Earnings Call Transcript - PHAR Q2 2021

Sijmen De Vries, CEO

Good afternoon, ladies and gentlemen. I'm sitting here with Chief Financial Officer, Jeroen Wakkerman, to take you through the half year results for 2021. But before I do that, next slide, please, I would like to draw your attention to the slide that you will see in front of you now, showing the slide on forward-looking statements, because we will be making some forward-looking statements that are based upon our current plans or beliefs, and that may change from time to time, as it's impossible to predict any new risks and uncertainties that may emerge. So having said that, let's go and have a look at the next slide, please. And whilst that slide is coming up, I'll start introducing the company. We are a revenue-generating and profitable dual-listed biopharmaceutical company, and we're really investing at this point in time in building up our company towards the long term. That means we are investing in the development of recombinant human proteins from our own platform. Of course, our lead product in this case is recombinant human C1 esterase inhibitor, RUCONEST, which is approved for the treatment of acute angioedema attacks in patients with hereditary angioedema, and we have additional indications and clinical developments. We're also investing in extensions of our in-licensed development pipeline. We in-licensed the late-stage compound leniolisib for the treatment of APDS from Novartis about a good year and a half ago. That is late-stage. We recently in-licensed an early-stage, ex-vivo hematopoietic stem cell therapy from Orchard Therapeutics for the potential treatment of hereditary angioedema. We can do this from our own means, which means we are profitable from revenues from our own commercial infrastructure and selling RUCONEST in the US and in the European Union. We have some partnerships in other territories of the world, which means we can fund all these investments from our own cash flows. Next slide, please. I would like to take you through the operational highlights. We had a very busy first half of 2021, during which we got reimbursement in Spain for RUCONEST. So we will soon be able to bring RUCONEST to the Spanish market as a result of that. We also announced a successful completion of patient enrollment in the pivotal trial for leniolisib for APDS. We are still aiming for an anticipated launch of leniolisib at the end of 2022 next year, subject to regulatory approval, of course. Because the launch is coming near, we also started working and investing in pre-marketing activities, and we launched the Navigate APDS program, a sponsored genetic testing program in collaboration with Invitae Corporation that is designed to assist clinicians in identifying those patients and their family members with APDS. We are also pleased that we could finally start the Phase IIb double-blind randomized control study for leniolisib in the prevention of acute kidney injury after myocardial infarction at the University of Basel in Switzerland and other centers. We welcomed three confirmed new Board members in our annual meeting of shareholders in May: Staten Bart, Leon Kramer, and you'll be amazed with our Board. Last but not least, we got two new colleagues in the Executive Committee of the company; Anurag Relan as Chief Medical Officer, and Robert Friesen, as Chief Scientific Officer. So, post-operational highlights, we entered into an exclusive new license agreement with NewBridge Pharmaceuticals for the distribution of RUCONEST in the Middle East and North Africa. We announced a strategic collaboration with Orchard Therapeutics to develop, manufacture, and commercialize OTL-105, a new investigational ex-vivo autologous hematopoietic stem cell therapy for the treatment of hereditary angioedema, designed to increase the C1 esterase inhibitor concentration in HAE patients' serum to prevent HAE attacks. Therefore, very busy times and lots of new developments in the company. That brings me to the next slide, please. The last collaboration we just discussed with Orchard Therapeutics is aligned with our three-pillar strategy for growth. On the left-hand side, you see the growth-enabling sales of RUCONEST by bringing in revenues that enable us to invest in all these other opportunities. Of course, we have a long-term view here by in-licensing the early-stage asset OTL-105 for hereditary angioedema as a very good example. Although we are executing against this three-pillar strategy for growth. In the middle, you see the developing continuous clinical development for g rhC1-Inhibitor for additional large unmet medical indications, and the transgenic manufacturing technology where we are developing next-generation protein replacement therapies. We have the early-stage compound alpha-glucosidase for Pompe's disease development. Moving to the right-hand side, we continue to execute on in-licensing new candidates for late-stage candidates, and of course, leniolisib serves as a very good example of where we got the first product in. As I said before, we're aiming for a launch late next year for leniolisib into the market. We are actively seeking the in-licensing acquisition of additional late-stage assets in rare or ultra-rare diseases. Our business development group has continued discussions with several candidates in various stages of development. Next slide, please. Let's take a look at the current pipeline of the company. As you can see here, RUCONEST is in the market, followed by leniolisib, which we expect to be able to launch by the end of next year, followed by the further development of