Earnings Call Transcript - PHAR Q1 2023

Sijmen de Vries, CEO

Good morning or good afternoon, ladies and gentlemen. Welcome to our First Quarter 2023 Results Call. Before I go into the call, I would like to have the next slide and show you the forward-looking statement slide, as we will be making some forward-looking statements that are based upon our future expectations and our current expectations and assumptions. As you know, they may change in the future. And with that said, next slide, please. I'm here with my three colleagues, Anurag Relan, our Chief Medical Officer; Stephen Toor, our Chief Commercial Officer; and Jeroen Wakkerman, our Chief Financial Officer. They will be speaking after me. I will start with a brief introduction. Next slide, please. And then the next one as well. Basically, what Pharming is all about is that we are building a sustainable rare business that will be able to be funded by the positive cash flows we continue to generate from RUCONEST. You have seen over the last quarters that these cash flows from RUCONEST have helped us prepare for and fund the launch of Joenja in the United States, along with our further pipeline development. We are in a very favorable position, and today marks the first quarter where we have been able to actually get Joenja approved and where in the last quarter we will be reporting on sales from our single product. Looking forward, as noted in the press release, we will start recording sales for Joenja in the United States as well. It's an important milestone in the history of our company as we will now work to generate revenues from two products, albeit only in one major geography for the time being, being the United States of America. But that will soon change. Therefore, you can see what we're up to: successful commercialization of Joenja for APDS and other rare disease indications where we cannot provide specifics yet, but we will do that in the second half of the year. Of course, we are still looking for additional projects that are in the midst to late stage of development in rare diseases to further fill our pipeline and leverage our commercialization infrastructure that we have in the U.S. and in Europe, and that we are building in additional markets as well. If you look at the next slide at the pipeline, you see that we have specified it regarding the various leniolisib activities taking place outside the United States. We have a lot of items on our plate and a lot to look forward to. First and foremost, the leniolisib approval in the European Union and the UK, but also pediatric projects, the Japan project, and Canadian and Australian projects, and lastly, additional indications for leniolisib. This means we can further down the line have capacity and our commercialization capacity to launch additional products. Hence, we continue to be very active in searching for additional in-licensing opportunities in other rare diseases and merger and acquisition opportunities in the market. Let me go back to RUCONEST. We are very proud of a product like RUCONEST because it helps us achieve a $200 million business. Looking back over the last 12 months, we expect single-digit revenue growth. RUCONEST continues to take a unique place in the market as it is the only recombinant treatment that addresses the root cause of hereditary angioedema by replacing the missing protein, which is a dysfunctional or missing human C1 esterase inhibitor. It has proven over the years to be well tolerated and effective. It is the second most prescribed product for acute attacks, boasting nearly 100% efficacy and reliability. Patients rely on RUCONEST when they have severe forms of the disease and high-frequency attacks, as they cannot manage with the significantly improved prophylactic therapies. For many, it serves as their breakthrough medication. We see an increasing use of RUCONEST, thanks to improvements in prophylactic therapies. All these successes are achievable because we possess a robust commercialization infrastructure. Next slide, please. We have all the necessary functions needed to succeed in commercializing rare disease assets. Today, we look forward with a high degree of confidence to the further growth of the company. With the recent approval of leniolisib, we are now embarking on a growth trajectory going forward, as we will be able to report on two products generating revenue for the company, a strong RUCONEST franchise showing single-digit revenue growth as expected this year, and additionally, we expect Joenja sales to begin increasing from Q2 onwards. I think it's now time to hand over to my colleague, Dr. Anurag Relan, our Chief Medical Officer, to delve into APDS and Joenja. Anurag, over to you.

