Addex Therapeutics Ltd. Q4 FY2022 Earnings Call

Hello, everyone. I'd like to thank you all for attending the 2022 full year financial results conference call. I'm here with Robert Lutjens, our Head of Discovery Biology. I draw your attention to the press release and the financial statements issued earlier today, which are available on our website. I also draw your attention to our disclaimer. We will be making certain forward-looking statements that are based on the knowledge we have today. I will start this conference call by giving a quick overview of our recent achievements before handing over to Robert, who will review our clinical and preclinical pipeline. I will then review our 2022 full year financial results. Following that, we will open the call for Q&A. Our partner, Janssen Pharmaceuticals, continued to make excellent progress in executing their global Phase II study in epilepsy patients with ADX71149, which has advanced in Part 1 of the study and progressed to Part 2. An independent interim review committee has been established by Janssen to review the data from Part 1 and make a recommendation on the future direction of the study. We expect to announce the recommendation from this independent interim review committee early in Q2 this year. We continue to believe there is value in dipraglurant and have substantially completed our evaluation of future development. We have identified post-stroke recovery and pain as interesting areas for future development in addition to PD-LID. However, we are currently pursuing collaborative arrangements to advance future development. We continue to be excited by our preclinical pipeline, which has made excellent progress, with multiple clinical candidates rapidly advancing towards IND-enabling studies. We've selected a drug candidate in our mGlu7 NAM program for stress-related disorders including post-traumatic stress disorder and are progressing this drug candidate into IND-enabling studies. We expect to start dosing in these studies in the second half of this year. We also continue to progress several backup compounds from differentiated candidate selection phases. We have made substantial progress in our collaboration with our partner Indivior in advancing several novel GABAB PAM compounds into clinical candidate selection. As a reminder, Indivior's primary interest is in substance use disorder, and under the agreement, we have retained the right to select drug candidates for development in certain exclusive reserved indications, including Charcot-Marie-Tooth Ia neuropathy, chronic cough, and pain. During 2022, we extended our collaboration with Indivior, and Indivior agreed to provide us with additional research funding of $1.8 million. We expect Indivior and ourselves to select compounds to advance into IND-enabling studies in early 2024. Our mGlu2 NAM program for mild neurocognitive disorders associated with Alzheimer's disease, Parkinson's disease, and depression ran into some challenges during the clinical candidate selection phase. So we've gone back into lead optimization. Last but not least, our M4 PAM program for schizophrenia continues to make rapid progress through lead optimization. M4 PAM is a particularly exciting target for schizophrenia, especially following the recent positive Phase III data from Karuna. Following the inconclusive data from our blepharospasm clinical study and the termination of dipraglurant's development in PD-LID due to a slow recruitment rate attributed to COVID-19 pandemic-related constraints, we have completed the close-down of the studies and implemented a number of cost-saving measures. These cost-saving measures have significantly reduced our monthly cash burn going forward. And as of today, we estimate that our cash reserves provide us with a runway through the end of Q3 2023 and enough time to secure a partnership to strengthen our balance sheet and provide resources to advance our portfolio. Now I will hand over to Robert, who will give you some more details about our exciting pipeline.

Thanks, Tim. I would like to provide an update on the ADX71149 Phase II epilepsy clinical study. As a reminder, 71149 is a metabotropic glutamate receptor subtype 2 or M2 positive allosteric modulator discovered in partnership with Janssen Pharmaceutical and Johnson & Johnson Company using Addex's proprietary allosteric modulator platform. Janssen has extensively profiled ADX71149 in preclinical models of epilepsy and has demonstrated both standalone antiepileptic efficacy and a strong synergistic effect in combination with Keppra. There is a large market opportunity as more than 2 million patients are taking Keppra, many of whom have breakthrough seizures or a suboptimal response. Furthermore, despite several available treatment options, there is a need for alternative or improved therapies to treat the seizures. Interestingly, Keppra, while being largely sold as a generic, is still leading the market of anti-epileptics with close to $1 billion in sales revenue per year. Janssen has completed an extensive preclinical and clinical package and are currently running both a Phase II study and an open-label extension study in epilepsy patients. It is important to note that we have significant economics in our deal with Janssen. We have prelaunch milestones of EUR 109 million, low double-digit royalties on net sales, and Janssen is responsible for all costs. Now I would like to show you some of the preclinical data. I mentioned the synergistic effect obtained in preclinical models of epilepsy. Here is the compelling data obtained by our Janssen colleagues in the 6Hz model, a highly predictive model of epilepsy, with a combination of 71149 and Keppra which has been instrumental in the decision taken by Janssen to move this program into epilepsy. The left graph shows how the effect of levetiracetam is dramatically increased in the presence of a low dose of 71149, producing a 35-fold shift in efficacy. And the right graph shows the result obtained when the paradigm was reversed, where a low dose of Keppra induces a 14-fold increase in the efficacy of ADX71149. The take-home message here is that we see a strong antiepileptic effect with a combination of low doses of 71149 and Keppra, similar to the one obtained with a full dose of Keppra. This is truly a synergistic effect, not just an additive or pharmacokinetic effect, as demonstrated through isobolographic analysis. If these models translate into patients, then our approach could become an important novel treatment for epilepsy patients suffering focal-onset seizures. Now to the Phase II study design. This is a Phase II double-blind placebo-controlled proof-of-concept study enrolling patients with focal-onset seizures who have suboptimal response to treatment with levetiracetam, which I remind is the active substance of Keppra. Patients will establish a 28-day seizure count over a 56-day baseline period prior to being randomized to receive either ADX71149 at 50 milligrams twice a day or matching placebo. The primary endpoint is the time taken to return to their monthly baseline seizure count. The study has 2 parts, with Part 1 being the 4-week acute efficacy phase and Part 2 an 8-week maintenance of efficacy phase. Part 2 will include patients who did not reach their baseline seizure count during Part 1 of the study; they will continue on their randomized drug or placebo. Janssen plans to recruit up to 3 cohorts to test multiple doses of 71149. Today, 1 of 60 patients has completed Part 1 of the study. Janssen has established an independent interim review committee to look at the data from Part 1 and issue a recommendation for the future conduct of the study in early Q2 2023. We look forward to sharing their recommendation as soon as it is available.

