Ascelia Pharma AB (publ) (ACE) Earnings Call Transcript & Summary

Good afternoon, everybody, and welcome to today's event with Ascelia Pharma. And with me today, I have the CEO, Magnus Corfitzen. The topic for today is the final outcome of the recently announced rights issue. And the session is a Q&A session so no slides will be a discussion between me and Magnus and you as audience. And first of all, I would like to welcome all of you who participate in this event, and we will, of course, record this event and both Ascelia Pharma and [ HC Capital ] will distribute it on our relevant digital channels afterwards. So Magnus, congrats with the outcome, and please let's start.

And due to the Q&A session, I will start with a very broad question. Please, Magnus. Could you elaborate a little on the final outcome. How did it turn out?

Yes. Thanks, Claus. It's great to be here and give an update. So yes, I mean, our rights issue went really, really well. We are very, very pleased and humbled by the strong support from existing shareholders and new investors so that we ended up having a fully subscribed rights issue of SEK 105 million. So I think that's really a great outcome of the process. And that puts us well on track to deliver on our key strategic goals, which is getting a partnership in place for Orviglance and be able to submit an application for approval in the U.S. in the middle of next year for Orviglance.

Thanks a lot, Magnus. And I would like to dive into this final outcome just to emphasize for the investors what they should be aware of. Could you just briefly touch on when will the ordinary shares enter the custodian accounts of the individual investors.

Yes. So this rights issue is a bit more sort of complicated process. So we have not been -- technically, we've not been selling shares. We've been selling units. And if you think of that as you could say, 1 package of 3 shares and 1 warrant that is put into 1 unit then what is happening now is that the so-called BTU unit paid for a unit. They are being traded until Friday next week, September 20. In the following week, it will be exchanged and the actual delivery on people's bank account or Depot, will depend a little bit on the custodian bank, it's going to be in the following weeks. So 2 weeks from now.

Thanks a lot, Magnus. And if we look into -- so you mentioned this about the units and the units contained also a warrant called TO 1. What is the runway for the company if you get full subscription on the bond as well. So you received SEK 105 million now gross, could you dive a little into that as well, Magnus.

Yes. So the true answer is that I don't know exactly how much money will come in. So what I do know is that the warrant is in March next year, there will be a calculation of an exercise price, which is going to be some kind of average price for a couple of weeks in March next year. And then for a period in April so shortly afterwards, people can exercise their warrant. And the warrant is really attractive because it allows the holder of the warrant to purchase shares at a 30% discount to the trading price in March. There's also a minimum and a maximum value of the exercise price. So the minimum price per share will be NOK 1, the maximum price is going to be NOK 3.38. So with approximately SEK 20 million warrants that translates into SEK 20 million to, let's say, roughly SEK 70 million. So that obviously has a big impact on how much money we will get in and how much money you could say, will be available for extending the runway and other things. What we have also said is that we were going to spend at least half of the proceeds from that transaction to pay down the convertible debt from Fenja Capital, which has a total of SEK 27.5 million.

Thanks a lot. And that's actually my next question. Of course, in this announcement you sent out last week. You also mentioned Fenja and that's part of the deal, of course. Could you just briefly touch upon the status on the Fenja and the convertibles.

Yes. Also in March -- sorry, in February of this year, we put in place facility with Fenja to sort of increase flexibility on the back end of getting the phase readout, which came out early May. So there is today a convertible of SEK 15 million and a loan of SEK 20 million. That will be -- that was originally planned to be repaid in May next year. As part of this rights issue, we have extended the repayment date through the end of next year. And we will repay half the convertible so they will be able to convert less into equity, meaning less dilution for shareholders, we'll repay 7.5. That's what we put into perspective.

Thanks a lot, Magnus. And then you entered an agreement with the guarantors for this rights issue. But actually, you didn't have to use this voucher, which is, of course, very positive. But this is for the investors just so they know this is kind of an insurance. So can you tell us a little about have you seen anything whether they choose a cash compensation or would like units instead as a payment?