rhC1-Inhibitor, and the alpha-glucosidase. At the bottom, there's the HAE gene therapy that we in-licensed recently from Orchard. Now let's take a look at the hereditary angioedema market, which is driving all the revenues for the company at this point. Next slide, please. If you see this picture, we look at a disease caused by a deficiency of C1 inhibitor, resulting in attacks of severe swelling and unpredictable angioedema in various parts of the body. We provide the only recombinant version of the C1 esterase inhibitor protein serving as protein replacement therapy. RUCONEST is used for the treatment of acute attacks, but there are also compounds on the market that prevent attacks. Prevention therapies have all breakthrough attacks to varying degrees. This means that all patients suffering from hereditary angioedema will have access to multiple medications. If they are on prophylactic therapies, they will need to have rescue therapy at hand for their unpredictable breakthrough attacks that vary in frequency. Therefore, RUCONEST plays a role, not only among patients with frequent attacks where we provide high-dose protein replacement therapy but also in the breakthrough attacks segment. Despite significant innovation reducing breakthrough attack frequency, there remains a substantial and growing need for RUCONEST in the breakthrough attack segment. Our traditional segment served the right-hand side of the market for various historical reasons. The breakthrough attack segment is where we see an increasing number of patients emerging in our patient group using RUCONEST. They indeed use RUCONEST less frequently due to prior uses for breakthrough attacks, but there is definite potential for RUCONEST to grow in this segment. We are confident that the positive trend we have seen with RUCONEST, resulting from increasing patient numbers and demand, will continue in the coming year. Of course, this is subject to any further COVID-19 outbreaks affecting medical practices, which had hindered sales earlier this year. Next slide, please. I will briefly address Leniolisib for the treatment of APDS. APDS is a rare, ultra-rare primary immune deficiency caused by a dominant variation in one of the two genes that results in hyperactivation of phosphoinositide-3-kinase. This enzyme results in a poorly functioning immune system in these patients. The only available treatments are symptomatic up until now, and hence, there is an urgent need for a therapy addressing the root cause. Leniolisib normalizes PID-kinase delta expression, making a notable impact on this disease. The good news is that diagnosis can be achieved through commercially available genetic tests. All these patients are already treated by immunologists, as they belong to the primary immunodeficiency patient population, treated symptomatically. They are, however, awaiting confirmation of the disease to receive treatment with Leniolisib in the future. Next slide, please. The burden of APDS is significant, with an estimated 1,350 patients globally, many of whom are not yet diagnosed. These patients can spend years misdiagnosed or undiagnosed, often facing severe ailments such as lung damage, GI disease, swollen organs, autoimmunity, and a high occurrence of fatal lymphomas. The possibility of Leniolisib providing root cause treatment is a unique opportunity. Next slide, please. Due to the forthcoming Leniolisib launch, we have begun significant investments in uncovering APDS through targeted patient identification strategies initiated in the US and to be rolled out across Europe. We are building an APDS network of KOLs and referral pathways of prescribers, actively supported by field medical and diagnostic liaisons from our company who recently began working on this initiative. We utilize analytics and AI to examine databases and immunology patient groups to perform outreach and education, alongside offering free genetic testing to confirm the disease. This step is crucial for the pre-marketing activities of Leniolisib, which is projected to hit the market in a good year and a half. Next slide, please. As noted, we have also started our acute kidney injury study for Ruconest C1 assay inhibitor, planning to recruit up to 220 patients. This study is centered at the university hospital in Basel, Switzerland, and includes other centers. The clinical trial for preeclampsia remains on hold due to COVID-19, but we are hopeful that it may commence in the future. Additionally, we are conducting clinical trials for hospitalized COVID-19 patients. There are two studies: one is a multinational study run in Switzerland, Brazil, and Mexico, while our own study initiated in New Jersey evaluates up to 150 patients in one trial and 120 in the other, with both designs allowing interim analyses. We expect to provide updates on results or signals from these studies towards the end of this quarter. Next slide, please. This is a very exciting collaboration that was finalized on July 1st. We are pleased to work with Orchard Therapeutics to develop ex vivo autologous hematopoietic stem cell therapy for hereditary angioedema. Orchard has already demonstrated gene expression via lentiviral mediated transduction ex vivo in multiple cell lines and has achieved production of functional C1-inhibitor as measured by a clinically validated assay. This collaboration combines their expertise in gene cell therapy with our experience in hereditary angioedema, presenting a promising potential cure for the patients. Now I would like to hand over to Jeroen, our CFO, to present the financial highlights for the first half of this year. Next slide, please.