Anurag Relan, Chief Medical Officer

Thanks, Sijmen. Before we look at the launch of Joenja, let's briefly review APDS. As shown on the next slide, APDS is a rare primary immune deficiency, also known as an inborn error of immunity that was first characterized just over 10 years ago in 2013. We estimate that it affects approximately 1,500 patients in some of the countries listed, based on a prevalence of 1.5 per million. To date, we have identified more than 500 of these patients across these areas. Treatment options until recently have been quite limited for APDS patients, mainly focused on managing the symptoms of the disease. These symptoms manifest early in childhood but do not address the underlying cause of APDS. The signs and symptoms vary, even within the same family, leading to significant delays, especially due to the delayed onset of diagnosis. It is worth noting that the diagnosis itself is rather straightforward when a clinician considers it, usually confirmed through a genetic test that provides a definitive diagnosis. Next slide. APDS impacts patients in multiple ways. There are the physical manifestations, such as recurrent infections, enlarged lymph nodes, and episodes leading to lung damage, along with a range of symptoms due to this progressively serious disease developing early in childhood. Beyond the physical aspects, there is a real impact on quality of life. Many patients are unable to work, go to school, or engage in daily activities due to their condition. The mental toll of living with a chronic disease, combined with treatment that up until now has focused mainly on symptomatic management, is also significant. This situation is exacerbated by frequent hospitalizations, unnecessary surgeries, and numerous doctor visits needed just to obtain a diagnosis. Next slide. APDS is caused by a genetic defect, resulting in hyperactivity of the PI3K pathway. When this pathway is overactive, it leads to a disrupted environment for the development of B and T cells. This improper development sets off a chain reaction, which on the right side of the slide outlines the symptoms resulting from this immune imbalance caused by the hyperactive pathway. Being a primary immune deficiency, APDS patients experience recurrent infections, which can occur in the lungs and upper and lower respiratory tract, and are often associated with herpesviruses, especially EBV and CMV. A hallmark of the disease includes lymphoproliferation, leading to swollen lymph nodes and an enlarged spleen, complicating the situation with disruption of lymphoid tissue throughout the body. GI issues, autoimmune issues, including cytopenias and other autoimmune disorders, can also emerge due to the immune system's failure to function properly. As noted earlier, bronchiectasis, which is irreversible, is another potential complication in these patients. The most severe manifestation leading to patient mortality is the development of lymphoma due to this unchecked lymphoproliferative process caused by the immune imbalance resulting from disrupted PI3K activity. The next slide illustrates the treatment options that were previously available to manage these patients prior to Joenja's approval in the U.S. On the left side, we see attempts made to address the immune deficiency, such as using antibiotics to prevent or treat infections and immunoglobulin replacement therapy to boost the immune system. Conversely, the right side outlines the challenges faced by patients due to immune dysregulation, leading to attempts to control the immune response using steroids or other immunosuppressants, including mTOR inhibitors. It’s critical to note that none of these therapies were approved for APDS treatment, and in rare occurrences, some patients underwent stem cell transplants, despite the high-risk nature of such procedures for these patients. The next slide shows what Joenja now offers. It serves as an immune modulator that addresses the root cause of the hyperactive pathway in these patients by normalizing the PI3K delta pathway. Consequently, we observe a balanced development of immune system cells, as evident when measuring the immature and functional cells, which now progress normally through their development. The next slide summarizes the potential benefits of Joenja for patients. It is indicated for those aged 12 years and older who have APDS. I will review some randomized data, which met both primary endpoints, and we'll also cover some secondary endpoints and exploratory measures seen in this study. Joenja was generally well-tolerated, with no significant withdrawals due to drug-related adverse events. On the right side, you can observe other data generated with Joenja, which shows long-term results indicating reductions, including discontinuations in the use of immunoglobulin replacement therapy as well as reductions in infection rates. These study results are consistent with those observed in the double-blind placebo-controlled study, including long-term data on lymphadenopathy and immune phenotype. As Steve will report in a few moments, we are well-positioned to launch Joenja successfully. Next slide. Here’s an illustration of the label and packaging. On the next slide, we can see data from the randomized control study. Joenja met both co-primary endpoints, showing a reduction in lymph node size on the left and an improvement in naive B-cell count compared to placebo. This indicates a correction of the underlying immune defect, which is statistically significant in both measures. Next slide. In our open-label data, we noted a reduction in the number of days patients had infections over the year, showing improvement the longer they remained on Joenja. Notably, the study allowed physicians and patients to discontinue using IRT therapy as the study progressed. Looking ahead, we have several milestones later this year. Steve will provide a commercial update on the launch that began just last month. As Sijmen mentioned, we are under review in Europe and expect a CHMP opinion later this year with approval following two months later. We also plan to file in the UK later this year, pending a positive outcome. We aim to begin a small clinical study in Japan for regulatory submission, with a focus on up to five patients within the first half of this year. Additionally, we initiated an earlier pediatric study involving children aged four to 11, and expect to launch our second pediatric study in Q3 for even younger children. Next slide. Shifting to another program, we have a collaboration with Orchard Therapeutics to develop an ex vivo autologous stem cell gene therapy for HAE. We aim to enhance expression levels of the developed vector, which is currently being tested across various HAE disease models in animals. Further updates will come as we continue preparing for an IND filing later this year. Next slide. I will now turn it over to Steve for a commercial update.

