Good morning, ladies and gentlemen, and welcome to Axcella’s First Quarter 2021 Conference Call. Please be advised that today’s conference is being recorded, and then all participants will be in a listen-only mode until the question-and-answer session.

[Operator Instructions] And now for opening remarks, I would now like to hand the call over to Jason Fredette, Vice President of Investor Relations and Corporate Communications at Axcella. Please go ahead, sir..

Thank you very much, operator and good morning everyone. We would like to advise that certain remarks we will make on today’s conference call such as those relating to our clinical trials for AXA1665 and AXA1125 include forward-looking statements that are subject to various risks and uncertainties.

These risks and uncertainties are detailed in our most recent Form 10-Q and our other SEC filings, which can be accessed on our website axcellahealth.com or on the SEC’s website. All forward-looking statements represent our views as of today, May 6, 2021, and should not be relied upon as representing our views as of any subsequent date.

We undertake no obligation to update these forward-looking statements.

Please also note that all of our clinical investigations we have completed to-date have been non-investigational new drug or non-IND clinical studies that were designed to evaluate product candidates for safety, tolerability and effects on normal biological structures and functions.

Our clinical trials of AXA1125 and AXA1665 are being conducted under INDs with the aim of treating patients with NASH and patients with the history of overt hepatic encephalopathy or OHE respectively. And now let me turn the call over to our President and CEO, Bill Hinshaw, to begin the discussion.

Bill?.

Thank you, Jason, and good morning, everyone. We appreciate you joining us for today’s update. It’s a pleasure to report back to you on all the progress we’ve made since the start of 2021. Frankly, in many respects, this has been the busiest and most successful period in the company’s history.

We achieved key milestones that validated and replicated the strength, speed and efficiency of our development approach. Before we get into the details, I’d first like to take this opportunity to express my gratitude to the entire Axcella team for their thoughtful planning, strong execution and tireless efforts.

Their work has provided us with an opportunity to demonstrate on a global scale that we can better the lives of patients with complex diseases, using proprietary compositions of endogenous metabolic modulators or EMMs.

And we have two EMM compositions that have progressed into Phase 2 development within just four years, cutting the standard drug development timeline roughly in half.

And this is a credit to the efficient work of our research and design team, our modality that leverages amino acids in derivatives with well established safety and the initial clinical development approach we took to evaluate our candidates. As Jason mentioned, our initial studies were conducted in a non-IND setting.

This enabled us to quickly gauge our candidate safety and tolerability profile, as well as their effects on various biologies, we are targeting to using a range of non-invasive biomarkers.

At the end of the day, while there are notable benefits from our development, speed and efficiency, we believe the most important and impactful advantage is the robust amount of data we already have generated in more than 200 subjects with hepatic insufficiency, or presumed NASH.

We’ve done a significant amount of dose ranging while also demonstrating pleiotropic activity across our targeted biologies. This in turn has informed streamlined and we believe de risk the larger IND-enabled trials that are now getting underway.

The first of our candidates is AXA1665, a multi-targeted oral agent for the reduction in risk of recurrent OHE. OHE has a severe neurocognitive impairment that results from cirrhosis. And the second is AXA1125 our multi-targeted oral candidate for the treatment of NASH.

This is a severe form of fatty liver disease that affects up to 40 million people in the U.S. alone. Both AXA1665 and AXA1125 are generating inbound interest and engagement from some of the world’s leading hepatologist and gastroenterologist. Naturally this is because of the data we’ve generated.

It’s also due to the fact that we’re generating this data using amino acids with well established safety and tolerability. In January Axcella’s first IND application was cleared by the FDA for AXA1665.

This candidate multi-targeted approach distinguishes it from today’s standards of care lactulose and rifaximin, which strictly focus on lowering ammonia. In our prior clinical studies of AXA1665, we observed positive trends in ammonia handling, improved amino acid balance, and improved muscle function.

Even more importantly, given the regulatory path for OHE, were the neurocognitive findings. Positive dose dependent improvements were seen in all three neurocognitive measures that were included in our most recent study. And the statistically significant change was seen in PHES the gold standard for diagnosing CHE.

Now, we’re now gearing up for a randomized double-blind Phase 2 trial of AXA1665. In this trial, AXA1665 will be compared to placebo over a 24-week period in a design that’s highly streamlined with just one active arm.

Approximately 150 patients will be enrolled across 70 plus sites globally, virtually all of which have already been selected and engaged. In fact, I’m pleased to report that we recently activated our initial sites.

We’re enriching the population with the patients who are most likely to have OHE recurrence by including only patients have experienced an OHE event within six months of screening and who have neurocognitive dysfunction at the time of screening.

The primary endpoint is based on the proportion of patients who achieve at least a two point improvement in PHES from baseline to week-24. Key secondary endpoints include the number of OHE events in time to OHE events, including hospitalization.

