Earnings Call Transcript - PHAR Q4 2022

Operator, Operator

Hello, and welcome to today's Pharming’s Full Year 2022 Results Call. My name is Bailey, and I'll be the moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the conference over to our host, Sijmen de Vries, Chief Executive Officer. Please go ahead.

Sijmen de Vries, CEO

Thank you very much, Bailey. Good morning or good afternoon, ladies and gentlemen to our 2022 results call. I would like to start taking you through that. But before I do that, I would like you to pay attention to the next slide, which contains a statement on forward-looking statements, as we may be making forward-looking statements in this conversation. They are statements based upon our expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance, or events to differ materially from those expressed or implied in these statements, and you can read the rest for yourself, I assume. I'm joined by my colleagues, Dr. Anurag Relan, our Chief Medical Officer, and Jeroen Wakkerman, our Chief Financial Officer. And we also have here, although not speaking on the conference, but to answer questions, our Chief Commercial Officer, Stephen Toor. We are a company that has developed over the years a very strong base with potential for significant growth. This is based upon our commercialized asset RUCONEST recombinant human C1 esterase inhibitor for the treatment of acute hereditary angioedema attacks, which is commercialized by ourselves on both sides of the ocean, as you can see in a lot of other markets outside of the US and the European Union, and of course, the UK. The potential for growth is represented here initially by the anticipated approval and launch for leniolisib PI3Kδ kinase delta inhibitor in development on the regulatory review for APDS, where we anticipate in the not-too-distant future, the FDA approval and later on during the year, the European approval. We have morphed ourselves into a company that focuses on the development and commercialization of rare diseases. The first thing that goes beyond the APDS indication for leniolisib is that we are quite far along with investigating leniolisib for additional rare disease indications. We are based in Leiden in the Netherlands, and we are here actually in our US headquarters in Warren, New Jersey where we speak to you from. We became a public company in Amsterdam in 1999 and since 2020 on NASDAQ. Looking at our business model, we're on our way to building a sustainable rare disease business, whereas we have now commercialized RUCONEST, although, the vast majority of sales come from the United States. We are currently a one product company in one geography, but we expect to be changing this very soon with the anticipated approval of leniolisib for APDS. This will represent a possibility for significant growth of our US commercial footprint and revenue base, as well as a very significant revenue generator outside of the US. We anticipate this year to be transformative as we transform from a one product, one geography company into a multiple products, multiple geographies company. We are quite far along, and we will update the market as and when later in the year to start additional development programs for leniolisib and additional diseases. We have a very scalable commercialization infrastructure in both Europe and in the US, and we're actively hunting for additional products in rare diseases to either in-license, which is our preferred mode of action, or if not otherwise possible, to pursue mergers and acquisitions to bolster our pipeline further. On the next slide, you can see our pipeline where RUCONEST is on the market and leniolisib is very close to the market. Should we start clinical trial programs in secondary indications for leniolisib, there remains a considerable gap between our products in the near future. The preclinical assets we have in the form of OTL 105, the HAE gene therapy, and alpha-glucosidase from our transgenic platform, like RUCONEST for Pompe's disease, are noteworthy too. RUCONEST has been key to our foundation. We returned it to growth after the COVID period, guiding single-digit growth over 2021, and we are very proud of this. RUCONEST was launched at the end of 2014. It is already a mature asset with a unique place in the market. It is the only recombinant treatment that targets the root cause of hereditary angioedema by replacing the missing or dysfunctional C1 esterase inhibitor. Over the years, it has proven to be very well tolerated and effective, and it continues to be an effective treatment for acute hereditary angioedema attacks, including those breakthrough attacks that people suffer from when they use prophylactic treatments. Although prophylactic treatments have become better, up to half of patients suffer from breakthrough attacks, which can occur unexpectedly. This is why it is good practice in the US for patients on prophylactic treatments to always have acute medication at home. We pride ourselves on RUCONEST's increasing use among doctors and patients for treating breakthrough attacks. Moreover, it is now the second most prescribed product for acute attacks. Our patient confidence continues to grow significantly. Most patients inject themselves or are injected by loved ones in the privacy of their homes. RUCONEST has been on the market for a long time and will continue to support our business with sales and cash flows to invest in future programs. With that said, I would like to switch over to the promise of significant growth of the company regarding APDS and hand over to Dr. Anurag Relan to take you through the story of APDS and leniolisib. Anurag, over to you.

