Basilea Pharmaceutica AG (BSLN) Earnings Call Transcript & Summary

Good afternoon, and welcome to the 2022 UBS Global Healthcare Conference. Thank you for joining us for our conversation with Basilea Pharma. To walk us through this today, we're pleased to have David and Adesh from Basilea. If you have questions during or after the presentation, please feel free to submit them by scanning the QR code provided, and following the presentation, we can dive into those questions. David, thank you for joining us. The floor is yours.

Thank you, Rohit. Thank you for inviting us to the conference. So my name, as was said, is David Veitch. I'll go through majority of the presentation. And then at the end, I'll leave my CFO, Adesh Kaul, to go through the financials. Just for those of you less familiar with Basilea, we're a Swiss biotech company, have been over the last 22 years of our existence in anti-infectors and about 12 years in oncology. That's pertinent because earlier this year, we announced a major refocus to go back to purely focusing on anti-infectives going forward, and I'll speak more of that in a moment. We've got revenue-generating products and we've got clinical stage assets as well. You can see that on this pipeline chart here. So at the top of the chart, you see the sort of original compounds that we took from research through development to the market. So we were originally a spin-off from Roche back in 2000 and we have a number of assets that were in research moving into development. So those are 2 top anti-effective compounds, Cresemba, antifungal compound, and Zevtera, broad-spectrum antibiotic. Cresemba is launched in about 60 -- almost 60 markets globally. Zevtera is in about 20 markets globally. Importantly, for Zevtera, our antibiotic, is the fact that we're not launched in the U.S., and that's the key milestone that's upcoming and I'll talk more about in just a moment. And then behind the commercial stage assets, we've also got a number of oncology compounds as a result of our move into an additional pillar in oncology about 10 years ago. This is a mix of our own compound, lisavanbulin, combined with in-licensed compounds, derazantinib, and TTK/PLK1 inhibitor. I'll talk more about each asset in just a moment, but just a second. I'll sort of come back to our strategy refocus. So in February this year, we announced that we would be focusing going forward on anti-infectives. And we believe, for us, that's the right thing to do because we think we're pretty uniquely positioned to create sustainable long-term value because we think this is an area -- and just for clarity, our definition of anti-infectives is in the antibacterial, antifungal area rather than antiviral. But we think there's increasing unmet medical need. We've got a proven ability to move these types of compounds from research through development to the market, and we are performing in this area. That's indicated by some points in this slide. Cresemba, which is our lead commercial compound driving our revenues today. That's virtually 30% royalty income growth, which reflects the in-market growth about almost a 1/3 of $1 billion of global in-market sales of the compound, and we've got really important countries still to be launched in like China and Japan, which probably represent about a 1/4 of the global potential of the compound. Zevtera, I indicated, this is ceftobiprole antibiotic. The key milestone for us is the middle of this year. So very soon now in a month or so, we should get the top line results from the staphylococcus aureus bacteremia study. This is the final Phase III study that we need to be able to file in the U.S. an NDA, for ceftobiprole in the U.S. In the U.S. for ceftobiprole, we think we'll represent about 80% to 90% of the potential of the compound. And we will have 10 years -- if the drug was approved, we've about 10 years of exclusivity because of the QIDP designation. In terms of -- we've got preclinical assets, which we're accelerating towards the clinic. Some of these are funded through like CARB-X, for example. And also, finally, we are looking to actively in-license other antibacterial and antifungal compounds. We will also be in a position with our new strategy to be sustainably profitable from 2023 onwards. And this is as a result of our increase in revenues and managing our cost base. In terms of the oncology assets that we have that I showed on the previous pipeline chart, we are looking this year to execute transactions for our different oncology assets. So we're in active discussions with a large number of companies with potentially executing transactions for either of portfolio of candidates or asset by asset transactions. And that's work that we aim to complete during the course of 2022. So in 2023, we will be a fully-focused anti-infective company. Just a couple of words on our strategy. Our commercialization model is that we don't have a Basilea organization around the world. We partner with partners who commercialize the assets on our behalf. So Astellas sales can stem from the U.S., Pfizer in Europe and Asia-Pacific. And then we have other smaller regional players that cover other geographies. And there's a similar map for Zevtera. In terms of the way we participate in the revenues they create, the license partnerships, which are essentially the difference between license and distribution partners is who's responsible for the manufacturing. In the license partnerships, we have a royalty. In distribution partners, we have a transfer price. And in both cases, we have milestones, which can be quite significant. Just a couple of words on each asset then. To Cresemba, the antifungal, just for clarity, this is indicated for mold infections, which is things that caused by aspergillosis and Mucorales. It's not a yeast infection indicated like candidate infections. And this is the in-market sales uptake. So this is truly reflecting demand. This is what's been sold in the market as represented by the IQVIA sales database. And you can see there every time we're launching new geographies, the sales keep going up. And even in the U.S., which was launched first, the dark blue section at the bottom, there's double-digit growth in year 6 of launch. So this product clearly fulfills an unmet medical need. It's the new standard of care in invasive aspergillosis treatment. And so this is why the product is doing so well. And the important thing for us is that we have