Earnings Call Transcript - ADXN Q1 2024

Operator, Operator

Good day, and thank you for standing by. Welcome to the Addex Therapeutics First Quarter 2024 Financial Results and Corporate Update Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be the question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Tim Dyer. Please go ahead.

Tim Dyer, CEO

Hello, everyone. I'd like to thank you all for attending our Q1 2024 financial results conference call. I'm here with Misha Kalinichev, our Head of Translational Science, who will provide an update on our R&D programs. 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 disclaimers. 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 activities and achievements before reviewing our pipeline. I will then hand over to Misha, who will review in more detail some of our clinical and preclinical programs, and I will then speak about the recent launch of Neurosterix before reviewing the Q1 2024 full year financial results. We've made great progress in our GABAB positive allosteric modulator program, which is funded by our partner, Indivior, and are on track for Indivior to select a drug candidate for advancing into IND enabling studies at the end of this month. As a reminder, under the agreement with Indivior, we have the right to select our own drug candidate after they have selected their candidate and to develop it in reserve disease areas, where Indivior is precluded from developing their candidate. We have selected chronic cough and expect to complete preclinical characterization in the second half of 2024. We launched Neurosterix with a Series A financing round of $63 million led by Perceptive Advisors. This is an innovative financing transaction that provides us with the resources needed to advance our preclinical portfolio without diluting our shareholders' interest in our clinical stage asset and partner programs. As part of the transaction, we received CHF5 million and a 20% equity interest in Neurosterix, securing the balance sheet and retaining significant upside in the programs for our shareholders. I will speak more about this innovative financing transaction later in the presentation. Our partner, Janssen, completed the Phase 2 epilepsy study evaluating adjunctive ADX71149 administration in patients with focal onset seizures with suboptimal response to levetiracetam or brivaracetam. We reported top line data in May and unfortunately, the study did not achieve statistical significance for the primary endpoint of time for patients to reach baseline seizure count when ADX71149 was added to standard of care. We expect the full data set from the study in the second half of this year and we'll work with our partner to determine next steps for the program. Now for a quick review of our pipeline, as mentioned, 71149 has reported top line data, and we are expecting the full data set in the second half of this year. We continue to believe in dipraglurant and executing our plans to commence development in both dyskinesia associated with Parkinson's disease as well as preparing dipraglurant for Phase 2 proof of concept study in post-stroke recovery. As mentioned, our GABAB PAM collaboration is coming to the end of the discovery phase with drug candidates on track to start IND enabling studies later this year. Indivior is executing the substance use disorder program, and we are preparing our candidate for development in chronic cough. Now I will hand over to Misha, who will give you some more details about our exciting portfolio.

