Pharming Group N.V. Q1 FY2022 Earnings Call

Hello, everyone, and welcome to Pharming's First Quarter Results Conference Call. My name is Victoria, and I'll be coordinating your call today. I'll now pass over to your host, Dr. Sijmen de Vries, CEO, to begin. Please go ahead.

Thank you very much, Victoria. Good afternoon and good morning, ladies and gentlemen. Welcome to our first quarter results call today. And before I go into that, I would like to go to Slide 2 and point you to the slide that shows forward-looking statements as we will be making some forward-looking statements that are based upon our current beliefs, expectations and assumptions and, of course, as you all know, things may change towards the future. So having said that, I would like to move to Slide 3. I'm here together with my two colleagues, Jeroen Wakkerman, our Chief Financial Officer; and Anurag Relan, our Chief Medical Officer, who will take you to the respective parts of this presentation. Can I have Slide 4, please? We are a well-funded business, supported by commercial sales and a growing pipeline, and we focus on the treatment of rare diseases with unmet medical needs. And we can do that because RUCONEST, our lead product, is now launched in over 40 countries and recorded sales of almost $199 million in 2021. And is on its way, as you have seen from the results today, to deliver single-digit growth as we expect for 2022 over 2021. This is a very important time for the company here because we have a near-term inflection point in our hands with the possible launch of our in-licensed compound leniolisib from Q1 2023 to treat the orphan disease APDS. That will, of course, be a significant transformation for the company afterward because then we will actually have two products in multiple geographies and would not rely on one product that is mainly deriving sales from one geography, i.e., the United States. This is a rare disease, estimated according to the literature of some 1,350 patients, as you can see from this slide, and we have started at a relatively modest level with finding these patients. We have already identified some 400 patients that could become eligible for the treatment with leniolisib once approved, of course. We will indeed further intensify the search for these patients going forward for the remainder of the year. We have this established specialist commercial infrastructure in the US and Europe. That is why we are quite confident that we can make a commercial success out of leniolisib. Of course, we are looking, as we well know from previous calls, intensively for additional late-stage opportunities to in-license and further bolster our pipeline. We also work on early-stage R&D products and most notably, last year, we in-licensed a potentially curative gene therapy candidate for hereditary angioedema, OTL-105, from Orchard Therapeutics, and we will, of course, update you towards the future as and when important milestones have been achieved in that program. We are also working on further lifecycle management opportunities for our in-house compounds, which include leniolisib, which may be possible to develop in indications other than APDS. Last but not least, we have this experienced leadership team and a strong balance sheet that can support our growth strategy. It's good to say here that the current development plans and the current portfolio that we have requires no additional financing. So how does it look like? Please turn to Slide 5 for our strategy for growth. On the left-hand side of Slide 5, you see the commercialization of RUCONEST, which is ongoing and supporting the business. As I was saying before, the launch of leniolisib will totally transform our company from a one geography company to this multiple geographies and multiple product company, which is a very, very important step forward. We expect to be included in Japan, where we have no presence