst

Thanks for taking our questions. This is Daniel for Jessica. First of all with the Etrasimod. In terms of the competitive picture that you see in Crohn's. What are you most focused on within that field?

Amit D. Munshi -- Director, President and Chief Executive Officer

That is on -- thanks for the question. And it's a really interesting time in the evolution of Ulcerative colitis and Crohn's maybe IBD space in general. There's a couple of key dynamics happening. One is a real push to identify patients who are moderate to severe patients and about 60% of patients out there, on moderate to severe patients have never received the biologics. It's quite striking, in other patients who received the biologic about 80% at any one time or, are non-responsive or failing the biologic.

So it's a huge market opportunity here in front of us. This is a very clear physician and patient preference to move to the oral agents and within the oral agents there's some selection bias toward the S1P modulator over the JAK inhibitors and we can talk more about that either on this call at a future time, but the market research is fairly clear.

When it comes down to the S1P class there is no doubt in our minds, we firmly believe that etrasimod is a best-in-class agent both on its receptor pharmacology, the pharmacodynamics, the demonstrated efficacy and the demonstrated safety profile.

So we think we're unique situation, this landscape evolves, it really have the leading product in IBD. Now, clearly there's a lot of work still to be done, but as we see the world looking forward and as the market research informs our decision-making. We're very confident that we have an agent here that has the ability to transform the ulcerative colitis marketplace.

Daniel -- JP Morgan -- Analyst

Thank you. And one more question, could you provide us with your updated thoughts on the trial design for the Phase 2 study in atopic dermatitis?

Amit D. Munshi -- Director, President and Chief Executive Officer

Sure. The atopic dermatitis study as we disclose before will be a randomized double-blind, placebo-controlled trial. It's fairly conventional. If you look at most of the atopic dermatitis Phase 2 trials, it wouldn't be strikingly different than any of those both in size and duration of treatment. It's important to understand that we saw very good lymphocyte reduction very early, in both the healthy volunteer studies as well as the IBD studies. So this is not a product that requires a very long duration of treatment. But in that duration area that we've talked about before for UC and Crohn. So, not a lot of magic in the trial design here, we're excited about the compound, as a once-a-day oral in atopic derm. We're excited about being able to look at marketplace that currently only has emollients, a few a topical agents which are not well received in the marketplace and then biologics.

So, having an option for a once-a-day oral here is pretty exciting. I will add that we believe the biology is really spot on with the activity and that's one T-4 and its impact on the migration of dendritic cells. And then on T-lymphocytes where the S1P1 medium. We think a trials might is uniquely positioned for these patients and we're excited to run the trial and look forward to sharing more details as we get going.

Daniel -- JP Morgan -- Analyst

All right. Thanks for taking our questions.

Operator

Thank you. Our next question comes from Joseph Schwartz with SVB Leerink. Please go ahead.

Joseph Schwartz -- SVB Leerink -- Analyst

Thanks very much and congrats on all the progress. So there's been some more safety issues in terms of venous thrombo-embolic events with XELJANZ particularly higher doses. I was wondering, if we can get your view on how that might be impacting the competitive landscape in IBD, in particular?

Amit D. Munshi -- Director, President and Chief Executive Officer

Yeah, thanks, Joe. It's a little early to tell. We haven't seen all the full data set. I think it's pretty clear that the JAK inhibitors broadly have shown demonstrate some effect or an increase in risk and thrombo-embolic events, it's important also to know that something that's probably not as discussed as it should be, that IBD patients specifically have a, the two to three-fold higher risk of thrombo-embolic events such as the native risk and now you've got a class of agents that has demonstrated in other areas like RA to show a increased risk of thrombo-embolic events. So we believe that this continues to bolster the case for new and novel mechanism, especially oral agents in the IBD space and I think it really sets us up well competitively long-term.

Joseph Schwartz -- SVB Leerink -- Analyst

Okay. And then could we get your updated views on how you see the Phase 3, how long you see the Phase 3 enrollment for ulcerative colitis and Crohn. Where Crohn's requiring for full enrollment?

Amit D. Munshi -- Director, President and Chief Executive Officer

Yes. And thanks, Joe. The -- we haven't provided specific enrollment guidance and we probably unlikely to do so. What we have said is we expect data in 2021 from the UC study and we'll provide similar guidance on Crohn's as we lock down the final study design. So like to really focus on kind of the front-end to start in the mid-year time-frame for UC and then data in 2021. And then in interim, we'll continue to do our job to make sure we enrolled these trials.

We're excited about the study design, we spent a lot of time with regulatory authorities in the US and outside the United States as well as experts on both sides of the pond (ph) and we think we've got a study design that is this will help expedite the enrollment, both in terms of sample size and in terms of patient recruitment. So, we'll provide more details on specific parent calculations and sample size calculations around the time we start the study we did that previously with ralinepag and we'll seek you the same thing here.

Joseph Schwartz -- SVB Leerink -- Analyst

Sounds good. Thanks for taking my questions.

Amit D. Munshi -- Director, President and Chief Executive Officer

Thanks, Joe.

Operator

Thank you. And our next question is from Joel Beatty with Citi. Your line is open.

Joel Beatty -- Citi Investment Research -- Analyst

Hi guys, thanks for taking my questions. The first one is an etrasimod. Can you talk a little bit about the key steps that need to be taken before the Phase 3 program can be started?

Amit D. Munshi -- Director, President and Chief Executive Officer

Yeah, thanks, Joel. As with any Phase III trial, we want to make sure that we're implementing the protocol correctly, so its probably two or three big areas. One is site activation, site identification. We've previously disclosed that we have some proprietary methodologies that we have been developing over the last six or eight months in terms of site selection and patient enrollment.