Misha Kalinichev, Head of Translational Science

Thanks, Tim. Hello, everyone. I will start by speaking about dipraglurant and our plans for development in brain injury recovery. Following termination of the development of dipraglurant in PD-LID, we embarked on a detailed evaluation of a number of potential indications of interest for future development, including substance use disorder, migraine and other forms of pain. We have completed this exercise and have identified brain injury recovery as an interesting indication for the future development of dipraglurant. We believe the differentiated profile of dipraglurant makes it particularly suitable for enhancing the impact of rehabilitation in traumatic brain injury and stroke patients. There is a large unmet medical need in post-stroke recovery and rehabilitation. Stroke is among the leading causes of chronic, often lifelong disability, as it leads to motor sensory cognitive impairment and multiple comorbidities. There are over 100 million stroke survivors worldwide and the number is growing at an annual rate of 12 million. A variety of rehabilitation therapies are used with post-stroke patients, but the recovery is slow and often inadequate. There is an urgent need for pharmacological agents that can facilitate the recovery stimulated by rehabilitation therapies. The mGlu5 receptor is a suitable target to address post-stroke recovery as it is densely expressed in the brain, involved in neuroplasticity and modulates excitatory-inhibitory equilibrium. In fact, activation of mGlu5 has been observed in a range of neurological disorders, including stroke, where it plays a role in what is known as maladaptive rewiring of the brain following stroke. Inhibition of mGlu5, on the other hand, can facilitate adaptive rewiring of the brain, promoting neuroplasticity and creating new functional pathways, moving the neural network towards a pre-lesion state. Exciting new evidence recently published in the journal Brain suggests that the negative allosteric modulator of mGlu5, MPEP, administered daily in rats following stroke results in a sustained and growing improvement in sensorimotor function in comparison to current treatment. Similar improvement in sensorimotor function was observed in animals treated with our mGlu5 non-dipraglurant. MRI imaging of the resting state functional connectivity in post-stroke rodents shows that daily administration of MPEP also stimulates intra- and inter-hemispheric connectivity in the brain disrupted by stroke. It is important to note that improvement in brain connectivity after stroke is known to correlate with functional recovery and has been observed across species. Dipraglurant is ideally suited to be used in tandem with rehabilitation therapies in post-stroke patients, as it has a fast onset of action and short half-life. It has shown good tolerability in healthy subjects and in Parkinsonian patients showing only mild to moderate CNS-related adverse effects. We have a drug product ready and a strong patent position and believe dipraglurant can become a first-in-class drug to facilitate post-stroke recovery. We can also speculate that dipraglurant-mediated adaptive rewiring and facilitation of recovery following brain damage can also be seen in traumatic brain injury patients. Let me now switch to the GABAB positive allosteric modulator preclinical program, which is partnered with Indivior. The aim of this collaboration is to deliver a new treatment for substance use disorder. Indivior is supporting the research at Addex and has recently committed an additional CHF2.7 million funding for us to complete clinical candidate selection activities, in addition to CHF13.8 million total funding so far. As a reminder, GABAB receptor activation has been clinically validated in a number of disease areas using baclofen, a GABAB allosteric agonist. Baclofen is FDA-approved for treatment of spasticity and is widely used off-label to treat numerous diseases, including substance use disorders. However, baclofen has a short half-life and comes with significant side effects, hampering its wider use. Thus, there is a strong need for a better baclofen. We believe this can be achieved with positive allosteric modulators and their differentiated pharmacology, having the efficacy of baclofen but longer half-life and improved side effect profile. We are well on our way to meeting this objective, with multiple novel drug candidates rapidly advancing through candidate selection phase, aiming to nominate drug candidates ready to enter IND enabling studies in H2 2024. As part of our agreement with Indivior, we have the right to select drug candidates from the funded research activities for our own independent GABAB PAM program. We have selected to focus our independent program on cough, and therefore, I will present this exciting opportunity. There is a strong rationale for developing GABAB PAMs for chronic cough. Chronic cough is a persistent cough that lasts for more than eight weeks and can be caused by a variety of factors, including respiratory infections, asthma, allergies, and acid reflux, but also possibly by an overactive cough reflex. There is a large unmet medical need in novel anti-tumor drugs, as current standards-of-care are ineffective in 30% of patients and only moderately effective in up to 60% of patients. In addition, the current treatments carry risks of serious side effects. On the next slide, we show that GABAB PAMs are likely to have a superior tolerability profile in comparison to the current standards-of-care and show no taste-related side effects, as seen with a newly approved P2X3 inhibitor Gefapixant. Support for using GABAB PAMs in the treatment of chronic cough comes from the clinical evidence that baclofen, a GABAB agonist, is used off-label in cough patients, and from anatomical evidence that GABAB receptors are strongly expressed in airways and in the neuronal pathway regulating cough. Therefore, we believe that GABAB PAMs could offer superior efficacy in cough patients. Thus, we believe that GABAB PAMs could be an innovative new treatment for chronic cough, administered once daily via oral dosing and offering improved efficacy and tolerability, with fewer non-responder patients suitable for chronic dosing, therefore significantly improving patients' quality of life. We are working with multiple compounds progressing in the late clinical candidate selection phase, and we expect to move into IND enabling studies in H2 2024 alongside delivering compounds for our partner, Indivior. This concludes our prepared remarks on the progress of our R&D programs. Now, I hand it back to Tim.