yet. Japan, as we know, is the second biggest pharmaceutical market in the world. Then you see on the near-term expansion of our portfolio, as I was already alluding, we are actively hunting for additional in-licensing opportunities for rare disease compounds that are in late-stage development so that we can establish a launch agenda beginning next year with leniolisib and follow with additional compounds to be in-licensed in the subsequent years thereafter. Additionally, we can continue to work on the development of C1 inhibitor and as I was saying, leniolisib, for additional indications. There's an interesting aspect to entering into this primary immune deficiency domain and starting a systematic patient finding exercise by offering genetic testing. We have access to a growing amount of genetic testing results from primary immune deficiency patients that undergo testing for APDS. We can start seeing patterns of certain mutations that are there. Therefore, we can have, in the long term, a more directed business development effort in R&D to address more of these primary immune deficiencies, as we believe, and it's a known fact, that there are about 400 genetic defects underlying these primary immune deficiencies. We think there's a lot more to be done to help patients that are currently without treatment, like our patients in APDS waiting for leniolisib. In addition, we're working on OTL-105, our in-licensed compound for the potential curative treatment of hereditary angioedema, and last but not least, we also have alpha-glucosidase, the new version of enzyme replacement therapy for Pompe disease, which is still a big unmet medical need. I would like to go to Slide 6, and then you may go immediately to Slide 7, because I will be briefly discussing the position of RUCONEST in the hereditary angioedema market. As we've discussed before, RUCONEST is approved for the acute treatment of hereditary angioedema attacks. This means that in the mainly US market, prophylactic treatments have become more popular over the last couple of years, with the good news for patients being that prophylactic treatments have significantly improved efficacy- and convenience-wise. However, it's essential to note that all prophylactic treatments are still not totally watertight. There remains a significant portion of patients suffering from breakthrough attacks under prophylaxis, with published results from clinical trials showing up to almost 50% of patients still experiencing breakthrough attacks. Breakthrough attacks vary in frequency and are a considerable unmet need. This is where RUCONEST fits in because the paradigm shifts from prophylaxis from C1 inhibition to bradykinin and kallikrein inhibition. Hence, it is rational to provide patients with a C1 inhibitor as a breakthrough medication in case they experience breakthrough attacks. We are seeing an increasing number of patients treated with RUCONEST, highlighting the growth we have in the US market. On the next Slide 8, you can see that it illustrates what I said just before: thanks to increased efficacy and convenience of prophylaxis, there has been a gradual rise in patients using prophylactic treatments, which stabilized at around 70% by 2021, while the acute segment stabilized at around 30%. That said, it's challenging to model this market, as all patients on prophylaxis will have — if they adhere to their treatment plan — breakthrough medication on hand because hereditary angioedema is unpredictable, and attacks can happen at any time. So far, the hereditary angioedema market represents a significant moment for our company. For the second time in our history, we have positive pivotal data for a new compound to bring to the market. I would like to invite my colleague Dr. Anurag Relan, our Chief Medical Officer, to take you through the latest presentation on APDS and leniolisib. Over to you, Anurag, and I suggest we move to Slide 9.

