Earnings Call Transcript - PHAR Q3 2021

Sijmen de Vries, CEO

Thank you very much. Good morning, good afternoon. Welcome to our nine months 2021 results call. I will be happy to take you through the call with a couple of my colleagues, who I’ll introduce later. But before I do that, I would like to point out the forward-looking statement slide that you see here because we will be making some forward-looking statements that are based upon our current beliefs, expectations, and assumptions regarding the future of our business, and things can always change, as you know. So, let me go to the next slide, please. And my colleagues who will be speaking to you as well will be our Chief Medical Officer, Dr. Anurag Relan; and our Chief Financial Officer, Mr. Jeroen Wakkerman, who will speak to you as well. So I will be kicking it off, give you an introduction, and talk about the operational growth. Next slide, please. Yes. Thank you. So if we’re looking at our business today, we see a well-funded business supported by commercial sales and a growing pipeline for the treatment of rare diseases and unmet medical needs. Our lead product, RUCONEST, or recombinant human C1 esterase inhibitor, is launched in more than 40 countries with sales of more than $146 million in the first 9 months of 2021. And very importantly, we have a potential near inflection point, a significant inflection point with the anticipated end of 2022 launch of leniolisib, in-licensed from Novartis, for the treatment of orphan disease APDS, activated phosphoinositide 3-kinase delta syndrome, which we will now call APDS going forward. We’re also targeting new large indications for the C1 inhibitor within Phase II studies, and we have early-stage pipeline assets, including a recently in-licensed potentially curative gene therapy treatment for hereditary angioedema and our own transgenic platform candidate for Pompe disease, alpha-glucosidase protein replacement therapy. Now we are able to leverage our established commercial infrastructure across the U.S. and Europe for in-licensed products and expand our manufacturing capacity to support continued RUCONEST demand and C1 pipeline supplies. Last but not least, we have an experienced leadership team, a new Board of Directors, and a strong balance sheet to support our ambitious growth strategy, including potential M&A. Our growth strategy is reflected in the next slide here. It’s built around three pillars. You see on the left-hand side, the first is to grow and extend our HAE franchise. For this, we are fully commercializing RUCONEST in all major markets and expanding the geography still. We have delivered on this by the recent in-licensing of the early-stage asset OTL-105, the ex vivo hematopoietic stem cell gene therapy for hereditary angioedema from Orchard Therapeutics. In the middle, of course, you see the extension of the C1 franchise to larger indications and develop new enzyme replacement therapies using our own platform. We are engaged in C1 inhibitor for additional large indications and address large unmet needs. Dr. Relan will speak to that later. We are leveraging our transgenic manufacturing platform to develop next-generation protein replacement therapies. On the right-hand side, we recently added the ability to seriously expand our portfolio and leverage our commercial infrastructure to grow our business. We were already successful a good two years ago when we in-licensed the late-stage asset leniolisib for the treatment of APDS. That product we aim to bring to the market by the end of next year, and we will have more in-depth information on that from Dr. Anurag Relan. We are also very active at the moment in in-licensing or acquiring additional late-stage assets in rare and ultra-rare diseases. We have a proactive business development group because we can obviously leverage our commercialization infrastructure through additional assets that can be launched within a period between now and three years from now. Let me see what the strategy in action was delivering during the first 9 months on the next slide. Commitment to HAE was evident. We were successful in in-licensing OTL-105. We expanded the reach of RUCONEST through