Molecular Partners AG Q4 FY2021 Earnings Call

Good morning and thank you for standing by. Welcome to the Publication of Full Year Results 2021. Please be advised that today’s conference may be recorded. I would now like to hand the conference over to your speaker today, Seth Lewis, Head of IR. Please go ahead.

Thank you, and welcome. Welcome everybody, to Molecular Partners’ 2021 year end results conference call. My name is Seth Lewis, Head of Investor Relations. And we are joined this morning by Patrick Amstutz, Chief Executive Officer; and Andreas Emmenegger, our Chief Financial Officer. If you do not have a copy of today’s results presentation, you may find it on the Investors section of our website, www.molecularpartners.com under the Events tab, and it is also available on the webcast link, if you are listening to us on the webcast today. Management will be making a few brief prepared remarks, and then we will open for your questions. If you’re planning to ask a question, please be sure you are dialed into the call as the webcast is listen-only. And please note that management will be making certain forward-looking statements during today’s call, and these forward-looking statements may differ materially from future events and will be reflected to certain words such as anticipate, believe, could, expect, and words similar to this, but not including all of those. Some key facts may differ materially than our expectations, and we would refer you to our most recent filings on our website, as previously noted. If you’re listening to this on replay, please note that the call was recorded on March 16, 2022. And we would encourage you to refer to our website for the most recent announcements in public filings that they may have changed since a recording of this call. With that, I will turn the call over to Patrick. Please go ahead.