Jeroen Wakkerman, CFO

Thank you very much, Sijmen. As you will remember, we saw in Q1 2021, the U.S. healthcare economy significantly affected by the second wave of COVID-19, which impacted our results in Q1. However, we saw a turnaround in Q2 where doctors' offices reopened, leading to initiated patient appointments and overall recovery across the pharmaceutical sector as well as our RUCONEST sales. The RUCONEST recovery in the UK during Q2 was driven by an increase in new patients due to these doctor appointments and the demand created by COVID. In the first half of the year, revenues decreased from $97.8 million last year to $93.2 million. Notably, in Q2 we observed a strong recovery with revenues increasing by 15% compared to Q2 last year and 14% compared to Q1. Looking at the regional split, sales in the U.S. increased by 60% during the quarter, while sales revenues in Europe and the rest of the world fell from nearly $2 million to $1.2 million, mainly due to the timing of orders. Next slide, please. Gross profit developed roughly in line with revenue changes; in fact, gross margin improved slightly in the first half of the year. However, operating profit decreased in both the first half and Q2 due to operating costs rising from $52 million to $68 million for the first half of the year, resulting in a $16 million increase. This increase is a result of our continued investment in Pharming's future growth. As indicated on the slide, this comprised nearly $7 million in additional R&D expenditures related to leniolisib's launch preparation and manufacturing costs. Increased workforce costs from additional hires and the financial impact of additional team members from the prior year also contributed to this increase, as did higher insurance costs, an increase in share-based compensation, and heightened compliance and control expenses tied to our NASDAQ listing, underlining the strict U.S. regulatory requirements. Thus, the decrease in operating profits was largely attributed to increased operating costs aligned with our decision to invest in the future growth of our business. The net profit for the first half of the year was $14.4 million, compared to $20.8 million last year. This decline stemmed from lower operating profits, offset partly by favorable currency results and reduced funding costs, which I will cover more in detail later. Cash and cash equivalents decreased from $206.7 million at the end of 2020 to $189.8 million by the end of the quarter. This was primarily due to free cash flow from operations being offset by investments in CapEx and a $25 million milestone payment to Bausch Health—the last payment related to our re-acquisition of RUCONEST commercial rights in the US, finalized in 2016. Moving on to the income statement, you will see the detailed numbers here. I won't delve deeply into all figures but it is worth noting that the increase in other income was driven by higher research grants due to our expanded R&D efforts. We continue to see increased operating costs driven mainly by higher R&D expenses. Looking below the operating profit line, other financial income increased significantly, reflecting favorable currency fluctuations. Other financial expenses decreased sharply due to last year’s settlement of the OrbiMed loan, which involved one-off costs not repeated in 2021. Basic earnings per share were $0.022 while diluted earnings per share were $0.019 per share. Moving on to the balance sheet in the next slide, key changes include an increase in right-of-use assets, which rose from $9.4 million to $22 million, associated with our lease expansions and extensions. The deferred tax asset decreased, offsetting current taxes. Cash and cash equivalents were decreased as explained earlier. On the liability side, the shareholders' equity increased, reflecting our profit for the first half of the year. Financial liabilities grew as a consequence of IFRS 16 reporting, while the €25 million liability to Bausch Health was settled. Moving onto the cash flow statement, profit before tax was $20 million compared to almost $29 million in the first half of 2020. The net cash flow generated from operating activities dropped from €44.9 million to €16.4 million, a €28.5 million reduction caused by a decrease in operating profits and a cash outflow from working capital versus more favorable terms last year, along with a €3 million increase from other cash flow elements. The account reflects the €25 million payment to Bausch Health under contingent consideration. In total, we increased cash by €60 million; last year’s cash increase of €95 million was largely associated with issuing convertible bonds rather than operational cash flow. With that, I would like to hand over again to Sijmen.

Sijmen De Vries, CEO

Thank you very much, Jeroen. Please next slide. We’re well funded, supported by commercial sales and a growing pipeline addressing rare diseases and medical needs. As you've heard from Jeroen, we are well funded from the sales of RUCONEST, generating another $93 million in sales for the first half of this year. We have a potential near-term inflection point with the 2022 launch of Leniolisib for APDS and the targeting of new large indications for RUCONEST, along with recombinant human esterase Phase 2 studies. Additionally, we've strengthened our early-stage pipeline with the in-licensing of potentially curative gene therapy treatment HSC, and we have our transgenic platform candidate for Pompe's disease in the pipeline. We're leveraging commercial infrastructure for in-licensing, along with expanding our manufacturing capacity to support the continued demand for RUCONEST and the C1 inhibitor pipeline. We have an experienced leadership team and board, alongside a robust balance sheet in terms of cash-generating potential and the cash on hand to support our ambitious growth strategy, including potential M&A. Our secondary listing on NASDAQ enables us to finance transactions in the future, which is something we are quite keen on. We remain focused on securing additional deals for late-stage assets. Next slide, please. For the remainder of 2021, we expect continued revenue growth from RUCONEST sales as the pharmaceutical market normalizes and hopefully returns to pre-COVID-19 conditions. While we will stay vigilant about potential market disruptions, we are maintaining a positive outlook for earnings this year. We will continue to invest in expanding production facilities for RUCONEST and Leniolisib, along with critical medical affairs and pre-marketing activities for Leniolisib and the registration-enabling study for APDS. Ongoing clinical trials and other development activities, including OTL-105, will also receive investment. Last but not least, we will be looking into acquisitions and the in-licensing of new development opportunities that can rapidly bring additional products to market beyond Leniolisib. Although we are not providing further specific guidance for 2021 at this time, we are optimistic about the remainder of the year.