commercialization agreements with NewBridge Pharmaceuticals in North Africa and the Middle East, and we got reimbursement in Spain, bringing RUCONEST into the Spanish market now. With regards to the expanding indications, we successfully restarted the acute kidney injury trial for C1 inhibitor following COVID-19 delays. Recently, we published top-line results from recombinant C1 esterase inhibitor clinical trials in severe pneumonia as a result of COVID-19 infection. On the right-hand side, we successfully completed enrollment in the Phase II/III registration-enabling study with leniolisib for activated PI3 kinase delta syndrome. We started to invest significantly into prelaunch activities for the anticipated 4th quarter 2022 regulatory approval of leniolisib. So it was a busy 9 months, and we look forward to the coming periods. Next slide, please. This slide shows you the HAE market, which is our bread and butter that drives our ability to deliver on growth opportunities and make all these investments. That is RUCONEST’s position, a stable position in the hereditary angioedema treatment market. Hereditary angioedema is caused by a deficiency of C1 inhibitor, resulting in unpredictable attacks of severe swelling in various parts of the body. Patients, especially in the U.S. market, are using medication for treatment and prevention of these attacks. RUCONEST is approved only for the treatment of acute attacks in adults and adolescents. In 2020, it represented about $2 billion in total sales in the hereditary angioedema market. The good news for patients is the increasing use of prophylaxis, driven by the availability of newer treatments that offer better attack reduction rates than previous IV plasma-derived C1 inhibitor prophylactic treatments. Despite these new compounds being predominantly focused on blocking the kallikrein and bradykinin inhibitors, C1-INH inhibitor levels remain very low. Therefore, approximately half of these patients, despite the improvements, still experience breakthrough attacks, some frequently and others regularly, needing breakthrough medication. RUCONEST remains applicable for treating patients suffering from breakthrough attacks under these new prophylactic treatments, which only suppress the bradykinin and kallikrein axis. We are optimistic and remain optimistic; the results from this year indicate a gradual recovery from the impact of COVID-19. We foresee continued growth of RUCONEST in the hereditary angioedema market. We believe the increasing entry of newer prophylactic therapies indicates a saturated market shift towards prophylaxis, but that those who predicted no place for acute therapies anymore with prophylaxis are not quite right. There still needs to be acute treatments available alongside prophylaxis because prophylactic therapies also have breakthrough attacks and can be very unpredictable. Good clinical practice dictates that patients should always have acute therapies available. This is an opportunity for RUCONEST because the paradigm has shifted from C1 inhibitor prophylaxis towards bradykinin and kallikrein suppression, presenting further growth potential for RUCONEST. We’re looking ahead at what the next key near-term value inflection points will be as we build a sustainable business. We anticipate delivering pivotal study results from Novartis' study on leniolisib at the beginning of next year. We also expect to file regulatory filings for leniolisib with the FDA and EMA in H1. We plan to initiate pediatric studies for leniolisib in the second half of next year, anticipating regulatory approval, hopefully towards the end of next year. Additionally, we anticipate completing enrollment in the AKI study in the latter half of next year and commencing a Japanese clinical trial for leniolisib as well, as part of our objective to expand its reach into Japan. Bringing me to the last slide of the introduction, we have a pipeline overview where you clearly see that RUCONEST is on the market, quickly followed by leniolisib, which we hope to bring to market by the end of 2022. With that said, I’d like to hand over to my colleague, Dr. Anurag Relan, to provide a medical and clinical update. Anurag, over to you, please.