Thanks, Seth, for the introduction and also for the nice disclaimer. I want to kick off with a very warm welcome from my side. I’ll give you also a moment to bring up the slides on our homepage. We’ll keep the presentation for this year very short. And Chris, we have more time for your questions; I think that’s where we can add more value. 2021 was an amazing year, and I do want to start the call by thanking my team and all parts of the team that made this an amazing year. We will work through all the accomplishments, which were really many. This was only possible by teamwork and having really skilled experts working together to bring forward drug candidates in all stages of development. Just to remind us during a global pandemic, which at this point might be a bit less in front of us because other things are taking the spotlight. However, it is far too early to call it a day on the global pandemic, and that will also be part of the Q&A section, especially around ensovibep. So let’s go to Slide #3. I hope you have the time to pull up the slides. Slide #3 outlines the accomplishments of the last year. I want to start with the R&D section. We advanced ensovibep from a preclinical compound within one year to the Phase 2 readout called EMPATHY with Novartis, showing amazing results that we can inhibit the virus, reduce viral load, and protect around 4 out of 5 patients from ending up in the emergency room or hospital, and even 9 out of 10 if we exclude the emergency room scenario, meaning hospitalization and death. At the same time, we advanced AMD 506 and MP0310 and made that a second priority to ensovibep. Good news is we are now back on track with that. We are testing the weekly dosing with the aim to reduce infusion-related reactions and find an optimized activity window for 4-1BB activation, specifically for T cell activation. We also introduced a new molecule in the clinic since last year, MP0317, which is a CD40 FAP. This is very close to the AMG 506 concept, and there is a lot of cross-talk between these programs, which enables learnings from AMG 506 to be applied to 317. We are proud to have nominated 533, a tri-specific T-cell engager in AML. I will touch on that drug on the next slide. This molecule is tri-specific like ensovibep, but the mode of action is a bit more complex, and it took us two years to engineer the correct affinities. We are now pushing forward towards first-in-human trials with that drug, where we see a lot of potential in an underserved patient population. Additionally, we initiated a new program, the radioligand therapy program, with Novartis, and we closed that deal as well. I will come to that further down in this slide, but we are starting new activities on our platform. The new switch concept is a unique feature that allows us to build a DARPin that either binds to target A or target B, something that is much more difficult to achieve with conventional binding proteins like antibodies. For us, this is a novel technology feature that we aim to move into products this year and in the coming years. Transitioning from R&D to corporate activities, we also had many significant events. We listed our company in the U.S., allowing us to raise CHF63 million in cash. The EMPATHY results triggered a CHF150 million option exercise by Novartis for ensovibep, reminding us that we hold 22% royalties in high-income countries. The radioligand partnership with Novartis was associated with a CHF20 million upfront payment, milestones, and royalties. Overall, we had a very fruitful year financially, which will carry us well into 2025, as Andreas will detail in his part of the presentation. Moving to Slide #4, which summarizes our core business: In simple terms, we focus on developing DARPin features that are unique and turning them into differentiated candidates, whether they are mono-DARPins or multi-DARPins. Historically, I have mentioned that ankyrins or repeat proteins play a critical role in our multi-specific approach. We have established that with multi-specifics, we are looking beyond just bispecifics; we also explore tri, tetra, and penta constructs, which are present in our visual representations. The 317 molecules work effectively by co-engaging two targets, triggering immune cell activation when both targets are bound. However, these activators may not showcase single-agent activity, necessitating combination therapies. We added strategy to seek programs that demonstrate at least some level of single-agent activity. We are now branching into ensovibep, a tri-specific SARS-CoV-2 inhibitor targeting the spike protein's RBD, which was designed to prevent escape variants, especially concerning Omicron, where we note that our compound remains effective compared to competitors. With that being said, we are optimistic for future variants and the role that ensovibep could play. Now moving to 533, we face challenges; although it is tri-specific, developing T-cell engagers takes considerable engineering work, requiring the perfect affinities for the three targets we've selected, namely CD33, 70, and 123. These targets are not unique to AML cells; they are also found on healthy hemopoietic stem cells. Therefore, our objective is to devise a DARPin that targets these cancer cells without harming healthy cells, which is what we accomplished in the last two years. Regarding our new exploration into the radioligand therapy space, we use DARPins as delivery agents for payloads like radioligands, maintaining small size and high affinity to allow for deep tumor penetration without significantly affecting overall systemic circulation long-term. This progress will be primarily in collaboration with Novartis, but we will also explore other potential programs. The final aspect is the strategic switch concept that comprises the DARPin with binding sites configured to switch based on target abundance. This grants us the capability to create a smart drug. While still conceptual, we would welcome insights from biologists and medical experts in this space. As for upcoming milestones, starting with ensovibep, it remains largely in the hands of Novartis, so there are constraints on the depth of information we can share. We do process ongoing EUA discussions while collaborating with government stockpiling efforts as we prepare for future variants. Additionally, we anticipate the Virology Day in Q2 this year to share further data and strategies surrounding ensovibep with Novartis having their own presentation strategy for it this year. Moving on to AMG 506, we expect to share more data on its weekly dosing, which will then inform decisions around the advancement of the program. Similarly, for 317, we anticipate initial data will closely align with 310 by the year’s second half, and we aim to initiate 533's entry into the clinic by year-end. Regarding radioligand therapy and additional internal efforts, we plan to combine our cooperative efforts with NIBR while scaling up our research. A brief note on abicipar, we now possess a full data package indicating the next steps to engage with potential partners regarding future trials apologetically maintaining safety at the forefront. With that, I will hand over to Andreas for insights into key figures and the financial outlook.