Yes. I mean -- so you're absolutely right in terms of the structure of a guaranteed rights issue is that you have some investors, guarantors, which, as you say, technically provide an insurance, saying that if subscriptions is below the level in our example, it was SEK 70 million. So we had subscription commitments from management and Board. And then we are at a guaranteed level that will bring us to at least SEK 79 million. And so what they have been providing is to say, even if there were no single additional subscription during this subscription period, they wouldn't guarantee that there would be investments of at least SEK 70 million. So we're very pleased with the strong support from shareholders and investors so that we are now up to SEK 105 million, which means that the guarantee element will not come in place but as it is kind of an insurance, we still, of course, need to pay the fee. It's like if you have insurance on your house, if it catches on fire, even if the house does not catch fire, you still need to pay the insurance.

Yes. That's important to know. And there's a question here coming. There's actually quite a lot of questions coming in here. But regarding the warrants, and if we just expect the minimum amount to be subscribed, Magnus, just to be a little conservative. And with the recently SEK 105 million gross. Would that take you all the way to 2026 in terms of funding.

Yes. I mean we're still -- we completed the transaction last week, and we haven't provided sort of an updated financial runway. I think it's -- so we are still putting working on finalizing budgets and having discussions with our Board around that and how we prioritize the money. I think the -- so I think we are presenters with more money, we have a longer runway. But of course, we need to be more specific than that. But right now, we don't have -- the final plan, final budget and business plan. So we'll come with that in due time. But I think it's -- I would say it's nothing dramatic. We're expanding the operations and focusing on the key activities, as mentioned, partnering, getting that done and being ready to submit in the middle of next year.

Thanks a lot. And just to recap you have mentioned before about the time line for the company. When it comes to -- because now you have cash at least for thoroughly submission process, and also to find a right partner for you. So if we start off with partnering, Magnus, does the scope for partnering looks different now compared to before you got the SEK 105 million gross or I could phrase it otherwise, can you look for other partners with the capital in the bank you have now compared to before.

No, I think the value of the financing in relation to partnering is more -- I think it gives us better card on the hand when we are having the negotiation with potential partners. So before the rights issue, we could extend the runway, but we would have a very challenging financial situation when we consider the time lines that we're talking about. With the new financing in place, we have a much better negotiation position to be able to get the right deal terms for Ascelia and value to shareholders compared to before during the fund raising. So I think that's really important. There are lots of things that we are working on in terms of ensuring and maximizing the value of the Orviglance franchise. So working with key opinion leaders, getting input to the regulatory process and prelaunch so things such as presenting at conferences and creating a much more noise in the space, if you want, for Orviglance. We have a better opportunity to selectively do some important things there. So I think that's where the financing comes into play for the partnering. I think that's super important.

And you still expect to close some kind of partnering before you submit the NDA, is that right?

That's right. We've not really talked about sort of timing. So it kind of takes two to tango at least 2. So we can have plans for when we want to do a partnership in place. But the time line needs to be consistent with that you could take the most attractive partner. So it also depends on their time lines in terms of how things progress, right. So with partner we'll be making a sort of a major decision. They will be investing to get access to the Orviglance asset, but they will, on top of that, make investments into the launch of the product. So they need to make major investment decision. And of course, that requires a good deal of time and then some deep due diligence in terms of understanding the asset and the opportunity and everything. So in our partnering process, we reach out to all the companies that we think are relevant potential partners. And then we educate them about the opportunity, and so they get a good understanding of how that could fit their business and how that could drive value to their shareholders. And then once we are at that stage, then it's about agreeing on how to split the economics and the responsibilities.

Thanks a lot, Magnus. And when we talk about partnering. Now we know that you have 100% focus on U.S. to launch Orviglance, but you are looking for a partner globally also.

Yes. So we will not build our own commercial team anywhere based on the plans that we have in today. So that means we're looking globally for partners. But of course, the U.S. being almost half the global market. That is the most important partnership to make. And some partners have a structure today where they would say, if we should be interested, we should have -- we want to have global rights which means that having a partnership in a single country or a group of countries or region would be a negative in terms of the companies that could potentially be global partners. So that -- we start with the U.S., that's a highest value market. And then depending on the outcome of that, that may be a U.S.-only deal or maybe a global deal or something else?