Thank you, Sijmen. Today, I would like to quickly review the pathophysiology of APDS and share some recent data we've presented on leniolisib in treating APDS patients from clinical studies. So if we can go to Slide 10, we can see the pathophysiology of APDS. The left side shows how a hyperactive PI3K delta pathway, due to the genetic defect in these patients, leads to abnormal development of their immune system, specifically T and B cells. This abnormal development causes APDS patients to experience recurrent infections and symptoms consistent with other primary immune deficiencies. Prominent features include lymphoproliferation leading to lymphadenopathy, splenomegaly, and abnormal lymphoid tissue. Patients also face issues with autoimmunity and recurrent lung problems like bronchiectasis, along with gastrointestinal and neurodevelopmental issues. Unfortunately, another serious consequence is the risk of lymphoma due to unchecked lymphoproliferation. On Slide 12, I want to walk you through the studies with leniolisib. The left side shows Part 1, which was a dose-finding study that completed some time ago, where six patients were treated with three different dose levels of leniolisib. A dose of 70 milligrams twice daily was selected for Part 2, the placebo-controlled study. Patients from Part 1 and Part 2 then enrolled in the open-label extension study for long-term efficacy and safety data collection on leniolisib. Today, we’ll focus on Part 2, with more data from the open-label extension study to come. If we look at demographics — on the next slide — we see that this is a young patient population with a median age around 20 years, and nearly 40% belong to the age of 18. The overall population has a history of numerous complications from APDS, including lymphoproliferation, infections, lung issues, and autoimmune cytopenias. On the next slide, we see the first of the co-primary endpoints presented: a measure of lymph node swelling. Lenilisob patients had a significant decrease over placebo, which was statistically significant. When we looked at the measurements of the sum of product diameters in the index lesions, this endpoint was met significantly. The next slide shows patient distribution. The leniolisib patients, shown in blue, had a clear and significant decrease from baseline in the size of their index lesions, contrasting with placebo patients who saw little to no change. The other co-primary endpoint was the proportion of naive B cells, where leniolisib-treated patients had a statistically significant increase compared to placebo-treated patients. Naive B cells are vital for proper immune response. In leniolisib patients, this number increased and stabilized, while placebo patients demonstrated no change. Thus, both co-primary endpoints were met with clear efficacy. Looking at the next slide, APDS patients also experience splenomegaly and hepatomegaly due to lymphoproliferation. In this study, leniolisib-treated patients saw significant decreases in spleen and liver size compared to a slight increase among placebo patients. Therefore, even over this brief twelve-week study, we see impressive improvements in these measures. On Slide 22, we see that leniolisib was generally well-tolerated. The safety profile across the treatment grades was similar to placebo, with no deaths or discontinuations due to adverse events. Remarkably, the frequency of adverse events was lower in the leniolisib treatment arm compared to placebo. Lastly, I’d like to showcase the long-term data we have on the first six patients treated over two years, with some data extending out to five or six years now. These six patients saw their IgM levels drop after being treated with leniolisib. When some patients could not continue immediately due to dosage interruptions, their IgM levels increased again. Once they resumed, their IgM levels dropped again. This long-term result showcases the response to leniolisib and leads to many cases of patients stopping IG therapy due to normal B cells functioning, a highly positive outcome. I look forward to sharing more of this constructive data with you throughout the year. Now, moving to Slide 24, I'd like to cover our launch preparations aimed at finding patients. Given that APDS is relatively newly defined, with the genetic mutation identified only back in 2013, we’re undertaking significant efforts to educate physicians about APDS and build a network of specialists treating primary immune deficiency. We’re also employing AI techniques to identify patients based on symptom profiles and providing a no-cost genetic testing program for potential APDS patients to reduce barriers in obtaining a diagnosis and allow for future specific treatment options. I’ll now turn it back over to you, Sijmen, to walk us through some upcoming milestones for the APDS program.