Very good. Thank you, Patrick. So I’m now on Slide 6 and I'm happy to provide insight into the 2021 financials and our outlook moving forward. I will only touch on highlights; you can find many more details in the appendix of the presentation and in our Annual Report on the website. The numbers for 2021 align with our public guidance and internal budget. We recorded total revenues and other income of CHF9.8 million compared to CHF9.3 million the previous year. The total expenses for 2021 were CHF73.2 million, reflecting an increase of CHF5.5 million compared to the prior year. This resulted in an operating loss of CHF63.4 million compared to CHF58.3 million in 2020. Our net financial loss was CHF0.4 million, a decrease from CHF4.4 million the year before, exhibiting volatility year-on-year due to fluctuations in unrealized currency losses related to our USD and Euro cash positions. We avoid active hedging, planning to maintain currencies in sizes reflective of our future operational needs. Consequently, this resulted in a net loss of CHF63.8 million, which is CHF1 million more than last year. The net cash utilized for operating activities in 2021 was CHF91 million, about CHF20 million more than our P&L expenses due to our investment in the manufacturing of ensovibep's commercial supply. We concluded the year with a solid cash balance of CHF132.8 million and 163 FTEs on our payroll. On Slide 7, our end-of-year balance sheet remained strong, underpinned by cash reserves of CHF132 million, solid equity at CHF173 million, and no debt. Early this year, we added another CHF170 million to our cash holdings through receipt of CHF150 million from the option exercise for ensovibep, alongside a CHF20 million from the NIBR for our newly established radioligand therapy collaboration. As a result, our cash balance approximates CHF291 million as of the end of February 2022. We'll recognize contract liabilities of CHF35.2 million as revenue in 2022, contingent on the progress and costs of underlying collaborations and programs with Amgen, Novartis, and the Swiss government. These liabilities are non-refundable. Other assets and liabilities largely pertain to lease agreements, pension accounting, equipment, and general working capital. In closing, our 2021 performance paired with the favorable ensovibep data and Novartis' exercised options has positioned us robustly for the coming years, ensuring funding well into 2025. The current status fuels our plans despite the challenging biotech market. This excludes other potential payments from affiliations and our anticipated 22% royalties on ensovibep sales along with milestone payments from Amgen and NIBR in Boston. In terms of P&L, we anticipate operational expenses between CHF75 million to CHF85 million for 2022, roughly reflecting a 10% increase from previous years. For the full year 2022, we forecast operational profitability and positive cash flows attributed to early-year collections. How much profit ultimately materializes depends significantly on ensovibep's success, and we acknowledge that this guidance is subject to pipeline progress and changes. I am happy to elaborate on any of these aspects during the Q&A or one-on-one follow-ups as necessary. I will pass it back to Seth or Patrick.

Thanks, Andreas. I appreciate it both. Operator, we’re ready to commence with questions now, please.

Thank you. Our first question comes from Richard Vosser with JPMorgan. Your line is open.

Hi, thanks for taking my questions. A couple – Patrick, I know you mentioned the process of EUA is with Novartis, but could you provide insight on timing or progress of that process? That would be question one. Secondly, just on the EMPATHY trial and the move to subcutaneous versions of ensovibep, could you give us an update on Part B, has that started and recruitment there; where that trial may be recruiting and thoughts on the progress of the subcutaneous version? And then, finally, maybe just the Virology Day, can we expect to see progress on other virology candidates this year? I know it’s not part of your targets or news flow, but just your thoughts there, please. Thanks very much.

Hi, thanks, Richard, for those great questions. I’ll be happy to elaborate on as much as I can. The EUA, as you know, was filed. It’s in the hands of Novartis, and it is an active process. They are working very closely with the agency on this, and from what we hear, the discussions are going well, with real interest from the agency to delve into the data further. I can’t provide a timeline. I don’t believe there is a set date—this is something both sides are navigating. Regarding the EMPATHY trial, speaking generally about Part B and the subcutaneous approach, you point out valid concerns: the situation regarding Omicron has led to an increase in COVID cases but fewer hospitalizations. Therefore, replicating the outcomes from Parts A and B is essentially impossible unless we wait or redefine the trial endpoints, which is being debated with Novartis and the agency. Currently, we do not have an active trial for Part B. That said, having a last mover advantage presents us with opportunities, as others are alongside us evaluating how to position similar studies. We will need to navigate the space, possibly moving towards alternative endpoints like viral load reduction or symptom alleviation given the difficulties in tracking hospitalization as an endpoint right now. On virology, yes, we are investigating other viruses, though we have not disclosed which ones. We will not have finalized data for the R&D Day or the Virology Day, but will give an update on what some of our teams have been working on, including data on ensovibep that we can share.