Anurag Relan, CMO

Thank you, Sijmen. In the next few slides, I would like to review some information about our understanding of the condition APDS, the patient journey, and what we've done regarding the development of leniolisib for APDS along with providing an update on our regulatory status. On the next slide, we can see a schematic representing how a genetic defect in one of the two genes leads to hyperactivity of a pathway, resulting in disregulated B and T-cell development. Patients suffer from several symptoms and conditions due to this abnormal development of their immune system, which predominantly leads to recurrent infections, swollen lymph nodes, an enlarged spleen, and other autoimmunity-related conditions. Importantly, APDS is a progressive condition; over time, the disease worsens, leading to conditions like bronchiectasis, which is irreversible. Sadly, many of these patients go on to develop lymphoma due to unchecked lymphoproliferation. On the following slide, we can see the consequences of this condition on the patients themselves. The physical consequences of recurrent infections can result in shortness of breath and difficulty in performing normal activities. This condition also involves a significant treatment burden; patients are frequently hospitalized and undergo numerous surgeries, many unnecessary due to improper diagnosis. The next slide shows what's currently possible in managing APDS. Most treatments aim to address the consequences of the condition rather than the root cause. Many patients are on antibiotics, immunoglobulin replacement therapy, steroids, and other immunosuppressants, none of which are FDA approved specifically for APDS. The worst outcome may require a stem cell transplant, associated with significant morbidity and mortality. Now let's discuss the future we are developing with leniolisib, a targeted disease-modifying treatment for APDS. Leniolisib specifically blocks the PI3K pathway, thereby modulating and returning the activity of this pathway back to normal. This should lead to the proper development of the immune system and subsequent improvements in the downstream effects of abnormal immune system development. Our overall clinical development plan includes several studies, including dose-finding studies and a long-term extension study. We have patients currently in the long-term extension study, some treated for over five years, providing us extensive data on the use of leniolisib both from a long-term perspective and in a placebo-controlled fashion. Importantly, the randomized controlled study has met both primary outcomes, increasing naïve T-cells and decreasing lymphadenopathy, along with improvements in autoimmune complications and well-tolerated results. The next slide outlines our current activities for finding patients. We estimate that between 1,000 to 2,000 patients exist, and we have already identified 500 patients through partnerships with organizations like Invitae, facilitating genetic testing for definitive diagnosis, which is at no cost to patients. We also have partnerships with medical and patient organizations that are supporting our efforts to uncover patients suffering from this rare primary immune deficiency. The following slide highlights our regulatory status. As Sijmen mentioned, we filed in the US, and we are currently under review with priority review designation for adults and adolescents aged 12 and over. We expect a decision from the FDA on March 29. In Europe, we've filed an application, and although it has switched to a standard assessment due to additional data requests, we expect the CHMP to provide an opinion later this year. Now I will turn it over to my colleague, Jeroen Wakkerman, our CFO.