Dr. Anurag Relan, Chief Medical Officer

Thank you, Sijmen. I’d like to begin by discussing hereditary angioedema and our new collaboration with Orchard Therapeutics concerning our product, OTL-105. The goal of this collaboration is to develop and commercialize an ex vivo autologous stem cell gene therapy product for hereditary angioedema. The product will insert one or more functional copies of the SERPING1 gene into patients using their own hematopoietic stem cells. This is done ex vivo, after which these cells are transplanted back into the patient, with the aim of providing a durable C1 expression. In preclinical studies, OTL-105 has demonstrated high expression levels of the C1 inhibitor protein through lentiviral-mediated transduction in various cell lines, including stem cells. Additionally, we’ve confirmed that the produced C1 inhibitor is functional in a clinically validated assay. Together with Orchard Therapeutics, we leverage our expertise: Orchard has experience in gene therapy and developing these vectors with an established infrastructure for manufacturing the product. They have conducted many animal studies and have discovery capabilities, while we possess significant clinical and commercial expertise in HAE. We can also assist with preclinical disease models, and as you’ve heard from Sijmen, we have the capital to fund ongoing development and future commercialization. Our joint goal is to deliver best-in-class HAE gene therapy to provide a potential cure for patients with a single administration of OTL-105. The process starts by harvesting cells from the patient, purifying these stem cells, and, ex vivo, inserting a working copy of the gene using a viral vector. The patient is conditioned to make space in their bone marrow for the treatment, and subsequently, the gene-corrected cells are infused back into the patient with the goal of achieving high levels of C1 inhibitor. This HSC gene therapy has several advantages over other potential approaches. Firstly, it is a proven method. There are multiple approved products using this technique, while other methods, such as AAV-mediated gene therapy and gene editing, have yet to achieve approvals. Secondly, we have proven efficacy based on other clinical programs. Our animal data with OTL-105 shows that significant expression levels can be achieved—a challenge observed with AAV gene therapy, especially regarding sustainability of effect. Lastly, regarding safety, using autologous cells that the patient does not recognize as foreign appears to be safe, based on prior approvals in other diseases. In HAE, we are excited about applying HSC gene therapy and will provide updates on this program in upcoming quarters. Now, I want to talk about APDS and leniolisib, leveraging our commercial infrastructure and expertise in immunology to grow our business further. To begin, APDS, or activated PI3K delta syndrome, is estimated to affect over 1,350 patients in the U.S., EU, and Japan, with an estimated prevalence of 1.5 per 1 million. In recent months, we have identified more than 350 patients in these areas with APDS. As understanding of primary immune deficiency has grown, we can locate even larger patient populations. APDS is serious, with patients often remaining undiagnosed or misdiagnosed for long periods, severely affecting their quality of life and requiring numerous specialists. The symptoms manifest in childhood, causing a delay in diagnosis and leading to significant disruptions to school and social development. Patients often have multiple biopsies and specialist consultations even after diagnosis. Resolving these patients' burdens is vital as they experience significant levels of depression and fatigue impacting their quality of life. On the right, we see the treatment options, primarily supportive and nonspecific therapies—using antibiotics for infections, steroids to control the disease, and many are on immunoglobulin replacement therapy. Off-label immunosuppressive agents may be used, and in severe cases, patients undergo stem cell transplantation. Unfortunately, there’s currently no approved therapy targeting these patients, indicating the poorly managed state of this disease. Our candidate leniolisib is being developed for treating APDS; we aim for a PDUFA date by the end of next year. Leniolisib is an oral selective PI3K delta inhibitor, with biomarkers indicating it can directly address the underlying issue of PI3K delta overactivation. Therefore, it has the potential to mitigate disease progression and reduce treatment burden. You’ve heard our plans for wider availability of the genetic test for diagnosis. We’ve received orphan drug designation both in the U.S. and Europe. This APDS program aligns well with our core expertise in immunology, particularly with HAE. We’re actively identifying patients—through our initial efforts, we’ve already located hundreds, engaging specialists, building referral pathways, and using AI to pinpoint those with unrecognized clinical manifestations. We’ve launched a free genetic testing program in collaboration with Invitae to help diagnose these patients, promoting through various networks in the field of primary immune deficiencies. I want to share an update on the pivotal trial wrapping up. This study consists of two parts: a dose-finding segment examining three doses in a dose escalation format with patients demonstrating typical APDS symptoms. Safety, tolerability, pharmacokinetics, and efficacy of blocking the hyperactive pathway were assessed. Based on these results, a 70-milligram dose taken twice daily was selected. This dose was used in the randomized double-blind placebo-controlled phase, where patients were assigned either leniolisib or placebo for 12 weeks. The primary endpoints were lymph node swelling and immunophenotype normalization in B cells. Patients were allowed to roll into an extension phase post-randomization. Novartis has completed enrollment, and we anticipate results early next year. I will now hand the floor over to Jeroen to review the financials.