Tim Dyer, CEO

Thanks, Misha. Now, before I move on to the financials, I would like to spend a few moments to speak about the Neurosterix transaction. Due to the excellent progress made by our R&D team in advancing our unpartnered preclinical portfolio, our M4 PAM, mGlu7NAM and mGlu2NAM programs reached a stage of development where they now need significant amounts of financing to progress into the clinics. Unfortunately, given the low market capitalization of Addex, raising the amount of capital needed would have been extremely challenging and highly dilutive to our shareholders, so we decided to spin out these programs and our platform into a new private company and raise the necessary capital directly into the new private company. We believe this is an excellent transaction for Addex shareholders, as it has secured CHF5 million for Addex and removed the financing overhang on the Addex stock. We have retained a 20% interest in Neurosterix, so we can benefit from the upside from advancing the programs into the clinic, which is now secured by the $63 million capital from a high-quality investor syndicate led by Perceptive Advisors. As part of the transaction, we have divested our allosteric modulation technology platform, including the majority of our staff; however, we have entered into a service agreement with Neurosterix to ensure that we can access the skills needed to execute our business strategy. Now for the review of Q1 2024 financials. Following the Neurosterix transaction, we were required under the IFRS standards to identify continuing operations related to the retained programs and discontinued operations related to the operations and programs that were sold to Neurosterix. All income and expense items related to discontinued operations have been reclassified under a specific line of the comprehensive loss called net loss from discontinued operations. Starting with the income statement, which relates to continuing operations. We recognized CHF0.2 million of income in Q1 2024 compared to CHF0.5 million in Q1 2023. The primary source of revenue is research funding from our collaboration with Indivior, which is recognized as the associated research costs are incurred. Continuing R&D expenses primarily relate to our GABAB PAM program and remained stable at CHF0.3 million in Q1 compared to Q1 2023. Continuing operations in G&A expenses were CHF0.8 million compared to CHF0.6 million in Q1 2023. The increase of CHF0.2 million is primarily due to legal fees related to the Neurosterix transaction. The finance results in Q1 2024 is primarily related to foreign exchange gains on cash held in US dollars and to a lesser extent, to interest income from the US dollar cash deposits. Now to the balance sheet. Our assets are primarily held in cash, and we completed Q1 with CHF1.6 million of cash held in Swiss francs and US dollars. Gross proceeds of CHF0.5 million from the Neurosterix transaction have been received in April 2024, so are not included in this figure. Other current assets amount to CHF0.8 million, primarily related to prepaid retirement benefits annually paid at the beginning of the year. Due to the Neurosterix transaction, we expect CHF0.6 million of this amount to be reimbursed in Q2 of this year. Current liabilities of CHF3.3 million as of March 31, 2024 increased CHF5.4 million compared to the same period last year and primarily relate to CRO-related accruals and payables. Noncurrent liabilities of CHF0.1 million decreased by CHF0.5 million compared to December 31, 2023, primarily due to the staff transfer to Neurosterix. Now, to summarize, I hope you have understood how transformative the Neurosterix deal is for Addex. We have strengthened the balance sheet and secured the financing to execute on the development of our preclinical portfolio, including the M4 PAM program for schizophrenia into the clinic, and our partnership with Indivior is on track to deliver clinical candidates ready for IND enabling studies by the end of June of this year. Dipraglurant is ready to restart clinical development and is the subject of a number of partnering discussions. Our independent GABAB cough program is also on track to start IND enabling studies. We're validating partnerships with industry, supportive investors, and a strong balance sheet, which puts us in a solid position to deliver on our strategic objectives. This concludes the presentation, and we will now open the call for questions.

Operator, Operator

Thank you. And now we're going to take our first question. And it comes from the line of Leonildo Delgado from Baader Helvea. Your line is open. Please ask your question.

Leonildo Delgado, Analyst

Hi, good afternoon. Thanks for taking my questions. A couple of questions on my side. In addition to the CHF5 million upfront payment, should we expect more upside for Addex when it comes to Neurosterix? And so, when would Addex be able to capitalize on the 20% equity interest? And so, how big would the opportunity be?

Tim Dyer, CEO

Okay, thanks for the question. Yeah, so the CHF5 million, yes, it's being received in Q2. Addex has retained this 20% interest in Neurosterix. Neurosterix has got $60 million on its balance sheet. And the post-money valuation of Neurosterix is basically just south of $100 million. So, the value at the date of the transaction of the 20% is about $20 million. Now, regarding upside, there was a sale of the carved-out entity. There are no milestones and royalties on any of the products that were divested into Neurosterix. So, the upside for Addex is in its equity interest in Neurosterix. I mean, there are a number of recent deals around the muscarinic M4. For example, AbbVie bought Cerevel for $8.7 billion. BMS bought Karuna at the end of last year for $14 billion. I think the most relevant comparator is that Cerevel had an M4 PAM, and the M4 PAM had just started Phase 2. What's interesting for Neurosterix is the cash that's on Neurosterix's balance sheet finances the M4 PAM all the way through to a stage very close to where Cerevel was with their M4 PAM program. I wouldn't want to speculate about the value upside, but I think you can make your own conclusions that there is significant upside for Addex in that 20% of Neurosterix because Neurosterix is well funded and financed to meet some very significant value inflection points, being the advancing of one or two programs into the clinic and through Phase 1. I hope that answers your questions.

Leonildo Delgado, Analyst

It answers. Thanks a lot. Maybe one final question. On the epilepsy program, when do you think Janssen will communicate plans for the ADX71149?

Tim Dyer, CEO

We have reviewed the top line results, but unfortunately, the primary endpoint was not achieved. Janssen is currently conducting a comprehensive analysis of the full data set. We anticipate receiving this data and the detailed analysis soon and plan to have discussions with them. We are focusing on the second half of the year and hope to receive the information sooner rather than later, ideally in the third quarter. Afterwards, we will collaborate with Janssen to determine the best path forward for the program. It's possible that the collaboration could end, which would allow Addex to regain the molecule and all related backup molecules. This is a likely scenario once we review the complete data set. However, until we have all the information, we can't fully assess whether there is a viable path forward in epilepsy.

Leonildo Delgado, Analyst

Okay. Thank you.

Operator, Operator

Thank you. Thank you, ladies and gentlemen. This brings the main part of our conference to a close. And I would now like to hand back to Tim Dyer for closing remarks.

Tim Dyer, CEO

Well, thank you very much everyone for attending the Q1 2024 conference call. We look forward to speaking with you again soon. Have a very nice day.

Operator, Operator

That does conclude our conference for today. Thank you for your participation. You may now all disconnect. Have a nice day.