Great, thank you very much.

Thanks.

Thank you. Our next question comes from Georgi Yordanov with Cowen & Company. Your line is open.

Thank you so much and congratulations on all the progress. On ensovibep, what additional data might be required by regulatory agencies ahead of receiving EUA approval? Do you expect anything clinical that the agency might need? Also, do you plan to submit additional follow-up data showing efficacy against Omicron? Regarding 317, what can we learn from 310 that could be applicable to 317's development specifically for the monotherapy trial? Do you foresee any monotherapy activity? Additionally, can you touch upon potential partnership opportunities? Lastly, regarding 533, could you briefly discuss challenges we’ve seen to date with bispecific antibodies in AML and any structural trade-offs you've identified with combining multiple DARPins?

Hi, thanks for the great questions. I will begin with ensovibep data requirements. The data pieces we could show the agency will be additional safety data following day 29, along with potential efficacy data related to long COVID. Importantly, the sample size of 400 patients is relatively small, thus we look forward to Part B for larger patient data sets moving ahead, especially for the subcutaneous formulation. The subcutaneous method would improve ease of administration, but is not necessarily linked to the EUA directly. You also asked about the potential submission of follow-up data involving Omicron, which is promising based on preclinical evidence we’ve generated. Similar to a Lilly product, we believe agency challenges may exist, but we are optimistic about garnering regulatory interest as our lab data holds up in clinic settings. On 310 and 317, as you noted, the challenge is in managing both target engagement and potential side effects in your dosing regimen. Too high a dose can lead to saturation and reduced efficacy due to the bell-shaped activation curve, while controlling dose levels can mitigate related adverse reactions. We hope to glean insights from our findings on 310 to inform our dosing approach for 317. As for partnerships, I see significant opportunities for collaboration in sinology and oncology, particularly with 317's immuno-oncology profile. Lastly, regarding 533, the AML targets have created challenges in development due to side effects associated with existing therapies. Targeting multiple antigens can have on-target side effects, which we aim to mitigate using low affinity that selectively engages cancer cells while sparing healthy cells, thus creating a better therapeutic window.

Thank you so much, incredibly thorough answers to all my questions. Congratulations again.

Thanks.

Our next question comes from Jo Walton with Credit Suisse. Your line is open.

Thank you. Just a few clarification questions, please. Your EUA progress; you talked about the agency, but can we assume this applies to both the U.S. and European agencies? Given the current timeline, would it be prudent to model a potential 2Q ‘22 approval in at least one of those regions? Can I ask, you have historically mentioned needing about 1,700 patients in EMPATHY B; given the current market landscape and fewer hospitalization cases, are you suggesting this would need to be materially higher to obtain requisite data? Is a smaller subcutaneous study possible, or must we see the commencement of EMPATHY B before we can initiate subcutaneous trials? On abicipar, can you give any hints on discussions with the FDA concerning whether a full Phase 3 study would be required for approval? Any expectations for partnership probabilities? Lastly, in your 20-F, a University of Zurich royalty payment relates to tiered royalties; could we see this reduce the net contribution of the 22% royalties this year if ensovibep generates substantial revenues? Additionally, can you clarify any components of the P&L if ensovibep comes on board? Would we observe manufacturing costs this year, or is the relationship purely royalty-based?

