Earnings Call Transcript - PHAR Q3 2022

Operator, Operator

Hello, and welcome to Pharming's Nine Months 2022 Results Call. My name is Lauren, and I will be coordinating your call today. I will now hand you over to our host, Dr. Sijmen de Vries, CEO, to begin. Dr. Sijmen, please go ahead.

Sijmen de Vries, CEO

Thank you very much, Lauren. Good morning, everyone, or good afternoon. I'm delighted to have you join us for the nine months 2022 Results Call. Joining me today are my colleague Anurag Relan, our Chief Medical Officer, and Jeroen Wakkerman, our Chief Financial Officer. Before we proceed, I would like you to review the forward-looking statement slide. This presentation may include forward-looking statements based on our current estimates, beliefs, and expectations, and as you're aware, circumstances can change in the future. With that said, I will move to the next slide, where you can see three familiar faces for those of you who have been here before. I would now like to direct your attention to Slide #5, where I will remind you of our strategic objectives that we set a while ago, which still hold true. Our aim is to build and sustain a viable business centered around the RUCONEST product. We remain committed to this approach for the foreseeable future. Our next focus is obtaining market approval, launching, and commercializing leniolisib in the key markets of the U.S., U.K., and the European Union. We have established sales force capabilities in these three markets, and this will underpin the leniolisib business that will be developed alongside the RUCONEST business. Additionally, we are engaged in pipeline development through our internal projects and partnerships we've formed over time, managing these rare disease assets is central to our mission. We are dedicated to addressing rare diseases and providing solutions for patients who currently lack options. There are many rare diseases without cures, of which APDS is just one example. Please proceed to Slide #6. Here, you can see the three main pillars of our business. RUCONEST is crucial as its positive cash flow supports our aspirations, including the development of leniolisib and our ongoing pipeline. In other words, our sales forces working on RUCONEST will continue their efforts in the foreseeable future, as we believe our product has a strong market presence. The anticipated approval and commercialization of leniolisib is critical. This is a recently identified rare disease, and awareness remains relatively low. Some studies suggest there are about 1.5 patients per million people, which translates to roughly 1,350 patients based on this estimate. We are actively seeking out these patients and discovering them regularly. We believe the leniolisib compound has the potential to serve as a platform because we are uncovering intriguing additional indications through research partnerships with Novartis. We are prioritizing which diseases to pursue further. Continued development of our pipeline for rare disease assets involves both internal projects and potential acquisitions of new late-stage assets through in-licensing and M&A opportunities, helping us build our portfolio moving forward. Internally, we have already in-licensed OTL-105, a gene therapy candidate for hereditary angioedema, alongside our own platform for enzyme replacement therapy for Pompe's disease. This provides an overview of our efforts to build a sustainable business. This is a pivotal time for the company as we transition from reliance on a single product in one geography to a more balanced portfolio featuring two products in the market, anticipating significant growth outside of the U.S., particularly in the European Union and Japan with leniolisib. We are evolving the company as we prepare for the introduction of leniolisib. Moving to Slide #7, I'm pleased to announce that on September 28, we submitted and received acceptance for priority review of the new drug application from the U.S. FDA. We have a PDUFA goal date of March 29, 2023, and are preparing to launch this product in the U.S. market as soon as we can. Additionally, we have received an ICD-10 code for patient classification, diagnosis, and reimbursement as the product approaches market entry, which is a significant milestone for a rare disease. We are on track for commercial approval of leniolisib in the first quarter due to the March 29 PDUFA date, with plans for launch in the second quarter. We will keep you updated on our progress. Let’s now review the strategic highlights of leniolisib's progress outside of the U.S. on Slide #8. Earlier this year, we were pleased to receive pediatric investigation plan approval from European authorities, allowing pediatric trials to use the same endpoints as our adult trials. Furthermore, we obtained an accelerated assessment from the EMA for our leniolisib application, acknowledging its innovative nature and the urgency of addressing the disease. In October, we submitted our authorization application to the EMA and expect to receive validation soon. In April, UK authorities granted us the promising innovation medicine designation. The U.K. government announced it would continue the EC DRP as a recognition route for the European applications until the end of 2023. Once we receive a positive opinion from the CHMP, which we anticipate in the second quarter, we can submit our application to the U.K. authority for approval in early or late second half of 2023. This approach simplifies the process, allowing for a unified label across the EU rather than dealing with separate products and additional regulatory challenges. Moving to Slide #9, concerning our preclinical compounds, OTL-105 is making good progress, with our partners at Orchard testing it in preclinical models for HAE disease. We expect to provide further updates regarding IND filings and future clinical trials. Concerning alpha-glucosidase for Pompe, we are searching for distinguishing features in our platform that might offer advantages over existing therapies. This brings us to Slide #10, which outlines our pipeline comprising a product currently in the market, leniolisib under regulatory review, OTL gene therapy, and alpha-glucosidase for Pompe. Any additional in-licensed or acquired products at clinical stages could enhance our launch calendar. On Slide #11, we are pleased to report that RUCONEST achieved significant sales, totaling $151 million over these nine months, demonstrating its strengthening market position. RUCONEST has a unique mode of action and remains a rational choice for patients requiring breakthrough medication for hereditary angioedema alongside prophylactic therapies. At the start of the year, we projected single-digit revenue growth for RUCONEST in 2022, and we are on track to fulfill that commitment, a testament to our team's dedication in making RUCONEST available to more patients, particularly in the U.S. market. With that, I’ll now pass it over to my colleague, Dr. Anurag Relan, our Chief Medical Officer, to discuss highlights regarding APDS and leniolisib. Anurag, it’s all yours.