Jeroen Wakkerman, CFO

Thank you very much, Anurag. Let's discuss the financial highlights for the first nine months of 2021, which we have titled 'Building a Sustainable Business.' This reflects our efforts to position RUCONEST as the current cash generator while developing leniolisib for the medium term and OTL-105 for the longer term, alongside other in-house product development projects. We are creating a balanced portfolio for the future. For Q3, we showed a 6% increase in sales from Q2 this year, while year-to-date numbers reflect a 4% decrease. We see ongoing recovery in sales quarter-on-quarter, following the impact of COVID-19, particularly in Q1, on the U.S. healthcare economy. As for regional sales data, the U.S. showed a sharp recovery with a 6% increase, driven by new patient enrollments and ongoing product demand, despite competition from prophylactic products discussed earlier. For the first nine months in the U.S., we noted a 3% decrease. In Q3, sales in Europe and the rest of the world reached $1.9 million, a significant increase over Q2 driven by entering a new country and phasing. Nine-month sales in Europe and the rest of the world reached $5 million compared to $6.1 million last year in Q3 2020. On profitability, gross profit increased by 4% in line with the revenue increase quarter-on-quarter. For year-to-date, there is a 3% decrease in gross profit relative to the first 9 months of last year, reflecting a stable gross margin of around 89%. Moving to operating profit and costs: the operating profit for Q3 year-to-date was $15.3 million, a decrease of 72% from last year, primarily due to increased operating costs from investments in pipeline development. The total cost of the OTL-105 license amounted to $17.7 million, with $13.1 million impacting Q3 P&L and $4.6 million accounted for in investments as shares. Corporate development costs increased, causing operating costs to rise to $116 million compared to $78 million last year. Increased R&D expenditure was significant, primarily connected to leniolisib. The OTL-105 license cost, leniolisib prelaunch marketing preparations, and a rise in personnel costs linked to supporting future business growth contributed to these expenses. Additionally, we noted an increase in liability insurance and compliance costs due to our recent NASDAQ listing. The net profit for the first nine months of the year was $13.9 million, a 49% decrease from last year, a consequence of initial in-licensing costs from OTL-105, which impacted operating profits, offset by favorable currency exchange rates and reduced funding costs. Summarizing profit before tax, last year's figure was $38.1 million, while this year it stands at $21.3 million. The underlying business gross profit fell by $3.7 million, accounting for gross profit and other income. The OTL-105 investment cost amounted to $13.1 million, alongside rising research and development expenditures, with a significant portion derived from leniolisib. Increased SG&A costs related to leniolisib included patient-finding costs. The positive financing effects reflected currency fluctuations—last year saw a negative effect of $10 million, compared to a positive effect of $10 million this year, resulting in a $20 million positive variance. Previous settlement expenses related to the Orbimed loan also came into play. To clarify the drop in profit before taxes, the aim remains developing the business, taking into account OTL-105 investments and leniolisib launch preparations. Regarding cash flow, at the start of the year, we had $205 million in cash and equivalents, which declined to $183 million by the end of Q3. The operating cash flow increased by $28.2 million, aligning closely with profit before tax. Changes in working capital accounted for a cash outflow of $6 million. Investment activities included $15 million for RUCONEST production facilities and an ERP system launching next year, while total investments in OTL-105 included $4.6 million, along with leniolisib licensing costs. Financing activities totaled $27.7 million, with a $25 million milestone payment pertained to Bausch's reacquisition of RUCONEST's commercial rights. Overall, we recorded almost a $22 million decline in cash; however, keep in mind the $25 million payment to Bausch and $17.7 million linked to OTL-105 contribute to almost $43 million in one-off payments that underpin future business growth. Now, I’d like to share the financial outlook for the remainder of 2021. We expect ongoing quarterly revenue increases from RUCONEST sales as the pharmaceutical market normalizes post-COVID-19, particularly since Q1 in the U.S. However, we will continue to monitor the situation with COVID developments that may cause periodic disruptions. Our expectations remain positive for maintaining net earnings throughout the remainder of the year. We continue to invest in critical medical affairs, premarketing for leniolisib, and ongoing clinical trials for RUCONEST. As mentioned, we are consistently exploring acquisitions and in-licensing opportunities for new development assets. That concludes my part of the presentation. I’d like to hand over to Sijmen for the Q&A.

Sijmen de Vries, CEO

Thanks, Jeroen. Before we proceed to questions, I would like to summarize some key points: you’ve seen our well-funded business supported by commercial sales and a growing pipeline for treating rare and ultra-rare diseases and unmet medical needs. Our lead product, RUCONEST, has shown stable growth, achieving $146 million in revenue within the first 9 months. I wish to highlight the impending launch of leniolisib, anticipated at the end of next year, which we in-licensed from Novartis. As Anurag mentioned, we have identified more than 350 APDS patients and will increase our patient finding activities next year. We are targeting new launch indications for C1 inhibitor and expanding our early-stage pipeline with assets like OTL-105. Furthermore, we are leveraging our commercial infrastructure across the U.S. and Europe for in-licensed products and boosting our manufacturing capabilities. We are also actively on the lookout for additional late-stage assets to expand our portfolio significantly. Last but not least, we have an experienced leadership team and a robust balance sheet supporting our ambitious growth strategy, which includes potential M&A scenarios. With that, I would like to turn it back to the operator to open the floor for questions.

Operator, Operator

We have one question from Hartaj Singh from Oppenheimer & Co.