Thank you very much, Anurag. Yes, please move to Slide 20. Here you see the upcoming milestones that Anurag and his team are working very hard on, along with the commercial teams, to prepare for the launches. The first milestone is the FDA filing of the compound, anticipated to follow after the summer with EMA and British filings. Pediatric studies are also high on the agenda for the second half of this year, with patients under 12 included already. Two pediatric studies will be initiated in this regard. As I mentioned, we are optimistic about the prospect of entering Japan with this compound. There have been requests from Japanese opinion leaders for us to conduct a small trial. We’ve had discussions with Japanese authorities, and they are very cooperative. We anticipate starting that small clinical trial required by Japanese authorities for review this year. We are approaching a significant moment, assuming we get an accelerated review by the FDA, which typically involves an eight-month review cycle, with the product launch or PDUFA date expected in the first quarter of '23, followed quickly by the US launch. The EMA review will follow later due to a later filing date. We anticipate launching across EU countries in the second half of next year. We are genuinely excited about this prospect as this roadmap will transform us into a multiple product company across multiple geographies. This transformation requires significant investment, and I think now is a good moment to transition to our Chief Financial Officer, Jeroen Wakkerman, to discuss financial highlights.

Thank you very much, Sijmen. On the next slide, you will see the quarterly revenue development from RUCONEST over the last two years. We are pleased to report a revenue increase in Q1 2022 by 7% to $46.6 million. Most of this revenue, as you may expect, comes from US sales — $45.3 million of the $46.6 million. This represents a 7% revenue growth in the US driven by the increase in the number of patients, albeit slightly offset by tighter inventory management at larger specialty pharmacies. While the EU and the rest of the world are still small markets, this quarter presented a weaker performance largely due to order phasing. Gross profit increased by 8% to $41.7 million, primarily due to revenue growth, but also margin improvement with price increases and reduced discounts. Moving forward, the operating profit decreased from $6.3 million last year down to $2.8 million due to the anticipated rise in operating expenses, which went up to $39.8 million, an increase of about $7 million. This increase was primarily linked to preparations for the leniolisib launch. Other factors included increased travel in the U.S. post-COVID and cost phasing. The operating profit decrease stemmed from these rising costs driven primarily by leniolisib launch preparations. Our net profit decreased to $3.5 million owing to these higher operating expenses and a decrease in financial income from the previous year related to foreign exchange fluctuations. Our cash position remains strong, decreasing by $2.2 million to $189.7 million, with positive operating cash flows of $0.6 million that include costs for leniolisib launch preparations. In summary, our profit before tax fell from $12.8 million to $4.2 million due to increased R&D expenditure for leniolisib and other brands. The financial results were affected by foreign exchange, with last year’s financial outcomes being $6.6 million compared to now at $1.8 million. We arrive at a profit before tax figure of $4.2 million. Next slide shows cash and cash equivalents, with a decrease of $2 million attributed to operating cash flows offset by working capital changes. We expect investment rates to rise in upcoming quarters for launch preparations. The financing cash flow primarily covers interest and lease costs. Now, I would like to discuss our outlook and hand it back to Sijmen.

Thank you very much, Jeroen. As for the outlook, ladies and gentlemen, it remains steady from our previous assumptions following our full year results. We continue to project single-digit growth in group revenues from RUCONEST. However, quarterly fluctuations in revenues should be anticipated. We are on track for a Q1 '23 launch of leniolisib, subject to regulatory approvals. The company will keep investing heavily in preparation for this launch, along with clinical developments outlined earlier. This will impact profits, but it's important to state again that RUCONEST cash flows will fund these investments, indicating no need for additional financing. We also plan to invest further in potential acquisitions or in-licensing of new late-stage development opportunities, as mentioned before in rare diseases. However, in-licensing and acquisition processes may require additional financing, which can be sourced from our strong balance sheet, access to debt capital, and potentially equity capital for acquisitions. Finally, we’ll continue to focus strategically on the company’s development into the future and explore additional indications for compounds like leniolisib while advancing our early-stage compounds. With that, I would like to conclude this part of the meeting and open the floor for questions from everyone attending. Thank you very much. Operator, please open the floor for questions.

Thank you. Our first question comes from Joe Pantginis at H.C. Wainwright. Please go ahead. The line is open.

Thanks a lot for taking the question. Hope everything is well over there. My three questions really focus on what you'd call background activities. For leniolisib, what can you describe regarding ongoing pre-launch activities? Do you consider any of those rate-limiting at this point? Secondly, for OTL-105, do we anticipate any preclinical news from that program over the next 12 months? Finally, how would you describe the maturity of your discussions regarding potential in-licensing?

Joe, I'll start with the first one regarding pre-launch activities. I don't think there are any rate-limiting steps at this moment. Our pre-launch activities include regulatory preparations for submissions and, importantly, developing market access files for European markets. We’re intensifying our efforts to identify patients as we gain more confidence in the approvability of our file, particularly in the U.S. and Europe. I don’t see any rate-limiting steps in this aspect right now. Regarding OTL-105, I do expect we could have some updates within 12 months as we reach preclinical milestones. So yes, there should be news from that program. As for in-licensing acquisition discussions, we engage in conversations with companies that have promising assets. Some discussions are fairly advanced, but as always, nothing is certain until a deal is finalized. We view business development as core to our competency, with a well-established commercialization process developed across both continents, considering it a valuable asset.

Great, thank you for the questions and really nice presentation. I have three questions. First, Anurag and Sijmen, in terms of planning for the leniolisib launch, how is reimbursement going to work? Are you doing pharmacoeconomic modeling, for example, considering NCCN guidelines are important in cancer? How will reimbursement plans fit into your launch strategies in both the US and Europe? Second, in recent KOL discussions, it was highlighted that there is a relative risk for this disease. Are you considering potential screening for relatives in the future? Finally, what is the market size for Japan if you enter with a partner?