Jeroen Wakkerman, CFO

Thank you very much, Anurag. Here are the financial highlights for 2022 compared to last year. Our sales grew by 3.4% in 2022 to $205.6 million, and in Q4, sales were $54.6 million, also a growth of 3%, in line with the single-digit growth guidance we provided throughout the year. Gross profit increased from $178 million to $188.1 million, which is an increase of 5.8%, improving our gross margin. Operating costs rose from $167 million to $184.4 million, a 10.5% increase, while operating profit grew to $18.2 million, up from last year by $4.5 million. However, net profit decreased from $16 million to $13.7 million, a decline of 14.5%. Moving to the next slide, the overall message is that we grew our sales while also investing in the launch and preparation for leniolisib. Our revenue increased to $205.6 million, supported by a price increase below the CPI level, as well as a rise in the number of doctors prescribing RUCONEST and an increase in patients. In terms of regional performance, we saw US sales growth of 3%, while EU sales were flat year-over-year. Our gross profit increased, primarily driven by sales growth and an improvement in gross margin from 89% to 91% due to favorable production results and no need for inventory impairment seen in the previous year. Other income sharply increased from $2.6 million to $14.5 million, including a gain from the transaction with BioConnection and grants received for research and development. Operating expenses grew, although overall costs were flat on a like-for-like basis. However, leniolisib-related out-of-pocket expenses nearly doubled. Regarding development costs, R&D expenditures were relatively flat, not taking into account the previous year's one-off costs, while G&A costs rose mainly due to increased payroll and IT expenses. Marketing and sales costs surged to $86 million, driven primarily by leniolisib and required market access development initiatives. The operating profit of $18.2 million reflects an increase linked to gross profit growth and the BioConnection gain, offset by the high costs associated with leniolisib launch preparations. The net profit reduction was primarily driven by decreased financial results attributed to foreign exchange fluctuations. On the next slide, I want to illustrate the profit before tax development. Last year, it stood at $23.1 million, but with certain one-off costs factored out, the like-for-like profit before tax was effectively $43.1 million. In 2022, we experienced gross profit growth of $10.3 million, but while R&D expenditures were flat overall, we did increase our investments in leniolisib and other developments. The increase in G&A expenditure was mainly due to hiring and IT expenses, while sales and marketing costs primarily reflected leniolisib investments. As a result, we had a profit before tax of $15 million in 2022, with a low effective tax rate of only 9% due to the tax-exempt gain from the BioConnection transaction. Moving on to cash flow developments. We started with $192 million in cash. The operational cash flow was plus $22.9 million, with working capital remaining flat. Cash from investments primarily related to CapEx and income from the BioConnection transaction. We ended the year with cash and cash equivalents amounting to $207.3 million, which we fully access. For our 2023 outlook, we continue to anticipate low single-digit growth for RUCONEST revenues. The key event for 2023 is the developments concerning leniolisib. We expect FDA approval in the upcoming weeks, and commercialization will begin shortly after. We anticipate a positive CHMP opinion for leniolisib from the EMA in the latter half of the year, with subsequent marketing authorization anticipated two months later. To accelerate future growth, our investments in leniolisib may impact profits in 2023, but we're actively working on life cycle management for leniolisib. Further details will be shared in the latter half of the year regarding additional indications for leniolisib and any in-licensing acquisitions. Overall, we've had a strong year with sales growth, increased operating profit, and over $200 million in cash. I would now like to open up the floor for Q&A with my colleagues, Sijmen de Vries, Anurag Relan, and Stephen Toor.

Operator, Operator

Thank you. Our first question today comes from Sushila Hernandez from Kempen. Please go ahead; your line is now open.

Sushila Hernandez, Analyst

Thank you for taking my question. I just have two questions. The first one on leniolisib. You have identified more than 500 patients that have confirmed APDS diagnosis. Can you comment on what a realistic target is for the number of patients that you can identify and receive leniolisib once approved? Could you also provide an update on your reimbursement discussions? Thank you.

Sijmen de Vries, CEO

I missed the first part of your question.

Stephen Toor, CCO

On the potential numbers, well, Sushila, I think you're referring to the label, which is now for patients aged 12 and older. We've started our first Pediatric trial, and 25% of patients are below 12, which means they won't qualify for treatment initially until we have pediatric approval. We haven't seen requirements for patients that would not qualify for treatment because the diagnosis is made by a genetic test that clearly indicates eligibility.

Anurag Relan, CMO

There are a small number of patients, of course, that have been transplanted. Some of those successfully might also not qualify, but the vast majority of the patients mentioned would potentially be eligible for treatment.