Hartaj Singh, Analyst

Great. I just got a couple of questions and then one housekeeping question after that. So, on the OTL-105, can you just walk us through, Anurag, where you are or where Orchard is in terms of the manufacturing of that product? Are you in that sort of clinical stage? When will we get to commercial manufacturing? And then, what are some of the investments that will be needed around that? For leniolisib, I just have a question in terms of the trial recruitment which seems to be quite close to 40 patients that it seems to reflect on ClinicalTrials.gov. That calculates to be more than 10% of the patient population you identified in the United States. But how certain are you that this one trial will suffice? What’s your level of conviction that regulators will be comfortable with just one trial in this indication? Lastly, I have one housekeeping question concerning manufacturing.

Sijmen de Vries, CEO

Anurag, can you address these questions, please?

Dr. Anurag Relan, Chief Medical Officer

Sure, thanks for the questions. On OTL-105 in the collaboration with Orchard, the work going on right now is still in the preclinical stage. The manufacturing is currently centered around that. Over the coming quarters, we’ll provide more information on that progress and the required investments. Regarding leniolisib, the pivotal study will include 30 patients, as I mentioned, in a randomized double-blind placebo-controlled format designed with input from regulators. For rare and ultra-rare diseases, this design is typical. We believe this study will fulfill regulatory requirements. The totality of data, along with key endpoints—specifically addressing immunophenotype and lymphadenopathy—should support our case for regulatory approval in both the U.S. and Europe. I believe you had a follow-up question, Hartaj.

Hartaj Singh, Analyst

Yes, Anurag. The follow-up was regarding leniolisib—once you set up the manufacturing, will you expense those costs through the R&D line initially, and will it then become inventory, impacting costs of goods sold and gross margin assuming leniolisib receives approval next year?

Sijmen de Vries, CEO

Jeroen, would you like to address that?

Jeroen Wakkerman, CFO

Yes. The products that we manufacture for commercial use will be placed into inventory next year, while some products designated for development will go through P&L. That’s how we will handle it moving forward.

Operator, Operator

We have another question from Joe Pantginis from H.C. Wainright.

Joe Pantginis, Analyst

I just have a couple of logistical questions. Firstly, Sijmen, can you provide any insight into the additional indications you might be targeting? We've previously discussed indications like pre-eclampsia. In addition, regarding the AKI study, are you noting any impacts regarding the opening of sites or ongoing sites due to easing COVID restrictions? Lastly, how would you define your regulatory efforts for RUCONEST in terms of additional countries?

Sijmen de Vries, CEO

Okay. First, regarding the clinical trial's progress. Clinical trials are still not a top priority for many centers. Therefore, we work on expanding the number of participating sites for the AKI study to expedite recruitment. We’ve made forward-looking statements regarding enrollment timelines but, as you rightly noted, COVID remains an ongoing factor, particularly now with changes in disease patterns affecting many hospitals. Like many industry colleagues, we’re not yet out of the woods concerning normal clinical development speed. Would you like to add something to that, Anurag, or is that reasonably summarized?

Dr. Anurag Relan, Chief Medical Officer

Yes, that’s a reasonable summary. There’s still considerable COVID-related fatigue mentioned within healthcare centers that were involved in COVID studies, and they’re working to recover from that. Things are improving, and we’re moving in the right direction; however, the process is slow.

Sijmen de Vries, CEO

About pre-eclampsia, we haven’t initiated any work there post-COVID. With respect to the approval of RUCONEST in broader territories, we are selectively evaluating this. Recently, we achieved reimbursement in Spain. We're working towards obtaining similar status in Italy. The product has been approved for some time, but reimbursement involves a different process. We also have a collaboration with NewBridge to expand into North African and Middle Eastern markets, progressing step by step. RUCONEST has faced challenges, as external references to European pricing led to less commercial interest in this indication, making it difficult for us. We are nevertheless committed to widening our geographical footprint, especially crucial as we prepare for leniolisib's rollout. Thus, additional territories for RUCONEST will continue to emerge, with leniolisib likely helping us expand the markets for RUCONEST. Does that address your questions, Joe?

Joe Pantginis, Analyst

Yes, it does.

Operator, Operator

It appears we have no further questions at this time.

Sijmen de Vries, CEO

Well, thank you. Perhaps some closing remarks. Thank you very much for joining our conference. We look forward to the upcoming milestones, particularly the results from the leniolisib trial at the beginning of next year, as we see this product as crucial to our strategy. It has transformational potential both for APDS patients and commercially for our company. Thank you for joining us today, and we look forward to meeting again at our next results conference scheduled for March. Thank you and goodbye.