And so those things are ongoing. And then final tweaks on the protocol simultaneously. So lots of little stuffs, lots of operational details, all the major pieces are in place.

Joel Beatty -- Citi Investment Research -- Analyst

Okay, great. And then just one more question. Just on cash burn for the year. Could you tell us a little bit about what you would expect, or it's not specific numbers, perhaps, what kind of levers will be affecting the cash burn over the course of the year?

Amit D. Munshi -- Director, President and Chief Executive Officer

Kevin, can I turn it over to you?

Kevin R. Lind -- Executive Vice President and Chief Financial Officer

Sure. So, hey, Joel, thanks for asking the question. Given the moving pieces, particularly around Crohn's and atopic dermatitis, we're not planning on giving specific guidance at this time. We do expect the burn to go up over the course of 2019 and up from Q4 numbers, but we're looking at start-up costs around ulcerative colitis, as well as locking down everything in Crohn's in atopic derm, which will be kind of the moving pieces as you are asking about.

Joel Beatty -- Citi Investment Research -- Analyst

Great. Thank you.

Operator

Thank you. And our next question is from Kennen MacKay with RBC Capital Markets. Please go ahead.

Kennen MacKay -- RBC Capital Markets -- Analyst

Hey, thanks for taking the question and congrats on 2018 progress as well as that 1.3 billion on the balance sheets in February, that's great to see. I mean, if I heard you right, I think you mentioned some FDA feedback on the Phase III trial design. Can you maybe elaborate on some of the interaction you've had with the FDA maybe in the New Year, or if this was laid in '18 and sort of what this feedback has been on?

And then sort of, on that similar note, I was wondering if you could just discuss and elaborate a little bit on the purpose of the etrasimod study to design and the use of the 12-week endpoint there. Is there maybe potential get to market a little bit earlier with that 12-week endpoint? Thank you.

Amit D. Munshi -- Director, President and Chief Executive Officer

Let me take the second question first. For approval we do need the longer-term study. We need two randomized double-blind placebo-trials, one is of course be the 12-week induction trial, the other one is the 52-week maintenance trial. With the Phase III design and both required for approval. So no -- there's no real early opportunity here. And we're excited about the long-term 52-week, we saw from our open-label extension, the patients -- patients continue to improve and they have a long sustained durable effect with the etrasimod.

So as opposed to lots of other products where patients are rolling off, up to 60% to 80% of patients fell most therapies, including the biologics. Here you have a chance to keep patients on drug for a longer period of time. We think that's a tremendous benefit to patients and of course, tremendous opportunity in terms of modeling the revenue for the product.

Coming back to your first question, the FDA feedback was around the Phase III design. Agency feedback and we previously discussed that. So there's no -- there's nothing new early this year in terms of agency feedback.

Kennen MacKay -- RBC Capital Markets -- Analyst

Got you. Maybe just one quick follow-up in one of your decks, certainly this year you had some data from etrasimod and pyoderma gangrenosum. I was wondering if you could elaborate, whether there are any plans for development there? Or how that data could sort of be read through to other indication? Thanks so much.

Amit D. Munshi -- Director, President and Chief Executive Officer

Sure. Thanks. We initiated a series of orphan type indications like PG, early in our evolution of the turnaround of Arena back -- at the back end of 2016. We done that as a little bit of hedge in terms of where the business is going. It's very clear with the quality of the data we had in IBD, and UC specifically that are our focus is on the GI space and not some of these smaller indications. Having said that, the PG study, as well as patients who had Dermatologic Extraintestinal Manifestations in our Phase II all sort of colitis trial gives us a really nice readthrough to other dermatological conditions. So as you might know PG is a very difficult to treat condition, it's an ulcerative type condition on the skin and we were able to demonstrate 67% reduction in lesion size in a 12-week study, which fairly novel and fairly unique. And I think it gives us a really nice read through to other dermatologic indication.

So it's also important look at safety in some of these dermatologic conditions and we have a few patients here and we feel confident with the safety profile in derm patients. So we're excited about moving into the topic, dermatitis indication. We think it's a logical play from both the mechanism, from the UC data, from the EIN data and the PG data to head in that direction.

Operator

Does that answer your question, Kennen?

Kennen MacKay -- RBC Capital Markets -- Analyst

Yeah, it sure does. Thank you so much.

Kevin R. Lind -- Executive Vice President and Chief Financial Officer

Thanks Kennen.

Operator

Thank you. And our next question is from Martin Auster with Credit Suisse. Please go ahead. Your line is open.

Martin Auster -- Credit Suisse -- Analyst

Hi. Thanks for taking the question. Guys, congrats on the progress so far. I have a question, Amit on 418, just curious with the out-licensing of ralinepag, to United Therapeutics and kind of the lack of a -- kind of a need to build up especially cardiovascular sales force over time. Is that a program that you've changed at all your mindset kind of long-term strategically from where you're at the R&D Day, is this thing where you might want to show proof of concept and then look for partnerships on? And then also as a secondary question, are there some reason for us to expect that there will be any continued IND activity beyond 418 as we get into 2020 looking out? Thanks.

Amit D. Munshi -- Director, President and Chief Executive Officer

Thanks, Marty. So first of all, I think we said this at our R&D Day, we repeated this we have a couple of other cardiovascular agents sitting on the shelf both clinical stage and preclinical. So we're contemplating when and how to move those forward, we though it is important move forward -- forward it's the one that we're incredibly excited about.