Albireo Pharma, Inc. (IPN) Earnings Call Transcript & Summary

Hello, and welcome to the Ipsen conference call and webcast on acquisition of Albireo. I now hand you over to David Loew, Ipsen's CEO. Please go ahead, sir.

Thank you, operator. Good afternoon or good morning, everyone. As you just heard, I'm David Loew, Chief Executive of Ipsen. We're live at the JPMorgan Healthcare Conference in San Francisco, and I'm delighted that you have joined us today as we take you through today's exciting news on the acquisition of Albireo. Please turn to Slide 2. This is our usual safe harbor statements which outlines the routine risks and uncertainties contained within this presentation. Please turn to Slide 3. I'm joined today by Howard Mayer, Ipsen's Head of Research & Development; as well as our CFO, Aymeric Le Chatelier. We'll provide a brief presentation before using the majority of the time to answer your questions. Please turn to Slide 4. I will begin the presentation by taking you through the strategic rationale for the acquisition. I'll then hand over to Howard who will explain the development of Bylvay. I will go through the commercial opportunities before Aymeric runs through the financials. I will then conclude the presentation before we move to your questions. Please turn to Slide 5. So firstly, let me turn to the strategic rationale for today's news. Please turn to Slide 6. Underpinning our vision is the focus on 3 therapy areas. Within oncology, we have strengthened our position in the last 2 years by adding a dozen assets to our clinical and preclinical pipeline. We have also added further assets to our neuroscience pipeline. In rare disease, we look forward to the forthcoming Phase III results in primary biliary cholangitis for elafibranor, which was in-licensed around a year ago. But we do want to expand the scope in rare disease further. And it's this focus that has supported our decision to acquire Albireo. Please turn to Slide 7. This expansion in rare disease is perfectly aligned to our external innovation strategy, which is designed to replenish our pipeline and add further medicines to our portfolio. The focus of this deal is on the potential of Bylvay, a possibly best-in-class rare liver disease medicine with global rise, that's already on the market for a progressive familial intrahepatic cholestasis, or PFIC, in Europe and U.S. There are multiple opportunities presented by this deal. We have the possibility of adding 2 further indications to the currently approved indication for Bylvay with Alagille syndrome and biliary atresia. Furthermore, the acquisition also comes with an early-stage pipeline in adult cholestatic liver diseases. Bylvay and the clinical and preclinical novel bile acid transport inhibitors are clearly an excellent potential strategic fit in rare liver disease with elafibranor. Financially, we anticipate sales of around $800 million and an accretive impact to core operating income from 2025. Please turn to Slide 8. I hand over to Howard.