Thanks, Robert. I'll now switch to an overview of the financials. Starting with the income statement, we recognized $1.4 million of income in 2022 compared to $3.2 million in 2021. The primary source of revenue is research funding from our collaboration with Indivior, which we expect to reduce in 2023 as drug candidates move to late-stage clinical candidate selection, and our partner takes over more of the operational execution of the development. In terms of expenses, R&D expenses were $14.7 million in 2022 compared to $12.8 million in 2021. The increase of $1.9 million is primarily due to the increased R&D outsourced activities linked to clinical candidate selection, along with, to a lesser extent, share-based compensation costs. Given that we have terminated clinical activities in 2022, we expect R&D expenditure to be significantly lower in 2023. G&A expenses were $7.3 million in 2022 compared to $5.8 million in 2021. The increase of $1.5 million is due to increased share-based compensation costs. Finance loss of $0.3 million in 2022 relates primarily to exchange gains due to the strengthening of the U.S. dollar over the period. Now to the balance sheet. Our assets are primarily held in cash, and we completed 2022 with CHF 7 million of cash held in Swiss francs from an equity offering. Other current assets of $0.9 million primarily relate to receivables from Indivior and R&D prepayments. Current liabilities of $3.3 million as of December 31, 2022, decreased by $0.9 million compared to the end of 2021 and primarily relate to R&D payables and accruals. Noncurrent liabilities of $0.1 million as of December 31, 2022, decreased by $1.4 million compared to December 31, 2021, primarily due to decreased retirement benefit obligations calculated under IAS 19. Now to the cash flow statement. We started the year with $20.5 million, raised net proceeds of $3.7 million in the offering executed in July of last year, received $1.1 million in research funding from Indivior, and consumed $17.6 million in operations. We ended the year with $7 million of cash after accounting for foreign exchange gains. Now to summarize, the development of 71149 in epilepsy is ongoing, and we are looking forward to being able to report very soon the recommendations from the independent interim review committee established by Janssen to review the data from Part 1. We continue to believe in the value of dipraglurant and PD-LID and are evaluating its future development in post-stroke recovery and pain. In parallel, we are pursuing collaborative arrangements to advance development and look forward to sharing more information on this subject in the future. Our preclinical programs continue to make solid progress towards delivering drug candidates for future clinical development in important therapeutic areas, including stress-related disorders, chronic cough, cognition, and schizophrenia. As a reminder, our portfolio was discovered in-house from our pioneering allosteric modulator drug discovery platform, and consequently, we have significant intellectual property protection. We have a track record of securing partnerships at the pre-clinical stage and supportive top-tier investors. We recognize the 2022 stock performance and current market capitalization is very disappointing. However, we are having multiple business discussions across our portfolio and strongly believe that if we are successful in executing our near-term partnering strategy, then our stock price should move to recognize the value of our portfolio. This concludes the presentation, and we will now open the call for questions.

The question comes from Raghuram Selvaraju from H.C. Wainwright & Co.

So firstly, I was wondering if you could frame for us what Janssen might consider an unexpectedly positive outcome from the epilepsy proof-of-concept study, and in what context they might frame it as such, for example, from a competitive perspective from the standpoint of being able to combine the molecule with other existing antiepileptic drugs and so forth?