exclusivity to 2027 in the U.S. and in Europe as long as we complete the pediatric program, which is well on track. And really on the right-hand side, it just shows you the sort of the size of Cresemba today, as voriconazole, which is this $324 million. And the other sort of size these compounds -- these types of invasive fungal infection compounds can get to in terms of sales. Typically, our target is the box at the top, which is voriconazole, the previous gold standard in invasive aspergillosis treatment, which reached $900 million. And analysts have this product anything between $550 million and $850 million. But clearly, it's got off to a very good start in its life. Just moving to Zevtera, the other commercial stage asset, as I said, the broad-spectrum antibiotic, the reason why clinicians largely use the product is because of its MRSA activity and other gram-positive activity. And actually, when you look at MRSA agents, like we've chosen a couple of ones here, daptomycin and ceftaroline. The interesting difference between this market and the fungal market is that about 80% to 90% of the sales of these products were generated in the U.S. So the U.S. is critical, we believe for ceftobiprole equally and so the good news is we've completed now our Phase III program. So on the left-hand side of the 2 Phase III studies under SPA, we agreed with the FDA. One was a skin infection study. One was a Staphylococcus aureus bacteremia study. The skin one was positive back in 2019. The ERADICATE Staphylococcus aureus bacteremia study was actually a completed patient enrollment this January, and this is what I referred to earlier by the middle of this year, so very shortly now, we expect the top-line results from this bacteremia study. If this is positive, then we are full speed ahead to file an NDA to access the all-important USA market. This is a program funded largely by the U.S. government. So 70% of the funding, $134 million of non-dilutive funding comes from BARDA. And as I mentioned earlier, we have 10 years of exclusivity if it's approved because of the QIDP designation. So this will give us on top of the Cresemba revenue trajectory a really important additional revenue stream from 2023 onwards. Just one word here is that Staphylococcus aureus bacteremia, in case you're not familiar, is often associated with concomitant other infections such as osteomyelitis bone, joint, heart valve infections. And this is the indication which actually, from our research, would actually differentiate the product and really drive its usage in the USA. And we say that because there's only 2 other drugs that are licensed for the treatment of Staphylococcus aureus bacteremia with MRSA involvement with activity against the MRSA and that's vancomycin and daptomycin. And we both -- we've got advantages over both of these products. So we've -- this is, from our research, would drive the usage of the product in the U.S. Just moving off anti-infectors for a second. Just a couple of words on the assets, which as I said earlier we're currently in the process of talking to our partners, we transact in these assets, but just to give you an update of where they are in their sort of development. Derazantinib, this is the FGFR inhibitor, which actually we focused its development looking at leveraging its key differentiating factors, which actually are listed here, which is it's got a specific kinase inhibition profile, which is as well as FGFR targets, for example, CSF1R and VEGFR2. And also from the data we've got from mostly the ICCA indication, the safety profile of the drug looks to be favorable versus the other late-stage FGFR inhibitors. And so currently, there's a program ongoing with data readouts during the course of this year in both ICCA and in gastric cancer. In terms of just one data slide in terms of the ICCA area, you can see what -- this part of the slide here on the left is basically not to get too detailed but there's FGFR2 fusion population of patients is this part. And this part on the right is the FGFR2 non-fusion subset of patients. And in that the bigger FGFR2 fusion population, our data on derazantinib here is pretty similar in terms of efficacy with the other licensed or late-stage FGFR inhibitors in this proof-of-concept indication intrahepatic cholangiocarcinoma. And then on the right-hand side, this is an area where we believe we could show differentiation. It's a smaller population, but actually the only other compound that's got any data in this subpopulation actually shows pretty unconvincing data, whereas our interim data looks pretty impressive, but we'll see the readout of that data later this year. In terms of lisavanbulin, the second clinical stage oncology compound, this is a tumor checkpoint controller. It actually crosses the blood brain barrier. And what's interesting about this is we're currently exploring a potential response predicted biomarker in glioblastoma, which is this end-binding protein run as a potential biomarker. So we chose this because when we look at the Phase I portion of patients in this recurrent glioblastoma set in, there were 3 patients with EB1 positive glioblastoma in the population of the Phase I and 2 of them had very, very good long-lasting clinical benefit. And actually, one of them had a greater than 80% tumor reduction, size and then all the non-EB1 -- sorry, the EB1 negative patients had no clear clinical benefit. So this, along with some preclinical data we had in mice sort of combined the data set pushed us towards doing a Phase II in a targeted population of EB1 positive glioblastoma patients. And this is what we're hoping a readout in the middle of this year to see if that actually is true that that is a response predictive biomarker for lisavanbulin. And then finally, the final compound in the oncology portfolio is actually a TTK/PLK1 inhibitor showing. And what this does is this basically the combined effect of the prolonged TTK with a transient PLK1 inhibition leads to a rapid dissolution of the spindle assembly checkpoint. It basically pushes cells through mitosis quickly before they've had -- the chromosomes have had chance to align properly and it causes tumor cell death. That's the way it works. And the IND was approved at the end of last year. So we're currently in the final preparations for the start of a Phase I study for that compound. To put it all together and look at the finances, I'll just hand over to Adesh.