Thanks, David. And hello, everyone. I'd like to spend a few minutes taking you through pediatric cholestatic liver diseases as well as the development of Bylvay. Please turn to Slide 9. Bile acids are chemical compounds found in the liver made from cholesterol. Bile acids have several roles in the body, including promoting the flow and excretion of bile and assisting in the intestinal absorption of fat and fat-soluble vitamins and nutrients. 95% of bile acids are recycled back into the liver from the intestine and reused within the body. A disruption to this process can lead to the buildup of bile acids in the liver, which is known as cholestasis. Neonatal cholestasis reflects an underlying condition causing impaired flow of bile from liver cells into the intestine. This affects approximately 1 in 2,500 live births and about 50% have a known genetic origin. Patients with cholestasis experience symptoms such as intense and severe itching, poor sleep, delayed growth and diminished quality of life. Failure of bile outflow can ultimately cause obstructed bile ducts, portal hypertension, cirrhosis and end-stage liver disease, with some patients requiring liver transplantation. Please turn to Slide 10. Bylvay, or odevixibat, is a potent, oral, non-systemic ileal bile acid transporter inhibitor approved in the U.S. and EU in 2021 for PFIC. By blocking the actions of iBAT, Bylvay reduces the reabsorption of bile acids from the terminal ileum and their return to the liver. Reducing buildup of bile acids or cholestasis prevents liver damage leading to cirrhosis, end-stage liver disease and the need for liver transplantation. Please turn to Slide 11. PFIC refers to a rare heterogeneous group of autosomal recessive disorders of childhood that disrupt bile production or secretion and presents with cholestasis that can lead to significant morbidity. The PEDFIC trials represented the largest trials ever completed in children with PFIC. PEDFIC 1 was a randomized, double-blind, placebo-controlled Phase III trial, aiming to evaluate the efficacy and tolerability of Bylvay in reducing pruritus and serum bile acids in children with PFIC. All patients enrolled in PEDFIC 1 were eligible to participate in PEDFIC 2, a long-term open-label extension phase. Bylvay achieved the primary efficacy end point versus placebo and demonstrated efficacy across multiple PFIC types including the percentage of patients with improved pruritus score, mean reduction in pruritus score from baseline and reductions in serum bile acids from baseline. Bylvay was generally well tolerated. Most treatment-emergent adverse events were mild to moderate in severity. There were no serious treatment-emergent adverse events, discontinuations or deaths. Please turn to Slide 12. Alagille syndrome is a rare autosomal dominant disorder caused by either inherited or spontaneous mutations in the JAG1 or NOTCH2 gene, which can affect normal development of multiple organ systems, including the liver. Many patients with Alagille syndrome will ultimately require biliary diversion or liver transplantation. ASSERT is a double-blind, randomized, placebo-controlled, 24-week trial designed to evaluate the safety and efficacy of Bylvay for people living with Alagille syndrome. Top line results were presented at the American Association for the Study of Liver Diseases' annual meeting in November of last year. In 52 patients with a mean age of 6, those who received Bylvay experienced statistically significant improvements in observer-reported scratching score from baseline to month 6 compared with placebo. And looking at the key secondary end point, serum bile acid levels dropped significantly with Bylvay versus placebo at 24 weeks. There were no trial discontinuations, and all patients completed the initial 24-week treatment duration. 96% rolled over into the open-label extension trial. Please turn to Slide 13. Biliary atresia is a rare pediatric liver disease with symptoms typically developing about 2 to 8 weeks after birth and no approved pharmacological therapies. The disease is characterized by destruction or absence of all or a portion of the extrahepatic bile duct system. This results in bile and bile acids being trapped inside the liver, quickly resulting in cirrhosis and liver failure. Kasai surgery, or a hepatoportoenterostomy, can be lifesaving in patients that respond. However, about 50% of patients undergo a liver transplant in the first 2 years of life. BOLD is a double-blind, randomized, placebo-controlled trial to evaluate the safety and efficacy of Bylvay in children who have biliary atresia and have undergone a Kasai procedure before age 3 months and who are eligible to start treatment and randomized within 3 weeks of the procedure. The primary efficacy end point is the proportion of patients who are alive and have not undergone a liver transplant after 2 years in the Bylvay arm compared to placebo. The study has enrolled 205 patients. And based on our due diligence, we are confident in the trial design and may increase the sample size of the study to maximize its probability of success. The FDA and EMA have indicated that a single pivotal study is sufficient to support filing. Thank you for listening. I'll now hand back to David. Please turn to Slide 14.

Thanks, Howard. I'm now going to outline commercial opportunities for Bylvay. Please turn to Slide 15. As you have seen, the development of Bylvay is advanced and is at various stages across the 3 indications. It's worth noting that competition is very limited with only 1 launch so far in Alagille syndrome. We have outlined here our broad assumptions for the numbers of patients across the indications. On pricing, we assume a higher price in Alagille syndrome and then biliary atresia, then in PFIC. Our assumption is that the overwhelming majority of patients will stay on treatment until they need a liver transplant. The time to liver transplant is dependent on the native liver survival rate per indication and per response to the treatment. Please turn to Slide 16. Pulling this together means that we have substantial commercial opportunities to increase the sales of Bylvay. A strong Bylvay efficacy and safety profile has been established, and there are very limited number of competitors in this space. It is leading in PFIC and biliary atresia where competition is in Phase II. Bylvay is already on the market in the U.S. and in Europe for PFIC and already been launched and reimbursed in a number of countries, including in the U.S., where favorable coverage has been secured as well as 9 countries in Europe. The profile of Bylvay has been augmented by compelling results from the ASSERT trial for Alagille syndrome. And regulatory submissions were made in the U.S. and EU late last year, so we would expect regulatory decision in this indication at the end of 2023. Global rights in the hands of a truly global company mean that we can leverage our infrastructure, capabilities and strength to fully accelerate the sales of Bylvay. It's also worth highlighting the convenient dosing with food via capsules once a day, which are preferred by children and teens. Bylvay can be sprinkled over food via oral pellets for babies. Finally, we have a good patent life in both, in U.S. and in Europe. With success in all 3 indications, we can deliver peak sales of around $800 million, of which approximately half will come from biliary atresia. I'll now hand you over to Aymeric who will summarize the financials. Please turn to Slide 17.

