Edited Transcript of ARNA earnings conference call or presentation 26-Feb-19 9:30pm GMT

2018 was a tremendous year for Arena, and we're excited for all that is ahead of us. During 2018, we delivered on multiple important data readouts, built a strong balance sheet and continued scaling the enterprise.

We are uniquely well positioned to continue to deliver results for patients and shareholders with our best-in-class products, our world-class team and our strong balance sheet. For etrasimod, we're moving to initiate the Phase III program for ulcerative colitis mid-year and rapidly advancing our phase IIb/III program in Crohn's disease as well as a phase IIb program in atopic dermatitis. For olorinab, we're progressing into our Phase IIb trial for visceral pain associated with irritable bowel syndrome or IBS. Traditionally, we expect to file an investigational new drug application or IND for our preclinical asset APD418 in decompensated heart failure in the second half of this year.

So let me start with etrasimod. Etrasimod is a well-characterized in-house developed, next-generation, once-a-day oral S1P modular, 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 II OASIS trial evaluating etrasimod for the treatment of ulcerative colitis or UC. Etrasimod demonstrated clinical response and global long-term clinical remission as well as favorable long-term safety and tolerability. Importantly, amongst subjects achieving clinical response or clinical admission on 2 milligrams of etrasimod at the 12-weeks in OASIS sustained treatment effect over 46 weeks was observed, with 93% of patients experiencing sustained clinical response and 75% experiencing sustained clinical remission at both 12 and 46 weeks.

These data reinforce our belief in etrasimod as an important future therapy in IBD and our strong commitment to improve lives of patients suffering from these grievous conditions. We have received feedback from regulatory agencies concerning the details of our registrational program, which will enable us to initiate our Phase III program around midyear. 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 looking on an aggressive development plan in Crohn's disease and we are finalizing plans from adaptive Phase IIb/III program. Announced last quarter, we are planning our path forward in atopic dermatitis. Current therapies have efficacy in a limited set of patients and range from simple emollients to new injectable biologics and other topical therapies. We believe there is significant opportunity to move this field forward with a once-a-day oral regimen that impact not only the dermatologic manifestation but potentially the systemic implications of atopic dermatitis as well.

We expect to initiate a Phase II trial this year with data readout in 2020. We're excited to further evaluate etrasimod in multiple indications going forward and continue to believe that it is the only next-generation S1P modulator in developing with improved pharmacology and pharmacodynamics and demonstrated improved safety and efficacy offering tremendous promise in the treatment of broad range of immune and inflammatory (inaudible) conditions.

Moving on to olorinab, our peripherally restricted highly selective, full agonistic to CB2. We believe that this product has the potential to have a significant advance in the treatment of visceral pain. In light of the positive Phase IIa results that we delivered in September, we continue to advance olorinab program targeting GI pain. We expect to initiate a multidose randomized, double-blind, placebo-controlled Phase IIb 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. We 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 a 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 brings 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 towards its next phase of growth.

Manmeet is currently the Chief Financial Officer of Alnylam Corporation (sic) Alnylam Pharmaceuticals and has previously served as the CFO of multiple pharmaceutical companies, including

ARIAD and Pharmacyclics.

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 initiate with 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. Prior to Arena, Rob held executive level commercial positions in 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 discipline, including rare diseases. Paul has held executive and senior management positions at Vertex, Hospira, Reata Pharmaceuticals, where he served 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's and Paul's extensive expertise in their respective areas, we believe their appointment significantly strengthen our ability to deliver our transformational medicine 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 a review of our financials.

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Kevin R. Lind, Arena Pharmaceuticals, Inc. - CFO & Executive VP [4]

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Thank you, Amit. I'll 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 cost, 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 onetime items.

A change in our deferred tax value -- 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.

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Amit D. Munshi, Arena Pharmaceuticals, Inc. - CEO, President & Director [5]

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