Stephen Toor, Chief Commercial Officer

Thank you, Anurag. Good morning, everyone. Over the next four slides, I’m going to provide an overview of the Q1 RUCONEST performance and some early insights on the progress of the Joenja launch just six weeks post-approval. As you may be aware, there were HAE market-wide issues impacting some government insurance patients, resulting in delayed product shipments. Our internal data, along with external audit data, revealed significant declines for all acute and prophylactic products, affecting all companies serving HAE patients. However, these issues were resolved late in the quarter, and as effective patients started receiving RUCONEST again, sales accelerated, staging the highest positive return among all acute products in the market. With the Q1 market-wide issues and disruptions behind us, we are witnessing solid sales in March and strong sales in April as the recovery progresses. We also see encouraging strength in the underlying business, particularly marked by high volumes of new patient enrollments and growth in prescribing physicians. Therefore, we expect sales to strengthen through Q2, maintaining our forecast for low single-digit revenue growth for RUCONEST in 2023. Now, let’s transition to the Joenja launch. As highlighted in this slide, Pharming is leveraging all its rare disease commercialization experience in the U.S. This is our first of many launches in a must-win market, and we have 54 salespeople and sales leaders. This team is comprised of the RUCONEST sales team, with an estimate that 30% of APDS patients are treated by providers already well-served by Pharming, in addition to the new Joenja institutional team. This team will focus on central locations or centers of excellence, which we expect will treat the remaining 70% of APDS patients. Between these two teams, we believe we have the vast majority of the APDS market covered in the U.S. It’s important to note our sales colleagues are experienced in rare diseases, specialty, and hospital representation, with launch experience and patient-finding expertise. Additionally, the RUCONEST team has been augmented with award-winning salespeople to drive a successful launch. They are actively identifying patients. Clinical educators are employed to drive family mapping and family testing, which is critical as APDS is an autosomal dominant disease. This means other family members are highly likely to have APDS, and it’s vital they gain access to Joenja promptly. This aspect also serves as an important source of new patients for Pharming. We will operate a comprehensive concierge patient services program that ensures once a patient is diagnosed, they encounter zero obstacles accessing Joenja. The program covers all essentials, including filling prescriptions, providing financial aid, and ongoing support to guarantee adherence and continued access to medications. This approach significantly differentiates us from many competitors in the rare disease space. We have care coordinators who serve as a consistent point of contact, fostering ongoing relationships and reassurance for patients and their families, as opposed to the more traditional call center model. Our clinical educators will support and educate patients and caregivers, and importantly, clinical pharmacists will be on hand 24/7 to process Joenja prescriptions, address patient inquiries, and expedite approval rates. We have also partnered with PANTHERx, familiar to many in the U.S. market, which specializes in rare and ultra-rare conditions. This collaboration brings unique insights and helps us deliver what patients expect from Pharming. Our dedicated programs and staff should speed up patient access to medication while minimizing bureaucracy and mistakes, tailoring our services to the specific needs of these patients. Next slide, please. Before outlining the early results, I'd like to highlight Joenja's value proposition, which Anurag articulated well. We should remember that Joenja is the only indicated treatment for APDS. It's a precision medication, meaning that when a patient tests positive, healthcare providers and payers know they are prescribing the right treatment option for that patient. Joenja functions as a disease-modifying agent, addressing the underlying issues of both immune deficiency and dysregulation. Pharming is, therefore, launching Joenja in alignment with the needs of underserved patients, and we believe we have established the correct infrastructure and services to expedite patient access to the product. Let’s quickly review our progress to date. Next slide, please. The launch and market preparation has been rigorous and thorough, and we are off to an excellent start. Our fully reimbursed commercial shipments of Joenja began just two weeks after FDA approval. To date, we have shipped to 23 patients, all on payer-approved product, about half of whom are from early access or open-label extension programs, while the other half comprises new patients starting Joenja. Most of the early access patients are transitioning to paid therapy, and we are steadily onboarding new patients. Importantly, regarding market access or managed care in the U.S., we are making strong strides with national and regional payers, including State Medicaid programs, preparing for clinical review and coverage policy development, which we anticipate completing in the next 90 to 100 days. Meanwhile, patients are being approved relatively quickly through the medical exception process. Specifically for Medicaid, our teams have excelled in securing Joenja coverage for APDS patients, with two-thirds of states listing the product just six weeks post-launch. As you can see, we have set ourselves up for a fast and impressive start just six weeks since the launch of Joenja. I look forward to updating you on our Joenja launch progress later in the year, especially when we can share Q2 results for both RUCONEST and Joenja. I now hand it over to Jeroen for financial insights.