Thanks, David. Please turn to Slide 18. The terms of the agreement include an offer to acquire all outstanding shares of Albireo for $42 per share in cash at closing, which will represent an initial consideration slightly in excess of $950 million. The agreement has been structured to include a contingent value payment based on the approval of Bylvay in biliary atresia in the U.S. by FDA. One contingent value right per share will entitle its holder to a deferred cash payment of $10 per CVR, which will represent about $240 million. As you can see, this transaction will be fully financed by our existing available cash and line of credit, and we will keep after the transaction sufficient firepower to continue our business development strategy. Subject to the satisfaction of all closing conditions, including regulatory, we anticipate the closing of the transaction by the end of this quarter. The acquisition of Albireo will immediately provide incremental sales, and we anticipate short-term dilution to our profitability until the end of next year. It's very similar to the Epizyme acquisition. From 2025, we expect accretion to our core operating income. So as you can see, this financial profile is consistent with our outlook to do this and make operating investment under the external innovation strategy to promote the long-term and systemic growth of Ipsen. I will now hand over back to David. Please turn to Slide 19.

Thank you, Aymeric. I'd now like to conclude our presentation before we go to your questions. Please turn to Slide 20. As we make more progress with the execution of our external innovation strategy, I'm pleased to announce today's news. It's another step in our journey of delivering sustainable growth over the long term and supporting excellent medicines to get to more patients. We're expanding the scope of our Rare Disease business by acquiring a leading innovator in bile acid modulators for rare liver diseases with real expertise in bile acid modulation. In Bylvay, we'll have an on-market and potentially best-in-class medicine that has an advanced development program and significant commercial opportunities. Finally, it is an excellent fit for it's in line with the consistent strategy for growth. Please turn to Slide 21. Thanks for listening to our presentation. We now have time for questions. Operator, over to you.

[Operator Instructions] The first question is from Jo Walton from Credit Suisse.

I think the main question that people have is why you are able to get something with peak sales potential of around $800 million for something in the region of $1 billion. Normally, you seem to pay a much higher multiple of potential peak sales. I wonder if there is something unusual in the profitability that we can't see from looking at consensus forecasts that would take the profitability down. Secondly, I note from the company that their guidance was for $24 million of sales for this year. They've already done around $18 million or so. So there's only $6 million left, which is less than the [ third ] quarter. Now they did make a comment that sales would go down because we're beyond the end of the German free pricing period. So perhaps you could tell us a little bit about how you see pricing developing in Europe. And for our modeling, I wonder if you can help us on what sort of avoidance of interest charge, I mean given that you've got cash, what sort of interest rate we should put against this and whether you are able or intending to get rid of the Sagard Partners' health royalty program. Presumably, you can just buy that out and add that to the initial cost.

Thank you, Jo. So on the $800 million, you have seen that actually, there were already analyst reports, which were much higher. We actually came to the conclusion that with the $800 million, that is the right price, the right figure for peak sales, which I think we're going to achieve in 2029-ish, 2030-ish or so. Now I can't really comment on the multiples of the market. You know, of course, that the market has taken a hit on biotech. And so it's really something that we were also not quite sure how it is to explain. But I think we made a fair offer. And with a 100% premium, I think that's a very fair premium. So that's all I can say on this point. Regarding the sales I think we need to see the official results that Albireo is going to publish. So I think they have been doing quite nicely. In terms of the pricing in Europe, we don't think next to this effect that you have mentioned on Germany, there are other effects. Of course, the pricing in Europe is somewhat lower than in the U.S. That's usual. But there is no special explanation, so watch the space for the Q4 sales. In terms of the modeling, I will hand over to Aymeric.