Operator, Operator

Thank you. We have a question from Joe Pantginis from Wainwright. Please go ahead, Joe. Your line is now open.

Joe Pantginis, Analyst

Hey, guys. Thanks for taking the question. Nice to see the first half results. A couple of my questions are based on the fundamental aspects of the underlying business. First, can you give us any visibility on potential next EU territories that might be coming online? I know you've mentioned that regulatory structures are the rate-limiting factor.

Sijmen De Vries, CEO

Yes, Joe. Spain has recently yielded reimbursement, and we are working on Italy as well to secure reimbursement. We're also exploring some smaller markets, such as North Macedonia and Ireland, where we aim to achieve reimbursement as well. The regulatory approvals are in place, but the market access hurdles in Europe are substantial and can take a long time to navigate, as seen with Spain and Italy.

Joe Pantginis, Analyst

Understood. And considering the business's expansion, can you provide any updates on your manufacturing initiatives and potential rate-limiting factors? Lastly, do you have timelines regarding the anticipated COVID data?

Sijmen De Vries, CEO

Yes, we are executing our manufacturing expansion strategy. The third facility to produce milk is nearing completion. We will begin generating and processing products in that facility soon, demonstrating to regulators that we produce the same product as before. It does take time but the work is in progress. We are also diligently working on the DSP facility for purification, which will come online in a couple of years. Regarding COVID results, we expect to have interim analysis results by the end of Q3; recruitment has slowed down, which is a positive sign for returning to normalcy. We should have updates on results and potential next steps by the end of the quarter.

Joe Pantginis, Analyst

Thank you, Sijmen.

Operator, Operator

We have another question from Alex Cogut from Kempen. Please go ahead, Alex.

Alex Cogut, Analyst

Hi, thanks for taking my questions. Regarding RUCONEST, could you clarify the dynamics regarding volumes? Are new patients mainly using it for HAE attacks while you are observing a drop in patients utilizing it prophylactically off-label? Are you overall seeing a lower drug volume?

Sijmen De Vries, CEO

Yes, Alex, your assessment is partially correct. While some patients have moved to newer prophylactic therapies and others are replacing them with patients using RUCONEST for breakthrough attacks, it is a challenging dynamic. There's a saturation point where patients transition to these new therapies, requiring us to replace them. However, we are recovering sales since COVID impacted us, and we have an optimistic outlook for the future. The challenge lies in the limited face-to-face contact we can establish with doctors, which is important in rare disease environments. It's a complex landscape, but we maintain optimism about RUCONEST's position as a viable solution.

Alex Cogut, Analyst

That makes sense. Regarding your qualitative guidance, when you mention continuous growth in sales, do you reference year-over-year or quarter-over-quarter growth?

Sijmen De Vries, CEO

It's a good question. We are emphasizing quarter-on-quarter growth as we cannot speculate on year-over-year sales due to the normalization timeline which varies. Given uncertainties caused by COVID, we're experiencing fluctuations. We also witnessed unforeseen spikes in late 2020 due to pandemic waves. This unpredictability makes forecasting challenging, but we see a positive general trend in the pharmaceutical market.

Alex Cogut, Analyst

Understood. When do you anticipate reporting results for Leniolisib?

Sijmen De Vries, CEO

The study is conducted by Novartis, and we expect to report results by the end of the year or beginning of next year. We aim to submit these results to the FDA and EMA as quickly as possible, targeting a PDUFA date in Q4 of 2022.

Alex Cogut, Analyst

Got it. Regarding OTL-105, when do you expect to begin clinical trials?

Sijmen De Vries, CEO

That's an interesting question. We are conducting a lot of preclinical work now. The clinical pathway for gene therapy differs as we cannot employ healthy volunteers; we proceed directly to patients. This means the preclinical timeline will be longer, and I prefer to reserve a forecast until we have more insights. However, expect that it will be a few years before we enter the clinic, though the developmental period will be shorter due to gene therapy.

Alex Cogut, Analyst

Understood. Thank you very much.

Operator, Operator

We have one more question from Christian Glennie from Stifel. Please go ahead, Christian.