Thank you. So how does this all translate into numbers? In essence, what you're seeing here as a starting point is our top line. And what is the most important part probably of this chart is the dark blue part at the bottom that you're seeing there. This is, in essence, the Cresemba and related revenues that are cash flow relevant in a given period of time. And collate, if you look on a more rolling basis within market sales performance that David showed to you before. So this is a royal -- this is basically the royalty stream, the milestones and the product sales to our distribution partners that you're seeing there with the healthy double-digit growth with some level of volatility, volatility really driven more or less by milestone events, which are discrete events. But overall, I think the trend is very clear. If you look at the next higher level, the light blue or whatever color this should be here on the screen part, these are nondeferred Cresemba and Zevtera related revenues. So that's pure accounting treatment of previous upfront and milestone payments. The good news is that actually as of 2021, this is no longer material or relevant in order to understand our P&L. But as you will appreciate, in the previous years, actually these non-deferred revenues -- these deferred revenues made quite a significant, have quite a significant impact on the overall top line. And the last part that is really relevant here is the upper part, the gray part depicted as other revenue components, which is largely the reimbursement that we're getting from BARDA for the Phase III program. So in essence, another revenue component that does not collate with the commercial progress of our assets, but in essence collate with the expenses incurred related to the Phase III program. And therefore, also not surprisingly, doesn't grow over the years and will actually start fading out and disappear entirely once the Phase III program is completed. So the key message here, in essence, is that if you focus just on our top line you -- the effect, the commercial progress, the commercial strength of our business is actually masked and you have to look deeper into the dark blue part to actually appreciate and understand the underlying strength of the business. How does this translate into cash flows? So bearing this in mind, our cash inflow has consistently been increasing over the last few years. At the same time, we didn't actually mention that, but our costs have remained fairly stable. And as a consequence, of course, our cash consumption has consistently come down over the last few years. As a matter of fact, actually for 2023, we're in a position to guide for, as David indicated, reaching sustainable profitability. So therefore, getting to our guidance for 2022, an important point on the top line is that our top line on a reported basis is going to be lower than in 2021, exclusively driven by milestone events. 2021 has been an exceptionally successful year when it came to commercial milestones for Cresemba across our partners and also regulatory milestones with an approval in China and a filing in Japan, which both actually triggered milestone payments. 2022 is going to be, again, a more a normal year, I would say, or a standard year, so more at the level of 2020 and 2019 with regard to milestone payments and that sort of affects, of course, our whole P&L. The royalty income that you're seeing below that reflects sort of the continued progress. So again, underlying progress in the key territories is reflected probably most closely by the progress that we are doing on the royalty income. If you look at 2023, building on David's indication about the change in strategy, what we expect is we haven't given any guidance on the top line. But I think I'm not disclosing too much if I'm saying that we expect our top line to continue to grow mainly driven by continued Cresemba sales or increasing Cresemba sales. So on top line, we are confident on the trajectory that we are on. And on the operating expense side, we're expecting actually a decrease of about 30% versus 2022. And if you bring these 2 things together, that allows us actually to give this indicative guidance at least, that we will be profitable, both on our operating profit level and net profit level, but also with regards to cash flows as of 2023. On the outlook, especially the near-term outlook for the anti-infectives business, what you're seeing in the middle of the upper part of the slide is the top line results from the Phase III study. So one of the major milestones for our anti-infectives business in 2022. And then also with regard to isavuconazole or Cresemba as the brand name using the brand name is really the continued progress in key territories, so the upcoming marketing approval in -- or marketing -- a regulatory decision, I have to say, in Japan later this year and a full approval at the end of the day in China because currently, I didn't mention that before, the oral approval has happened already, and the IV registration is separated out and is expected to actually come to a conclusion in the course of this year as well. And then also David mentioned it that last year, we were launched in about 55 countries. The launch sequence will continue actually by the end of 2022, we expect to be launched in about 70 countries with Cresemba. As a consequence, we are looking at continued increase in Cresemba and Zevtera-related revenues. Over the course of this year, we will keep on working on advancing the preclinical assets, which we still have on the anti-infective side. And what we have mentioned also in the context of our business model going forward, we are very actively looking also at expanding our pipeline, both on the preclinical side, but equally important on the clinical side in our new focus areas, antibacterials and antifungals.