Yes. So maybe back a little bit to your question about the profitability. So I think it's a rare disease company, so there is nothing specific that will impair the profitability. There is no specific royalties. The cost of goods are pretty standard and pretty low. So clearly, you were asking the question about the royalty debt financing. As you can see, there is a possibility to potentially buy this out, and that will reduce clearly the level of royalties, which are not assumed in our model. So today, the dilution is assuming we're going to find a way to buy out this royalty debt. Regarding the financing, we have a revolving credit facility that has been set up a couple of years ago, which has a very favorable interest rate in terms of margin. So this shouldn't be a very huge cost of financing for us. And we also have available cash. So the transaction is going to be financed through a combination of our existing cash and some drawing on our revolving credit facility. Last one, maybe on the guidance of the company. I think the company has been quite conservative given the track record since the beginning of the year, so I would assume that the fourth quarter is going to be lower than the previous one. And this was guidance provided in October on the $24 million sales. We'll provide more when we close our books in February.

Operator, can I just check? We've had a couple of people say they couldn't hear the first part of David's answer. Can I just check, you're able to hear that?

Yes, I was, sir.

Okay. Thank you.

And Jo, you got the answer to your questions?

Yes, I did. I got all the answers. But I do know that some people who are on the webcast are finding it more difficult than those of us who have dialed in.

Okay. Interesting. So it seems to be linked to the webcast. So perhaps these people on the webcast who have difficulties, please dial in through the phone.

The next question is from Michael Leuchten from UBS.

It's Michael Leuchten from UBS. Three questions, please. Just going back, Aymeric, to your comments around sort of the operating expenses, efficiencies and margin accretion. Given that you have the palovarotene infrastructure sitting there with somewhat of an uncertain future until we exactly know what's happening with the FDA, like how much of the cost that you're taking on will you be able to absorb? Or is there a scenario where you have to keep both your and the other infrastructure in place until you get more clarity and, at that point, there might actually be more efficiencies that allow you to get a better margin accretion than maybe in the first 2 years? So how are you going to absorb or not the OpEx, both in terms of SG&A and R&D that you're taking on with this transaction? And the second question, just wondering how you think about the competition. You did mention LIVMARLI, the Mirum product that's out there for Alagille. So as they now, at some point, get the Phase III readout, how do you think competition is going to shape up in PFIC? Just any thoughts would be helpful. And then is there any timeline to the CVR? Is there any sort of point in time where the CVR expires regardless of what happens with the approval? Or is it open-ended?

So maybe to start with your question on the OpEx and the palovarotene. I mean, as you know, I mean, on the R&D side, there will be very limited synergies. These are very different studies to be run. And by the way, there's not that much left for palovarotene. So I think your question is more on the SG&A. And clearly, we are building already the infrastructure. It's quite limited that you don't need a lot in this ultra-rare space. So yes, if we were to launch both, palovarotene and Bylvay, we may have some limited synergy, but that's not a major driver today of the cost base. And we believe that there is the right investment behind Bylvay. We need more sales to ramp up, and the dilution is really coming from a progressive ramp-up. We expect by the end of this year to get the second indication and then to progressively ramp up on these 2 indications, and R&D is going to be mainly related to the BA study.

On your second question, Michael, on the competition. So basically, LIVMARLI is already registered in Alagille. We are going to come on the market towards the end of the year. They have shown positive results also in PFIC. It's really hard to compare across studies. And so we see the profile as pretty similar regarding efficacy. Perhaps there is a safety advantage for Bylvay, but it's very, very hard to say because there is less diarrhea for this cross-study comparison, very low numbers of patients. So one needs to be super careful when looking at cross-study comparisons. What I can say is where we do see a differentiation is clearly on the dosing. So Bylvay has capsules and pellets. You know that when you need to give a dose to a baby or to a toddler, sometimes it can be hard for those of you who have babies or toddlers. And so the dosing on Bylvay is actually very convenient. So if you have a baby, you can sprinkle the pellets over, for example, an applesauce or a chocolate pudding and the babies usually like that. And then once they grow a bit over and they can start to swallow, then they can take the capsules, which in this market is, I think, very important because this market can go up to teenagers and also some adolescents. So having a capsule, I think, is something which we really like. Then another important point is on BA, which is about 50% of the forecast, clearly, Bylvay has a strong head start being in very advanced Phase III while competition is in Phase II and is measuring on a surrogate end point. So all in all, this is what actually seduced us on Albireo. And then on the CVR and the exploration, I hand over to Aymeric.