Based on COVID and other relevant factors, our initial estimate is that we’ll be in a position to report top-line data from the trial in the first quarter of 2023. That said, we will closely monitor enrollment dynamics and provide updates as appropriate. In the meantime, we look forward to having Dr.

Arun Sanyal given an oral presentation about our AXA1665 clinical data at DDW 2021 later this month. We’re at a very similar stage in AXA1125’s development, a candidate that targets multiple key pathways involved in the pathogenesis of NASH from metabolism, inflammation to fibrosis.

At NASH-TAG 2021 in March, we had the opportunity to share next level insights about its mechanism of action, as well as data from our most recent clinical study. And just a few weeks ago, our IND application for AXA1125 was cleared by the FDA.

We’re now finalizing preparations for a Phase 2b trial that will enroll approximately 270 patients with biopsy confirmed F2 to F3 NASH. This global randomized double-blind trial will include two active arms, one anchor dose equivalent to the one we’ve used in our most recent study in a higher dose.

Patients will be randomized evenly across these in a placebo arm over a 48-week dosing period. Similar to our AXA1665 trial, enrollment will be conducted across more than 70 global sites, all of which have been selected and engaged. And in recent days, we have activated the first clinical sites.

As you may recall, in our most recent study that enrolled subjects with presume NASH, we saw meaningful improvements in the AXA1125 arm versus placebo on virtually all measures, with even greater effects seen in subjects who also have Type 2 diabetes. And we’ll investigate this further in our Phase 2b by stratifying patients on their diabetic status.

We’re using standard histological measures as endpoints with a proportion of patients achieving at least a two-point improvement in the NAS score as the primary endpoint.

Secondary is focused on the achievement of biopsy confirmed resolution of NASH without worsening of fibrosis, and the achievement of at least a one-stage improvement in fibrosis without worsening of NASH.

Additionally, we’ll use a range of standard and state of the art non invasive measures for additional endpoints, including MRI-PDFF, ALT and Fibroscan. These non-invasive markers will be the focus for an interim analysis in the trial.

At this stage, we expect to be in a position to report interim data in mid-2020 when a meaningful segment of the enrolled population has reached 24 weeks of treatment. In terms of the timing of the top-line data, we are initially aiming for the second half of 2023, factoring in COVID, among other considerations.

In summary, we see great opportunities ahead for our lead candidates. We believe AXA1665, holds the potential to improve and eventually become the standard of care for OHE.

Meanwhile, AXA1125 is increasingly being viewed by physicians and key opinion leaders as a compelling first-line candidate for adult and pediatric NASH with the potential to have an enhanced effect for the many NASH patients who also have Type 2 diabetes. We look forward to updating you on these programs in the very near term.

And we see potential to extend the reach of EMM compositions well beyond these first indications. Our research team is hard at work on several potential opportunities to expand Axcella’s pipeline and we’ll look forward to sharing some insights about their work as the year progresses.

So with that, let me now turn the call over to our CFO, Laurent Chardonnet to provide a brief financial update.

Laurent?.

Thank you, Bill, and good morning, everyone. We’re off to a great start in 2021, with the clearance of effects of our first two INDs, and we’re looking forward to the start of our next trials in OHE and NASH. These milestones are being achieved while Axcella maintains its financial discipline and strength.

So, let’s briefly review the numbers for the quarters, starting with the balance sheet. Thanks for our prudent cash management. We ended the first quarter of 2021 with $93 million in cash and marketable securities, which compared to $107 million as of December 31, 2020.

We expect that this cash balance will enable us to expand our pipeline achieve additional key milestones and be sufficient to meet our operating needs into the third quarter of 2022. Turning to the income statement.

Our researching and development expenses for the first quarter of 2021 were $10.2 million, which is roughly flat with $10.3 million for the first quarter of 2020. We expect R&D costs to begin increasing the quarters ahead as we begin to ramp enrollment in our two new clinical trials.

G&A expenses were also roughly flat year-over-year, coming in at $4.3 million for this quarter ended March 31, 2021 versus $4.1 million for the first quarter of 2020. We expect G&A costs to remain at the same general level in the quarters ahead as we continue to invest in our portfolio and platform.

Axcella net loss for the first quarter of 2021 was $15.2 million or $0.40 per share. This includes approximately $1.4 million in the non-cash stock based compensation expense. Our net loss for the three months ended March 31, 2020 was $15 million or $0.65 per share. So in summary, we are off to a strong start for 2021.

And we are looking forward to reporting back on our continued progress.

Now, operator, will you please open the line for questions?.

Thank you. [Operator Instructions] And the first question will come from Yasmeen Rahimi with Piper Sandler. Please go ahead..