Okay. So where do I start? I think we have to remember that when Janssen started this study, they were going to recruit 60 patients and 2:1 randomized, and that was going to be 1 cohort. And they then modified slightly once they'd started, and now they have publicly announced on clinicaltrials.gov that they are going to have up to 3 cohorts. Now because of this, they're not stopping recruitment. And therefore, that's why they've established this independent interim review committee. The end of Part 1 will be based on how many patients got to the baseline seizure count and how many didn't, and then how that is split between active and placebo. What we know from Janssen is that they're going to report to us a go/no-go decision; they really don't want to unblind the study as they move other cohorts. Does that answer your question?

Yes, that's very helpful. And I think what we wanted to get a better sense of was if there's likely to be a sort of upside surprise as it were from this clinical study result. Let's assume that the baseline is for a positive outcome, but what would constitute a positive upside surprise.

Yes.

I'll answer the first question. The main difference between Karuna's approach with xanomeline is that this is a nonselective. It's an M1, M4 agonist. So its mechanism of action is activating the M4 receptor. Coming with a positive allosteric modulator, we know that we have all sorts of benefits compared to agonists, where we are helping the activation of the receptor, making the receptor more sensitive to its natural ligand, and therefore, also respecting the natural rhythm of receptor activation. We have a highly selective compound that we have, where we demonstrate a high brain penetration. This is what differentiates our approach. Going forward, we will be looking much more closely at Theravel because they are developing a positive allosteric modulator on the M4 PAM. So we'll be watching very carefully what they are going to be doing in the clinic.

Just as a follow-on to that, I thought I would ask a somewhat provocative question. It's well documented that PureTech Health, which was one of the original inceptors of the company developing xanomeline plus trospium, has done very well with that investment. And my understanding is there is a historical link between PureTech Health and Addex. So I was wondering if you could perhaps comment on the degree to which PureTech Health is aware of your activities on the M4 allosteric modulation side and what their thoughts are as to what has already been demonstrated from a clinical success perspective vis-à-vis xanomeline and trospium.

All I can say is we're having multiple discussions with multiple parties across our portfolio, including the M4 PAM. The Karuna data has certainly lit up the field, and there's a lot of excitement. There have been a number of deals already done on other M4 PAM programs. I mean, there was a Neurocrine acquisition of the Heptares Sosei program. The Vanderbilt program went to Neumora. But there are plenty of other CNS-focused pharma that are watching this space and discussing with us.

The next question comes from an unidentified analyst.

I have a very simple question. I noticed in the annual report that the compensation for the Board has almost tripled from '21 to '22 and for the executives, it has almost doubled in the same time. Can you explain why?

Yes. This is all linked to some reorganization of the share-based compensation program. So it's all noncash compensation. And it's driven by the IFRS 2 calculations that are linked to the reorganization of the equity incentive plan.

The next question comes from Edouard Riva from ZKB.

I will have 2 of them. The first one being as seen in the slide that you expect 2 IND-enabling studies for the GABAB, the one that Indivior is going to develop and the one you are going to develop in 2024. I was wondering why wouldn't this happen earlier? What are the steps that lead to the start of the IND-enabling studies?

Yes. This program has been extremely successful. It's generated a lot of molecules with different profiles. You may be aware that Astellas has a GABAB positive allosteric modulator, which is in Phase II clinical development for alcohol use disorder. This is the indication of primary interest to Indivior. Indivior are profiling several compounds in parallel in multiple preclinical models and doing a very thorough job, in fact, a much more thorough job than we expected. And that's why, if you look back historically over the guidance, we are certainly delayed. And this is for good reason. The way the selection of compounds works is that Indivior needs to select the compound first before Addex is able to select. We are now profiling a number of compounds in some of the indications that we are interested in. We mentioned Charcot-Marie-Tooth, but we are also looking closely at chronic cough and certain types of pain. These are areas where we are getting some significant interest from potential business partners. Because this is carved out of the collaboration with Indivior, once we've selected compounds, we will be free to license them to partners should we get interest or develop them ourselves.

Understand. And my second question would be regarding ADX71449. Are you already recruiting for the second part of the study? Or are you waiting for the independent review committee?

Well, as I said, this is an open recruitment, and as they say in clinicaltrials.gov, they are going to have up to 3 cohorts. We can say that cohort 1 has completed. Therefore, patients being randomized are now being randomized into a second cohort.

And so those 3 cohorts are only for the second part, not for the first part?

Well, the study has a Part 1 and a Part 2. Cohort 1 was completed with 60 patients with a 2:1 randomization. Those 60 patients have completed Part 1, and those that didn't hit their baseline seizure count in Part 1 have now rolled over into Part 2. The patients who did hit their baseline seizure count have been offered the open-label extension study.

Dear speakers, please be advised at this moment, we do not have any more audio questions, and we will hand over to the written questions.

Well, thank you very much for attending the conference call, and we look forward to speaking to you on the next call. I wish you all a very nice day.