Anurag Relan, Chief Medical Officer

Thank you, Sijmen. Let’s jump to Slide 13. APDS is a primary immune deficiency with serious clinical manifestations. At the heart of APDS is the abnormal development of the immune system, manifesting as nonmalignant lymphoproliferation with swollen lymph nodes and enlarged spleen and liver. Patients face recurrent infections leading to progressive lung disease and airway deterioration, including conditions like bronchiectasis. Unfortunately, there’s also a risk of malignant transformations, such as lymphoma. Lastly, patients exhibit immune dysregulatory disorders leading to autoimmune phenomena, manifesting in anemias and other cytopenias, affecting organs like the GI tract and liver. Moving to Slide #14, we present the results from a randomized, double-blind, placebo-controlled study of leniolisib over 12 weeks targeting two co-primary endpoints. The first co-primary endpoint shows that leniolisib significantly reduced lymphadenopathy versus placebo. In the left-hand primary outcome analysis, there’s a statistically significant reduction in the size of index lesions among leniolisib patients. You can see that placebo patients remained stable or worsened, while leniolisib-treated patients showed a decrease in lymph node size. On the next slide, we see the other co-primary endpoint. We observed that APDS patients have an abnormal development of B-cells characterized by a low proportion of naive B-cells. Treatment with leniolisib led to a statistically significant increase in the naive B-cell proportion. By the first month of treatment, there was a significant jump, sustained over time versus placebo patients who did not respond. This aspect is critical as treated B-cells can function properly, producing antibodies and recognizing antigens. On the following slide, we see the safety profile from the double-blind placebo-controlled study. Leniolisib was generally well tolerated, with the severity and grade of adverse events similar to placebo. No deaths were reported, and no severe adverse events related to study treatment occurred. After the 12-week randomized study, patients transitioned to an open-label extension, presenting data recently at a European conference. Notably, lymph node sizes continued to decrease significantly for patients treated with leniolisib beyond the study period. On Slide 18, we see similar results for spleen size, indicating that leniolisib treatment leads to sustained reductions in spleen enlargement, a notable outcome for these patients. Lastly, on Slide 19, we highlight that patients exhibit a class-switch defect, stuck producing IgM antibodies instead of transitioning to produce IgG type antibodies. In contrast, patients treated with leniolisib showed improvement in their ability to class switch, transitioning to produce more IgG antibodies. On Slide 20, we discuss the milestones for leniolisib. We have seen acceptance of the FDA file with priority review, and we have completed submission to the EMA. Later this year, we hope to initiate improvements for the pediatric studies, with significant events and regulatory approvals anticipated in 2023, followed by commercial launches. Thank you, and I will turn it over to Jeroen Wakkerman, our CFO.