Jeroen Wakkerman, Chief Financial Officer

Thank you, Steve, and good morning, good afternoon, everyone. As noted earlier, the first-quarter results were lower due to the market factors impacting the entire industry. These industry-wide challenges have now been resolved and we can confirm that we have experienced a strong recovery. January was in line with last year, but February faced headwinds; however, March rebounded strongly, as did April. We’ve nearly addressed all of the shortfall and are confident we'll recover the remaining amounts. We continue to expect single-digit growth in RUCONEST revenues for 2023. As shown on the slide, revenues for Q1 were $42.5 million, representing a 9% decline from last year due to the discussed reasons. Our gross profit mirrored that trend, decreasing by 8% to $38.5 million, while operating costs rose from $40 million to almost $53 million due to investments in leniolisib and in R&D as well as increased sales and marketing expenditures. Operating profit and net profit both decreased, with an operating loss of $13.7 million and a net loss of $12.2 million. The takeaway from this quarter is the shift in sales from Q1 to Q2, which was evident in April. While we have not yet recorded any revenues for leniolisib or Joenja in Q1, we anticipate that this will change in Q2. Next slide, please. In terms of cost development, we continue to invest in launching Joenja. Reviewing longer-term trends over recent quarters, R&D costs will experience a reduction in Q2 due to decreased investment in the transgenic platform. However, a spike is evident in Q1 due to leniolisib. As for general and administrative costs, we’ve noted slight growth per quarter, indicating investment ahead of expected company growth. Q1 figures were higher than last year’s Q1 but lower than previous years. The striking Q4 figure of $17.6 million was due to an impairment cost of a building, which is non-recurring. Marketing and sales costs, the largest expenditure, have seen a quarterly growth in 2022 due to investments in the Joenja launch, particularly evident in Q4. It’s important to note that these costs associated with the U.S. launch remain high through Q3 as well. Looking ahead, we expect marketing and sales costs to also rise in other key markets like Europe and the UK in subsequent quarters in preparation for their launches. Therefore, we will provide guidance for OpEx levels for the remainder of the year, based on Q4 2022 and Q1 2023 figures as good indicators, though reasonable increases should be anticipated. Next slide, please. Our cash flow analysis indicates a decrease from $207 million to $185 million at the end of Q1, primarily due to net cash flows used in operating activities. The cash loss recorded was $10.2 million from operations, and working capital saw an increase of $12 million mainly due to timing issues. Cash flows used in financing activities resulted in regular interest and lease costs, with positive foreign exchange effects contributing to the cash position of $185 million. Outlook considerations indicate we maintain expectations for low single-digit growth in RUCONEST revenues for the full year. Joenja was approved on March 24th by the FDA, and we commenced commercialization in the U.S. in early April 2023. We anticipate a favorable CHNP opinion in the second half of this year for Europe, with marketing authorization to follow two months later. Following this outcome, we will file for UK approval with the MHRA. Our focus will be on investing in future growth and strengthening the Joenja launch, and we will share further details for developing leniolisib in additional indications in the second half of this year. Lastly, we will seek late-stage opportunities in rare diseases for in-licensing or potential acquisitions. We are open to investments in this area. This concludes my presentation, and I would like to move to the next slide to open up for questions.

Operator, Operator

Thank you. Our first question comes from Alistair Campbell of RBC. Alistair, your line is now open. Please go ahead.

Alistair Campbell, Analyst

Thanks very much. Yes, a couple of questions, please. First of all on RUCONEST, could you clarify what’s happened? Is this due to sales that would have occurred, or is there genuinely a shortfall in sales? I am trying to ascertain if, without the disruption, would you have still seen perhaps mid-single digits? Secondly, while it’s very early, could you share insight into the patients who’ve started therapy with Joenja? Do you have a sense of the severity of those patients, are they across the spectrum of severity? Lastly, given that you have 23 patients on Joenja now, what exit number do you believe would be desirable by the end of the year?