Thanks, Magnus. And then in terms of milestones, and I know this is a little sensible. But are you looking for a very high upfront payment? Or are you looking more for a high rise of rate combination, could be a mess as well.

I think it's hard to tell. I think the answer is that we want to build a partnership where we have the right party on the other side, working together and making Orviglance a massive success. And then we need to share in the economics in a good way. I think a deal structure, I would strongly expect that we will have an upfront component, milestones and a royalty component. And how that will be structured is obviously up for negotiation. But you say, if we think about the value of an asset that is $800 million global addressable market, then I think that's going to be a lot of value to our partner because their investment time line will start, you could say, soon when the partnership is struck. So within a reasonable time frame, not apart from now. And they are an investment and time cost of capital is going to be relatively short because they will join the Orviglance journey relatively shortly before work before the launch phase, whereas we and our shareholders have been carrying the investment making studies for many years. So I think that should allow us to have some attractive economics in the partnership. So that's what we are pursuing.

There's a question here. I think it's a good question, but I think we can say yes to it. But on the other hand, do you need to secure Orviglance patents for Europe and Japanese market and is there a threat that competitors will bring similar products to those markets because you have no patent protection.

Yes. So you could say what we have said is that in U.S. with the Orviglance drug status, which gives us marketing exclusivity. So the FDA will not approve a similar product for 7 years -- at least 7 years post launch. For Europe, as of today, we don't have an orphan drug designation. So we don't have the orphan drug exclusivity, but we do have what is called , and we expect to have marketing exclusivity, data exclusivity and then marketing exclusivity, which is today 8 plus 2 years. And then if you have an indication you can get an additional year. So it's 10 to 11 years after approval where a competitor in Europe will not be able to file for generic approval. If they do a full independent program with preclinical Phase I, Phase II, Phase III and that data package in itself is sufficient for approval. Then they can launch in Europe. But that's quite time consuming and it's very expensive. And then they will have a similar product as ours which might be facing potential generic competition within some years, right? So I think we are well covered. And I think there are some other similar type of protective elements in other, you would say, developed pharmaceutical markets. And we earlier mentioned also that we are having a development and you would say, in second generation Orviglance product, where we think that the patent protection and the value that can provide us is also of good interest to us and to our partner.

And Magnus, do you see anything competitor-wise coming in the next couple of years.

No, not on the liver-specific MR space. I think that's encouraging. What we do see is that there is increased focus on using less gadolinium because gadolinium had some health also safety concerns and also environmental concerns. So we have tons of gadolinium coming into our drinking water, which is obviously not a good thing. So using less gadolinium will be good for the environment as well. So -- and we are just -- we're leading that. We see some early phase studies on some injectable manganese compounds. So personally, I welcome that very much because it just brings more you would say, momentum on the manganese specs, and we are late stage in the regulatory phase for manganese [indiscernible] are really far ahead.

Thanks a lot. And then jump to the other side, production-wise. You mentioned that before months, but maybe you can just give us a brief update. Have you secured production facilities? And is it able to produce with the sales price of around USD 3,000 to USD 4,500. Can you comment on the production cost. Well, you better answer that question, Magnus.

Yes. So we have worked with a manufacturing partner in the U.S. for many years. They have scaled up for commercial scale manufacturing and they can produce what we need. I would say if we get more busy, then we will need to ask them to spend more time on do more batches throughout the year. I think if they run at full capacity, then I think we have an amazing situation. So as I think on the product supply side, I think we have scaled up to the level that is certainly adequate. So we have even in, you could say, in the launch phase where in the earliest of days, volume is not as we can suggest at a peak penetration. But I think we are covered from both situations in a good way. And what we've also said earlier is that we expect margins, which are like in you say the branded pharmaceutical industry is also quite high gross margins.