Regarding reimbursement for leniolisib, yes, we are developing necessary files for varied European markets. We've established the necessary ICD-10 codes in the U.S. for APDS. These tasks are critical pre-launch preparations. If Anurag has additional insights, he can certainly add more. On screening relatives, I prefer to ask Anurag to provide more context on that. As for the Japanese market, from our previous findings, without systematic search activities, we identified 60 patients in France—indicating at least a one in a million minimum incidence. Therefore, in Japan, with its population of approximately 125 million, we estimate around 125 patients may be present without systematic searches. Anurag, can you elaborate further?

Family testing is a significant part of our search efforts. The navigateAPDS genetic testing program includes provisions for family testing at no charge. We continue extensive education on family testing to increase awareness and identification of APDS patients.

Good afternoon, gentlemen. Thanks for taking my questions. First, on RUCONEST, could you discuss the impact of tighter inventories in the U.S.? Is this a transitional situation, or is it more long-term? How would sales growth look absent this corrective inventory behavior? And do you expect normalization of inventory levels for the rest of the year?

That's a challenging question, Christian, due to the nature of inventory management. Some quarters may show higher or lower inventory. This time, there was a notable decrease in inventory, which we tracked closely since we work closely with specialty pharmacies. I don't believe there's any systemic issue—just an observable decrease. While we reported this honestly, we remain confident in the RUCONEST business due to a growing number of patients and expanding physician prescriptions. We see a clear necessity for a C1 inhibitor as a breakthrough therapy when dealing with bradykinin and kallikrein inhibition. That transition takes time but is gradually progressing. I think that sums it up.

Now specifically about leniolisib. On patient identification, previously it was reported at 350, but current reports indicate around 400. Was that increase over the last quarter? This suggests a capture of about 30% of the identifiable patients in the U.S. and Europe. What potential do you see for increasing that diagnosis rate?

We believe we can reach about 1% of the population having this disease. By intensifying our activities, we will be sending more teams into the field to visit immunology clinics to find patients already being treated but not diagnosed. This growth is expected to continue or accelerate, with ongoing efforts in the U.S. and Europe, where obtaining genetic testing is easier and often reimbursed. We are working with specialist centers to analyze patients and their families. I believe that covers your question.

Have you conducted survey work or market research regarding the 400 identified patients and their physicians? What percentage would show willingness to prescribe leniolisib based on standard survey results?

Currently, we don’t have survey results yet, focusing primarily on patients eligible for treatment who are highly interested in receiving the therapy along with their physicians. Given the lack of alternative treatments, there's significant demand. Anurag, would you like to provide additional insight into our experience at recent conferences presenting this data?

Certainly. The data has been well received at conferences in the U.S. and Europe. Feedback from physicians regarding the data has been positive and they view the possibility of leniolisib as an important option for their patients—especially considering the long-term data showing IG therapy cessation.

Finally, on the regulatory side of leniolisib, can you indicate the potential for an advisory committee involved in the review process? Additionally, do you believe this indication qualifies for a priority review voucher and would it be Pharming's or Novartis' to hold?

Regarding the advisory committee, we are just starting the process and haven't filed yet. The FDA will determine if an advisory committee is needed after reviewing the application. We are ready either way. As for the priority review voucher, we believe we qualify, and if granted, it would be with Novartis. There is a revenue split agreed based on investment in the compound, but the details are undisclosed.

Hello, thanks for taking my questions. When might we receive updates on the Pompe program?

That’s a good question, Simon. I expect to provide updates later in the year, more towards the end. However, please keep in mind, it’s still preclinical, so it’s not among our main value drivers.

Thank you very much for answering questions. At this time, there are no further questions. I would now like to pass it back over to Sijmen for any final remarks.

Thank you very much, Victoria. Ladies and gentlemen, thank you for attending today. We delivered on our expectations for single-digit growth for 2021 and informed you about the increasing investments ahead of the leniolisib launch. This launch will transform us into a company with multiple products across multiple markets, significantly derisking our future. We continue hunting for additional late-stage assets, leveraging our access to capital and our balance sheet. It's also important to note that executing our current portfolio doesn’t require additional financing. I look forward to updating you on our progress, particularly our first half results, which will be presented in the first week of August. Thank you, and goodbye.