Yes. So as you can see from the press release, the drop date for the CVR is end of December of 2027 as we have room to potentially adjust the number of patients in the BOLD study. And as Howard explained, that's the way to maximize the probability of success of that study, which represents a large part, almost 50% of the $800 million PFICs.

The next question is from Simon Baker from Redburn.

A few quick ones, if I may. On Bylvay, this stemmed to Jo's question about royalties, but specifically on Bylvay. There have been quite a few deals done regionally in the U.S., Israel, Turkey, the Gulf, Japan. So I just wondered if you could give us a summary of where those deals stand in terms of royalties that you were paying away in any key territories on Bylvay. And then the second one, a number of other iBAT inhibitors are being tried in PBC. Bylvay doesn't appear to be in PBC at the moment. I just wonder if that's an additional opportunity. And then a second -- final question, you hadn't talked about elobixibat. Which I think is only approved in Japan and Thailand. I just wonder if you could give us your thoughts on the commercial potential of that as well.

Thank you. So on the royalties, I think we can have Aymeric elaborate on that.

Yes. I think that there is only a back-to-back agreement on Japan, and this has no impact for us. There has been a transaction, which we don't intend to change contrary to the big royalty financing that was set up by Albireo in September. So clearly, Japan is not in the scope. And that's the only territory, assuming we pay out the Sagard royalty financing that will exist. And this will have no impact. It would be back-to-back.

Then on the iBAT use in PBC. Howard, do you want to elaborate on this?

Yes. So we're aware that other iBAT inhibitors are being tried for pruritus in primary biliary cholangitis. Currently, there's no such program for Bylvay. However, there is an oral systemic iBAT inhibitor in the pipeline from Albireo called A3907 that has the potential to be used in adult cholestatic liver diseases, currently PSC, but potentially others. So that's the situation with the pipeline as it stands today.

Thank you, Howard. And then on your third question on elobixibat, so the acquisition includes all of Albireo's marketed products and pipeline assets. And EA Pharma is the exclusive licensee of elobixibat for the treatment of gastrointestinal disorders in Japan and other select countries in Asia, but not including China. Albireo currently has own commercial rights to elobixibat in the United States, Europe and China and otherwise, outside of the territories licensed to EA Pharma. Now we are currently assessing all of our opportunities across the whole of Albireo's portfolio, both marketed and pipeline.

The next question is from Rosie Turner from Jefferies.

Just a few quick ones left, if I may. So maybe continuing on in terms of the broader pipeline, I think there's A3907, if that's the correct way to say it. It looks like that was going into Phase II in 2022, but I can't see an update on the website. Has that happened? And is that kind of still planned to go into Phase II kind of under Ipsen ownership? Kind of going a little bit back to the royalty question. So does that mean there are opportunities kind of ex Japan for kind of additional sales, thinking about kind of China, et cetera? And then just finally, so the CVR, do we know -- is that going to be tradable? Or is that going to be something that's OTC?

Okay. So perhaps we start with the A3907. It's indeed have just started the Phase II. I'll let Howard elaborate on this one.

Yes. A3907, if you look on clinicaltrials.gov, it is public information that it has started a Phase II study with 2 doses in patients with primary sclerosing cholangitis. So that has actually been posted and our understanding is they're imminently going to start that study.

On the question 2, so we do have the rights for Bylvay in China, and we anticipate that it could probably come on the market in 2026 there. So I wasn't quite sure about your question because you asked on royalties and then China, but we don't have Japan, as you know. But we do have China. So perhaps you can quickly clarify your question.

Yes. No, that's perfect. That's my question, yes. It's just checking are there any opportunities where you don't have royalty payments, so yes. I guess, it would obviously be China, sounds like it.

Yes, the answer is yes, yes. Okay. And then on the CVR tradable, I give it to Aymeric.

The answer is no, the CVR is not going to be tradable.

We are now taking the next question from the line of Charles Pitman from Barclays.