Hi, Jo. I’ll attempt to cover all your questions. On the EUA, formally speaking, yes, Novartis seeks global approval as swiftly as possible. While the process may not be labeled EUA outside the U.S., similar discussions are ongoing regarding other jurisdictions. Historically, the U.S. typically engages in these discussions more rapidly and meaningfully for government contracts. Your model is up to you; I would focus on patient data. However, I recommend managing expectations that if we pursue the same endpoint in EMPATHY B with Omicron patients, we would likely require a larger sample size. In terms of the possible design for subcut dosing, I cannot provide specifics. Those discussions are currently in deliberation. Moving to abicipar, our work with Allergan involved two Phase 3 trials demonstrating positive results, though some concerns about inflammation arose. AbbVie’s exit steered us back to reassess what an FDA review would necessitate regarding resubmission strategies. We anticipate a well-structured, controlled trial against Eylea facilitating approval using existing data; this will not be a full-fledged Phase 3 but will require considerable investment to address the past issues identified. Lastly, with regard to your 20-F query, we do not have ongoing royalties related to ensovibep post the base patent expiration; this has no bearing on our revenues. Our engagement in ensovibep remains a royalty-based structure with recharge provisions for FTEs working around direct involvement.

Thank you very much.

Thank you.

Our next question comes from Daina Graybosch with SVB Leerink. Your line is open.

Hi. Thank you for the questions. There has been a lot of good discussion already, so perhaps two on ensovibep. One I think you mentioned Lilly’s recent emergency use authorization for bebtelovimab. Could you discuss the data package they had vis-à-vis ensovibep holistically? Any similarities, differences between how it may fare with the agency? My second question regards endemic COVID; are you developing additional follow-on DARPins if a variant emerges resistant to ensovibep?

Hi, thanks Daina. I’ll be brief on Lilly since I don’t have complete data deconstructed there. I could articulate that both Lilly's antibody also neutralizes Omicron and there's a shared understanding with the agency that another variant will likely emerge. Thus, we are prepared to present ensovibep's capabilities either as a standalone or in conjunction with others. In that light, our deep lab data speaks to enduring relevance. Comparing our data approach, while Lilly potentially had the advantage of being the first, our data showcases a broad efficacy across variants. As for your endemic COVID question, we believe we are still potentially at risk for further variants. The pandemic isn’t over, and our readiness remains crucial. We've also designated a candidate—ensovibep 2.0—for forthcoming variants with known escape mutations identified. It’s vital to keep advancing as the landscape changes.

Great. Thank you.

Thanks.

Thank you, Rupin from SUW. Your line is open.

Thanks a lot for taking my questions. I am surprised your guidance for operating expenses is relatively low considering you have a lot of cash, and your cash burn rate extending into 2025 suggests you are not planning to materially increase those expenses. Given the upcoming presentation of potential virology candidates, is your strategy now contingent on ensovibep sales? Do you have an alternative plan should ensovibep succeed, warranting an increase in expenditure?

Thanks, Rupin, for your excellent question. We face this decision constantly. I can share honestly that our current pipeline projects are still early stage. Increasing expenses heavily via investment in 317 or 310 could dilute our strategy. However, we are always looking for opportunities to invest further and expand our capabilities should additional cash become available. But as of today, our conservative approach reflects the developmental state across our projects. Certainly, if we witness significant funds flowing in, we would reevaluate our tactical approach for investment opportunities, potentially increasing focus on pandemic readiness or complementary DARPins.

Thanks.

Thank you. And there are no other questions in the queue. I would like to turn the call back to Patrick Amstutz for closing remarks.

Sure. I will begin, then Seth will close. Thanks, everyone, for joining today’s call. Thank you as well to all our analysts for the insightful questions that allow us to explore our operations more in-depth. I truly appreciate the teamwork throughout this past year and I'm grateful for our collaborators, including Novartis, for the valuable collaboration surrounding ensovibep. Thank you to all my coworkers at Molecular Partners for their hard work and dedication.

Thanks, Patrick. Thank you all for joining us today. We appreciate your engagement and are happy to follow up with any questions in the coming days. We look forward to updating you at future events coming soon, including the Virology Day, of which we will announce the date shortly. Please feel free to reach out if you require further assistance. Have a great day.

This concludes today’s conference call. Thank you for participating. You may now disconnect.