Jeroen Wakkerman, Chief Financial Officer

Thank you very much, Anurag. Let’s discuss the financial highlights of the first nine months. We experienced a 3% increase in revenues from $146 million to $151 million. Specifically, in Q3, we achieved a turnover of $54.2 million, reflecting a growth of 2.6% compared to the previous year. Our gross profit increased by 7% to $139.7 million, driven by revenue growth and production efficiencies, along with favorable currency translation effects. As you know, our sales are primarily in U.S. dollars while our cost of goods are in euros. Our net profit increased by over 100% compared to the same period last year, largely due to an increase in other income attributed to our transaction with BioConnection in Q2, generating a $13.8 million profit. Cash and cash equivalents, including restricted cash, decreased from $193 million at the end of last year to $189.9 million at the end of Q3 2022 due to strong operational cash flow offset by foreign currency exchange effects with cash held in euros. Our operational cash flow before working capital was positive at $26.7 million. We kept the operational cash flow strong despite increased working capital requirements for inventory and paid taxes of $5 million, resulting in a net cash flow from operating activities of $17.2 million. Cash flow from investing activities showed a cash inflow driven by the BioConnection transaction, which contributed $7.4 million, offset by capital expenditure primarily in IT. Our financing activities reflected a cash outflow of $5.3 million for regular lease costs and interest. The exchange rate effect presented a loss of $20.9 million mainly due to our euro cash holdings in a dollar-reporting entity. Overall, we closed Q3 with cash and cash equivalents of $188.7 million. We are pleased with these developments, particularly relating to operational cash flow and solid cash reserves for future growth. I would now like to hand it back to Sijmen.

Sijmen de Vries, CEO

Thank you, Jeroen. Moving to Slide #27, let’s discuss our outlook, the final slide of this presentation. We continue to guide for single-digit growth for the remainder of this year for RUCONEST sales. We have mentioned the anticipated commercial approval, subject to the positive outcome of the FDA review, which we expect on the PDUFA date of March 29, with an anticipated launch in the U.S. soon after, within the first half of '23. Regarding the EMA, we anticipate a positive review and opinion from the CHMP which will also occur in the first half. Following this, we will initiate individual European market rollouts in the second half of next year. A positive surprise was the extension of the EC DRP filing for leniolisib by the MHRA, allowing us to submit the European file to the U.K. authority, leading to a quicker decision of around two months after the CHMP opinion, enabling a faster market entry in the U.K. We will also continue to allocate significant resources toward the anticipated launch and commercialization of leniolisib, aiming for accelerated future growth by building the leniolisib business on top of the RUCONEST business. Lastly, we will continue seeking new opportunities to fill our pipeline with potential acquisitions and in-licensing late-stage development opportunities in rare diseases. Our current activities can be funded effectively as reflected by our balance sheet, although we may consider additional financing for significant acquisitions depending on their size. This concludes our outlook and presentation. Operator, we can now transition to the Q&A section. Thank you very much.

Operator, Operator

Our first question comes from Hartaj Singh from Oppenheimer.

Hartaj Singh, Analyst

A couple of questions. One is on RUCONEST, and the other on leniolisib. First, I've heard that the increased use of prophylaxis therapies is leading to a higher need for acute treatments like RUCONEST. What are your expectations on this trend and how long could it last? Second, we receive queries from investors about which other immune conditions or primary immunodeficiency disorders you could pursue, and when might we see insights there?

Sijmen de Vries, CEO

Let me address the first question, Hartaj. Yes, we see a continuing positive trend in the number of physicians and patients using RUCONEST. In the past, RUCONEST was rarely used for breakthrough attacks since the prophylactic therapy was primarily C1 inhibitor, which made it less relevant for many patients. However, the paradigm shift over the past few years towards bradykinin/kallikrein therapies, although significantly improved, does not eliminate breakthrough attacks for about half the patients. At recent patient conferences, opinion leaders advised patients to always keep rescue therapy at hand due to the unpredictable nature of this disease. Thus, we see RUCONEST's business continuing strongly for the foreseeable future, and we aim to replace patients switching to prophylaxis by expanding our patient base since we still hold a modest market share. Sorry for a long-winded answer. On the second question about new indications for leniolisib, Anurag, could you provide some insights?