So that's us finished. So we're happy to take any questions from anyone, if there are any questions.

Thanks, guys. I can kick it off with the Q&A. So given that you guys have commercialized a few products now, how have those experiences gear for success with respect to some of your clinical stage pipeline?

Yes. I mean, to be honest, because of this new line -- new strategy that we announced, we're actually focused very much on driving the revenues of our anti-infectives compounds, these clinical compounds that we've got currently. The oncology ones, like I said, we're trying to transact those, so sell those, license those to other parties. So actually, it's -- I would just rephrase almost the question and say actually because we're a company that is small with about 160 employees based in Basel, but we have got competence, and we've done it now. Actually, we've also done our self-commercialization in our history. So 2 or 3x, we've commercialized assets ourselves. Now our model is to commercialize through partners. So actually -- but we've got, I think, capabilities as a company to commercialize, to develop and to research. So actually, we will keep doing that. It makes no sense for us now without a commercial infrastructure to build on Adesh's point about our business development strategy. We're not looking at bringing in commercial-ready products or sort of even Phase II really. Our sweet spot is taking late-stage preclinical, Phase I, Phase II, moving them through and then either doing what we've successfully done so far, commercializing through partners, or if we can build a critical number because we're massive compounds. We would then look at commercializing ourselves. But that sort of answers a slightly different question maybe than your answer, but just because our strategy is in evolution as we speak.

Got it. Yes. That makes sense. And another question for me. So I saw on one of your slides there was a focus on antifungals and things like that. What would you say to make that a good market right now, given that a lot of the focus seems to be on antivirals.

Yes. I think antifungals is a secret market that not many people have discovered. It's a really quite interesting market. I mean, for those of you who follow this space, you noticed that even just last week or the week before, Shionogi did a deal with F2G, which is kind a small company with a development stage antifungal with $100 million upfront and various other things. So actually, I think you can tell people look at our Cresemba uptake 1/3 of $1 billion of sales. That's, I would say, quite a good performance. And it's sort of, I think, putting antifungals on the map. And I think I showed you voriconazole achieved $900 million of sales. So it's a small market, not many players. It's a very attractive market, I think. And also the unmet medical need, mortality, mobility is still very high, even with treatment; you're over 20% in many of these different indications. So actually, I think the unmet medical need is there. It's not a particularly saturated market in terms of competition. So actually, I think it's a real opportune market, which is why, as Adesh said, we're looking to acquire new antifungals. Actually, we did a deal couple of months ago, a month ago for a preclinical compound from the U.S., a preclinical program, I should say, look at potential novel cause of antifungals, but we want to fill our pipeline with more -- as Adesh said, with more clinical stage as well as preclinical antifungals. But I think it's a real -- it's a sort of secret unknown but very exciting market for the pharma industry. And for us, it's great.

Great. And the last question is, is there anything that we haven't touched on today that you would like everybody to know?

I mean I'd probably say we probably covered the key points to that on what we think you want to know. Well, you should know about our company and our presentation. So I think, no, I'm happy to answer any questions from anyone in the audience. But I think we've tried to cover what we think are the key points in our presentation. So there's nothing else that I can think of off the top of my head. Adesh?

I would only add that I think it is probably obvious that we are at a quite exciting time for the company. So 2022 is a transition year, but not in the -- I think in the usual sense that you would say, like oh transition year have been boring. A lot is happening in 2022 around the company, both from a business development side, from how we are refocusing on a strategic perspective. So quite exciting with data readouts on the Phase III ceftobiprole in now for the U.S. So really quite an exciting transition year for us.

Great. Thank you. So that will conclude the Q&A portion of the presentation. Thank you, everybody, for coming, and a special thank you to David and Adesh from Basilea.