Sijmen de Vries, CEO

Let me address your last question first, and then I’ll defer to Stephen for the first two inquiries. We don’t provide forward-looking statements regarding what a reasonable exit number may be and, frankly, I think it’s too soon to indicate specifics. But having 23 patients on paid therapy and many more in progress speaks well of our preparation for this launch. Stephen will share additional insights regarding RUCONEST sales along with the differentiation in severity among the Joenja patients.

Stephen Toor, Chief Commercial Officer

Thank you, Sijmen. About RUCONEST sales, my view is that our guidance remains unchanged. Disruption in Q1 delayed patient deliveries, so effectively we're catching up now. I believe the guidance remains the same as we expected, which is low single-digit revenue growth. Concerning patient severity, I don't have detailed insights. However, I hypothesize that most patients are likely identifiable. As Anurag indicated, half these patients were part of the EAP or open-label trials, thus had already displayed symptoms, typically being at least moderate. I hope that clarifies your questions.

Alistair Campbell, Analyst

Yes, that's great. Thank you.

Anurag Relan, Chief Medical Officer

I just want to add that we have a diverse mix of patients, including those transitioned from study into commercial Joenja, those in the expanded access program, and naïve patients who were not in either prior program.

Sijmen de Vries, CEO

Does that cover your questions?

Sushila Hernandez, Analyst

Thank you for taking my question. Regarding RUCONEST, could you elaborate on the reimbursement disruptions within the HAE market? Given that Takeda reported an increase in TAKHZYRO sales this quarter, what circumstances caused a more severe disruption for your company? Additionally, what might drive any anticipated fluctuations in RUCONEST sales moving forward?

Sijmen de Vries, CEO

I’ll turn those questions back to Stephen.

Stephen Toor, Chief Commercial Officer

The disruption primarily affected the government sector. Some patients experienced issues with copays and accessing medications, which resolved as the quarter progressed. While I can't comment on other companies’ sales, data from Symphony's Metys indicates that all companies experienced notable disruption in Q1. Specifically, our disruption was contained within the government-insured patient sector and has now been satisfactorily resolved; all patients needing RUCONEST are receiving their medications.

Sijmen de Vries, CEO

Regarding your other question about RUCONEST sales fluctuations, these are typically influenced by seasonal patterns and the length of the selling month. Sales usually dip around major U.S. holidays, such as Independence Day or Thanksgiving. Patients tend to stock up on medications before vacations or holidays, affecting order volumes. Therefore, these fluctuations do not indicate any underlying issues; they are just part of our operational dynamics.

Sushila Hernandez, Analyst

Okay. Thank you.

Simon Scholes, Analyst

Hello. I see you've decided to discontinue the Pompe project. A few years back, you expected your product under development to have a favorable side effect profile compared with the current market leader. Can you elaborate on your decision to discontinue this program and whether timelines influenced this choice?

Sijmen de Vries, CEO

That’s a good question, Simon. We recognize there's a significant unmet medical need in Pompe. Our discontinuation was due to not identifying the differentiating features necessary to justify continuing the investment in the project. Additionally, there are new developments on the horizon, such as the GYS1 receptor antagonists currently in development. Thus, we deemed it appropriate to cease Ryan Development when we did not identify distinguishing features. That was the key reason driving the decision.

Simon Scholes, Analyst

Thanks very much.

Sijmen de Vries, CEO

Any more questions, Simon?

Operator, Operator

There are no further questions. I will hand it back to the management team for any closing remarks.

Sijmen de Vries, CEO

Thank you very much. Ladies and gentlemen, thank you for attending our first quarter results conference. As stated at the beginning of the call, this first quarter marks a significant milestone. We received approval for our second product, established a commercialization infrastructure in the U.S., and are preparing rigorously for launches in Europe. I hope you agree that we are off to a solid start with Joenja in the United States. We have already onboarded 23 patients within six weeks post-launch, which is impressive for rare diseases, and we expect many more are approaching the process. We look forward to reporting on not just one, but two products driving our revenue next quarter. Lastly, we maintain confidence in the stability of our RUCONEST business moving forward. Thank you once again for being here, and we look forward to updating you next quarter in early August. Thank you and goodbye.