Anurag Relan, Chief Medical Officer

Thank you, Sijmen. We are indeed looking at additional indications for leniolisib. These are not limited to primary immune deficiencies but involve several areas, mainly where Novartis has conducted initial work. While we’re not in a position to disclose specific areas yet, we expect to provide updates soon as we progress further.

Joseph Pantginis, Analyst

Hartaj raised some excellent points about the market dynamics. Given the ongoing need for rescue therapies, can you remind us about current patients and how frequently they need new prescriptions?

Sijmen de Vries, CEO

Typically, U.S. patients require a renewal of their prior authorization every 12 months. We noticed disruptions during COVID as plans extended authorizations, but the standard remains about 12 months. Most long-term users renew their prior authorizations in the first quarter, resulting in considerable administrative work for their doctors' offices, which we assist with. Rare disease companies work to ensure patients do not experience interruptions in medication during this process.

Joseph Pantginis, Analyst

That makes sense. Regarding business development efforts, what is the status of these discussions and their maturation level?

Sijmen de Vries, CEO

We receive a lot of inbound interest from various consultancies and banks, alongside our own initiatives. Unfortunately, many opportunities involve repurposed molecules for rare indications that do not align with our business model. We seek genuine innovative treatments, as seen with leniolisib. Being cautious, we were close to a couple of deals this year but ultimately chose to step back due to difficulty validating patient numbers. We continue to actively search for opportunities in collaboration with our business development team and reviewing criteria to ensure we make sound choices. Anurag, would you like to add anything?

Anurag Relan, Chief Medical Officer

I just want to echo what Sijmen mentioned. We're systematic in our approach, reviewing a range of opportunities while being cautious to ensure we only bring in those that can add value to our efforts.

Joseph Pantginis, Analyst

With growing excitement about gene therapy around HAE, can you provide information regarding any upcoming preclinical data that will help understand the profile of OTL-105?

Anurag Relan, Chief Medical Officer

Certainly. Our focus on OTL-105 stems from the goal of providing patients with a C1 inhibitor solution through gene therapy, which presents a unique platform with Orchard Therapeutics. We’re currently testing the lentiviral vector to enhance C1 inhibitor expression levels in disease models. We expect to have updates soon discussing meaningful increases in C1 inhibitor levels as we refine our approach.

Simon Scholes, Analyst

You mentioned identifying 400 potential leniolisib patients. How many are pediatric patients? Regarding ICD-10 designation, how are reimbursement discussions progressing? Lastly, what's the pricing differential expectation for leniolisib versus RUCONEST?

Anurag Relan, Chief Medical Officer

Regarding the potential leniolisib patients, approximately half of our treated clinical trial patients are in the 12 to 18 age range, with an estimated 20% to 30% being under the age of 12. These patients are diagnosed early, so efforts to increase disease awareness will facilitate catching cases sooner. Regarding reimbursement, we leverage the ICD-10 code for discussions, working hard to ensure coverage is in place as quickly as possible once leniolisib hits the market. As for the pricing, Sijmen, would you like to address that?

Sijmen de Vries, CEO

Regarding pricing, we don't provide specific guidance but expect that the differential between leniolisib prices in Europe and the U.S. will remain tight. Generally, rare disease therapies tend to have up to a 60% to 70% difference compared to their U.S. counterparts. We expect leniolisib will follow that trend, meaning prices will be closely aligned to ensure equitable access for patients. The ICD-10 code will indeed facilitate coverage discussions with both public and private market payers. While reimbursement may take longer in Europe, we’re dedicating efforts to hasten the process while preparing a strong health economic dossier.

Operator, Operator

We currently have no further questions. I will now turn it over to the management team for their closing remarks.

Sijmen de Vries, CEO

Thank you very much, operator. Ladies and gentlemen, thank you for attending our 9 months '22 conference call on the results. Looking back at this exciting year 2022, we have successfully continued the growth of RUCONEST while securing FDA and EMA accelerated review. Moving forward, we anticipate the PDUFA date of March 29 and potential U.S. market entry soon thereafter, as well as accelerated reviews in Europe. We look back on a busy 2022 and expect intense activity in 2023, executing a transformation from a one-product company in one geography to a multi-product company in multiple geographies. Thank you for your attendance, and we look forward to updating you on our full year results in March 2023. Have a nice day. Goodbye.