Hey it’s [indiscernible], I’m on for Yas. Thank you so much for taking our questions. I was just hoping you can provide some more color on the interim analysis and the NASH study in terms of the design and size? Thank you..

Sure. So good morning, Alicia. Thanks for the question. Yes, so the interim analysis that we’re planning, roughly mid next year will include the key elements that you’re used to seeing in terms of MRI-PDFF, ALT and Fibroscan are planned measurements.

We’re looking and planning to do a 24-week analysis that will provide progressive and additive information to our prior 12 and 16 weeks studies, data that we’ve already generated in a population with biopsy proven NASH in the setting, and we look forward to updating you as we continue to progress our enrollment appropriately.

Reinforced that this data will be useful for us in terms of looking and considering our planning for our registration trial, the information we see on the Type 2 diabetics as well as combinations and other opportunities that we see there. So thank you for your question. Hopefully that answered it..

Thank you..

And the next question will come from Andreas Argyrides with Wedbush Securities. Please go ahead..

Thank you, Operator. Good morning. This is Andreas for Liana Moussatos. With the IND enhance initiate the Phase 2 adult NASH study, what is additional information do you guys need to provide the FDA for them to consider expansion into pediatrics? And when do you anticipate clarity from the FDA on that? Thanks..

Morning, Andreas, thanks for the important question, because as you know, there’s a lot of intense and needed activity in adult while there’s limited activity in the pediatric population. And we believe that our modality or safety profile allows us to pursue that faster than most opportunities.

So our plan right now is to focus on the adult program, get that going, and then reengage with the agency at the appropriate time to then design what would be the most efficient, and I’ll say informative, fastest way to move forward in the pediatric population. So right now, we’ll come back to you and give you an appropriate update on steps and time.

But we are focused right now on the adult population, then moving as swiftly as makes sense into the pediatric population..

Okay, thanks. I’ll hop back into the queue. Thanks, guys..

Thanks..

Thank you. [Operator Instructions] The next question is from Michael Morabito with Chardan Capital Markets. Please go ahead..

Hi team, thanks for taking the questions and congrats on the progress so far this year.

I just wanted to try to get a little bit of additional color on the AXA1125 study just, if you’ve determined yet what percentage of the patients will be Type 2 diabetic and if you’ve said publicly, if diabetes will be part of the randomization protocol to make sure that you enroll the balance that you’re looking for.

And then I just was hoping to get a little bit of color on the cash runway, what are some of the assumptions that go into that estimates? And if you could shed any big details on how much expected ramp in R&D, we should expect, as these two trials begin to enroll, or what the shape of that growth might look like?.

Okay, great. I’ll start and then turn over that latter question to Laurent. Michael, good morning, thanks for the comments on the progress. And overall for everybody here, we look forward to updating you on the very, very near term on additional progress. So stay tuned for that.

In terms of the question around the AXA1125 in the study, and the approach towards Type 2 diabetics. So there we are looking at generally, as you know the population is at least around 40% and we are stratifying for this.

And we have I’ll say, engage the sites and the networks to make sure that we have the appropriate distribution that will allow us to have a good balance of all comers as well as Type 2 diabetics.

And so we have taken all the appropriate measures while still ensuring the randomization and integrity of the study, and are very confident of our ability to pull that through, which will then help inform us because as you’re familiar with Michael, our original study had all Type 2 diabetics. The second study was stratified for Type 2 diabetics.

And we look forward to continuing to demonstrate hopefully that differential advantage that can be very important for these difficult to treat patients. So, I’ll turn it over to Laurent for your cash question..

Yes. Thank you, Bill. Yes, thanks for the question. Both the first quarter and last quarter, and fourth quarter and first quarter of this year, we were in preparation mode for the upcoming trials. So, we were winding down the studies, following the INDs.

So, we are going to expect to see the R&D expenses to ramp up going forward as we get our trial underway. Obviously, all of that is dependent on the speed of enrollment of the trial.

As for the cash runway, we have cash well into the third quarter of 2022, which will get us beyond the short key milestone, including the expansion of our pipeline, and we’ll do what’s appropriate to keep the company was founded while minimizing dilution..

Okay, great. Thanks for the information..

The next question will come from Jessica Fye with JPMorgan. Please go ahead..

Hi, good morning. This is [indiscernible] on for Jessica Fye. Thanks for taking our questions.

Given that the Phase 2b trial in NASH is enrolling biopsy confirmed patients, how close to trial start our patients are going to undergo biopsy sampling, or can you use archival tissue?.

I’m sorry, we had some background noise. Do you mind repeating the last part of your question? I apologize..

Yes.

The NASH trials start our patients going to undergo biopsy sampling, or can you use archival tissue there?.

So this study is a biopsy confirmed study.

So there will be a screening period in which they will have a biopsy and in the period so Alison, why don’t you comment on the lead in terms of the timeframe for that?.