With the rights issues secured, any there any part of the timetable you mentioned earlier on that you can accelerate, could you elaborate a little bit on that, Magnus? Is that possible.

I think it's fair to think of the time line that we outlined for the NDA submission to be -- we continue to continue to be on track with that. And I think that's what we are expecting, right? So it's a lot of work and working with advisers and consultants with deep technical expertise in various areas to put together a very strong submission package. So what we also said is that we expected the clinical study report from the SPARKLE study in early Q1 -- sorry, early Q4 this year. And that is kind of the finalization of SPARKLE. And that is an important element of the presubmission meeting that we will have, where we have announced that we expect to have the results -- the minutes from that meeting in Q1 next year. So you can basically say that is a meeting where you go to the FDA and you say, this is the data, and this is how we're going to present it to you, and this is how we're structuring everything. And following up on all the questions that have -- and feedback we have received from the FDA throughout the development period where we've had a number of meetings with them, and we're saying, this is how we are addressing this so we get a good sense of what we are planning to submit is also what they are expecting. And if they have some feedback saying, we think you should add this analysis or you should do this kind of thing. Then we have time to do that within the time line that we have communicated.

That's very precisely. And then just a couple of questions about Oncoral. Have the time line on Oncoral changed after you secured the bond.

Not so much, I would say, the time line. I mean, I'm personally dying to get going with the study, right, so I think it's a really, really interesting study, and we can unlock a lot of value with Oncoral. So I think with the team, all our efforts go to, let me say, the NDA submission and the partnering. So we're not really ready to initiate the study with Oncoral. So we do have a plan that has been approved by both the FDA and other national regulatory authorities. We have a setup, we have a protocol and there are some things that -- so things are in place to get going. But yes, so -- but we're not -- we're focusing on the NDA submission and the partnering and on the start of the Oncoral study. But I'm really looking forward to when I can push the Oncoral study button.

Sure, sure. There's a question coming about partnering again. So with the strong value proposition of Orviglance. It's, of course, clear to this investor that you're going to find a good partner. What is the pushback you get from potential partners? Can you share that with us since no one is announced yet.

Yes. I mean, first of all, it does take quite a bit of time for people to have a look, right. So and there could be a lot of different reasons why that partner is a good fit or not so good fit. I think the most important thing is always to think of where another company brings this asset into the pipeline, does it make strategic sense for them. And from my perspective, as you could say, the small company, the biotech company, if we have a huge partner where I know that Orviglance is not strategically important, I should be, and I am very concerned that it might not get the attention it needs and will not be successful. So if you have a company with massive revenue, huge products. One example could be like Novo Nordisk. They are in a different therapeutic area, and they -- it's way too big, Orviglance is just, doesn't make any difference to their P&L. So they would not be a relevant partner for us to take one extreme example. So I think that's what the partnering process is about finding companies that have, you could say, that understands this and have a business model and an organizational setup that allows them to be effective in commercializing Orviglance, have the scale to do that, but not be, you would say, the multibillion dollar revenue companies that -- where Orviglance would not really make a big difference to them. So I think that's -- it needs to be that you would say the strategic fit needs to be important. And then there are all kinds of other agendas, some companies may have internal challenges, reorganizations, et cetera. And then the timing for them is just not the right one in terms of entering into a new partnership because there is other agendas that dominate their internal agendas. So I think that's -- I think it's not different for Orviglance when compared to any other products. It's just about finding the right partners where there's a good strategic fit.

Thanks a lot, Magnus. I don't know if there's any more questions. So please post your questions, and I will hand them over to Magnus. I don't think that's the case. So just to recap on the time line, of course, we expect to get a Q3 report from Ascelia Pharma during Q4 and in Q4, we will also get the study result, and you will probably announce something about that. So that's what investors should look for in the next 3 to 4 months. So by that said, first of all, I would like to thank you Magnus for participating. I would like to thank the audience for all the good questions. And by that, I will close today's session. So thank a lot, and enjoy your afternoon.

Thank you. Great to be here.