Sijmen de Vries, CEO

Regarding your second question about reimbursement. Discussions are relevant for Europe and outside of the US. These discussions have not started as we are not approved yet. Normally, those discussions in Europe begin after product approval. In the United States, we will bring leniolisib to market as soon as possible after the PDUFA date and will inform the market about pricing at that time.

Sushila Hernandez, Analyst

Okay. Thank you. And just one more question. When can we expect to see additional assets entering your pipeline via internal projects or in-licensing acquisitions next to a second indication for leniolisib or your gene therapy candidate?

Sijmen de Vries, CEO

Yes. The secondary indications for leniolisib will be communicated in the second half of this year. We're very active with a small but efficient business development group evaluating incoming assets. We have conducted several due diligences over the last year, and we continue to look for serious rare disease assets. Our preferred mode is in-licensing as we're still a relatively small company. An in-licensing transaction is easier to manage compared to mergers and acquisitions, especially as we focus on launching leniolisib this year.

Sushila Hernandez, Analyst

Yes, that's clear. Thank you.

Operator, Operator

Thank you. The next question today comes from the line of Joe Pantginis from H.C. Wainwright. Please go ahead, your line is now open.

Joe Pantginis, Analyst

Hey, thanks for taking the question.

Sijmen de Vries, CEO

Hi Joe.

Joe Pantginis, Analyst

I wanted to get into the continuum of decisions you're making within the company. I have been covering you for a while, both before and after the cattle decision. I was wondering what percentage of your decision-making was based on projected needs for RUCONEST in HAE versus your ability to expand your current rabid population for any needs?

Sijmen de Vries, CEO

The answer is that there is more than sufficient manufacturing capacity to serve hereditary angioedema, and it has significant growth possibilities. It's a very flexible manufacturing process that will allow us to up-scale operations to meet increased market demands.

Joe Pantginis, Analyst

That's great. With regards to cattle, is there any potential to monetize the platform that you have in place?

Sijmen de Vries, CEO

Unfortunately, we concluded that there's no significant possibility to monetize that platform, which is why we halted all related activities.

Joe Pantginis, Analyst

Understood. Regarding leniolisib, could you clarify how much of your expected impact is based on new indications versus the need to right-size marketing and sales costs?

Jeroen Wakkerman, CFO

We expect the marketing and sales costs for leniolisib will further increase in 2023 to support launches in the EU and US. We hope to begin trials for additional indications by the end of the year, though the financial impact would be more pronounced in 2024 than in 2023.

Joe Pantginis, Analyst

Got it. Thanks a lot, guys.

Sijmen de Vries, CEO

Yes, Joe.

Operator, Operator

Thank you. The next question today comes from the line of Hartaj Singh from Oppenheimer. Please go ahead, your line is now open.

Hartaj Singh, Analyst

Thank you for the update. You've identified about 1,500 patients as your market opportunity. Given that you've already identified 500, how do you see that figure evolving?

Sijmen de Vries, CEO

Hartaj, we have good data showing that prevalence ranges from about 1 to 2 per million. This gives us confidence that our estimate of 1,500 patients is conservative, and as we disseminate information about the condition, we expect to discover more patients.

Anurag Relan, CMO

The availability of therapy, specifically targeted therapy, will drive further diagnoses. While current estimates are conservative, we don't believe it would be surprising if the actual numbers were significantly higher.

Hartaj Singh, Analyst

Thank you for the clarity. Regarding regulatory aspects, what is the status of any FDA audits or facility inspections?

Anurag Relan, CMO

We are engaged in regular contact with the FDA, which includes routine inspections and audits of our submissions and operations.

Hartaj Singh, Analyst

Great. Thank you everyone, and good luck. Talk soon. Bye-bye.

Anurag Relan, CMO

Thank you, Hartaj.

Operator, Operator

Thank you. The next question today comes from the line of Christian Glennie from Stifel. Please go ahead. Your line is now open.