Yes. Thank you for your question. So there’s a good amount of clinical and regulatory guidance for these types of biopsy trials. And additionally, clinical sites are very adept at using non-invasive markers, and published algorithms for screening and using biopsies to select the right kind of patients. So, that we avoid F1 and F4 NASH patients.

Finally, it is worth noting that we’re using Dr. Harrison some network, the best NASH travel network in the U.S., as they’ve noted, which is selecting to be able to select the optimal patients in this reduce screen fairway rates..

So it’s a combination of using the appropriate non-invasive to then set up for the biopsy and make sure we have the right patients. So hopefully that answered your question, because unfortunately, your phone was breaking up on us a little bit. So, we are trying to make sure we address it properly. So apologies for that..

Yes, thank you that answers. Just one more point.

Do you expect the sites in the NASH trial to activate on a rolling basis, or for the majority of the 70 sites in any study to activate at the same time?.

Yes, so I think I picked that up. This is Jason. So it will be on a rolling basis, we’ll have a good number of sites up and running. We already have several sites up and running. And it’ll be a progressive rolling startup theory..

Yes, we’re covering 70 sites globally across multiple countries. So as you’re probably familiar, there are different processes and stages for each of those individual institutions. We do also have central IRB work here. So there will be to Jason’s point progressive role with some nice jumps periodically. Yes..

And the next question will come from [indiscernible] with B. Riley Securities. Please go ahead..

Good morning. This is Yuan Zhi for Mayank. Thank you for taking our questions. Congratulations on the two IND clearances. Have a couple questions.

First, can you provide additional color on the trial desire, especially their diet restrictions in the Phase 2b study for NASH? And the second, can you provide some details of the upcoming DDW presentations? Thank you..

Okay. Thanks Yuan. I appreciate the question. So in terms of the trial for AXA1125 and this is again, we’re looking for biopsy confirmed Phase F2, F3, we will be using the typical diet management and guidance during the trial that you see in this field.

And we will be looking with the other standard markers about a certain level of MRI, PDFF a certain level of ALT, inflammation, et cetera. To establish the baseline to again get biopsy confirmed F2, F3 NASH. In terms of the DDW presentation that Dr. Sanyal will be doing. We’re very excited about this. This is our 002 AXA1665 data.

And there is additional depth and richness on some of the key markers that we’ve discussed with you all previously. So, I would encourage you to take a look because I think it provides additional understanding of the nature of the impact of our active arms. So, as you can respect there’s appropriate embargoing and thanks of that nature.

So, I can’t give you additional depth right now. But it is worth looking into..

Yes, that’s super helpful. Thank you..

Thank you..

[Operator Instructions] The next question will come from Paul Choi with Goldman Sachs. Please go ahead..

Hi, thank you. Good morning Bill and team and let me add my congrats on the IND clearance as well. Two for me please, first on the NASH trial for AXA1125.

Can you maybe just remind us what you’re line in terms of their diabetic therapies, particularly GLP-1 given the potentially confounding effects from weight loss from that class of drugs? And then I had a follow-up after that..

Okay, thanks, Paul. I appreciate the comments on the congratulations in this important question. So, we are not allowing GLP-1 or TCDs, because of the potential impact consistent with the previous studies that we executed. However, people can be on stable other diabetic medications as consistent with practice in this field..

Okay, thank you for that.

And then on AXA1165, can you maybe just update us on any potential changes or thoughts with regards to sort of background event rates for the placebo arm, particularly with regard to certainly the use of standard of care there? Or is the right way to think about it that sort of the event rate there or break through rate, this would largely be consistent with what’s on label for rifaximin and other drugs? Thank you..

Yes. No, thanks, Paul. Very insightful question. So let me just remind everybody that this population will be enriched, they must have had one OHE event, and they must have a PHES is greater than minus four, meaning less than minus four. So, they are enriched for that.

Now, based on the [indiscernible] study, and the more recent data in this field, what you typically see is a roughly a 22% breakthrough rate in that timeframe on the combination of lactulose and rifaximin, you’ll see up to a 4650 type range for patients who are just on lactulose.

Now that, of course, is in a clinical study setting, and we are enriching these patients. So we do anticipate we’ll be reaching at least those levels for the background. And we have factored in placebo effect as well into our study design..

Great. Thanks, Bill..

Thank you, Paul..

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Bill Hinshaw for any closing remarks..

Great. So thank you, Chad, and thank you, everybody, for tuning in this morning. We’re very excited about our continued progress, and as, I alluded to earlier, we very much looking forward to updating you in the very, very near-term about continued progress on these important trials.

We’re also excited for the DDW 2021 presentation in a few weeks, and we ask you to remain safe, remain engaged and thank you for your time and attention today. Operator, this concludes our call this morning..

And thank you sir. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect your lines..