Basilea Pharmaceutica AG (BSLN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Basilea Pharmaceuticals Half Year Results 2023 Conference Call and Live Webcast. I am Alice, the Chorus Call operator. [Operator Instructions] At this time, it's my pleasure to hand over to David Veitch, Chief Executive Officer. Please go ahead, sir.

Thank you. Hello, I'm David Veitch. I'd like to welcome you to our conference call and webcast, reviewing our financial results and key achievements for the first half year 2023 as well as highlighting upcoming milestones. For further detailed information, please see the ad hoc announcement issued this morning and also our half-year report. These documents are both available on our website at basilea.com. I would also like to mention that this call contains forward-looking statements. Joining me on our call today are Adesh Kaul, our Chief Financial Officer; and Dr. Marc Engelhardt, our Chief Medical Officer. I would like to start with a brief summary of our key achievements. Most recently, in early August, we submitted the New Drug Application, or NDA, to the U.S. Food and Drug Administration for our antibiotic Zevtera. Cresemba, our antifungal for invasive fungal infections has continued its commercial success in the first half of 2023. Its global in-market sales exceeded $393 million in the 12 months ending March 2023, which is a 14% increase year-on-year. Of note, after gaining approval in Japan in late 2022, our partner, Asahi Kasei Pharma, launched Cresemba in this commercially important market earlier this year. Our financial performance in the first 6 months of 2023 was very strong. Today, we reported a 57% year-on-year increase in Cresemba and Zevtera-related revenue. We're also very pleased to report an operating profit of CHF 36.9 million, resulting in a significantly improved net profit of CHF 31.9 million. We concluded the first 6 months of the year with an increased cash and restricted cash position of CHF 11.9 million. Our financial strength is also evidenced by the reduction of our net financial debt by more than CHF 22 million to CHF 38.1 million. With Cresemba and Zevtera, we have demonstrated our ability to take anti-infective drugs from research through clinical development to commercial success. As we continue to establish ourselves as a leading anti-infective company, our strategic focus is to expand our pipeline with valuable assets. This will be achieved by advancing both our internal research programs and by in-licensing or acquiring promising compounds. I will now hand over to Adesh.

Thank you, David. I would like to start first with a short update on the commercial performance of Cresemba, a key driver of our strong set of financials. I will then highlight some of the key financial figures that we published today. I'd like to mention that all figures I referred to are in Swiss francs unless specifically stated otherwise. On a global level, Cresemba 12-month sales continued to show double-digit growth with initial contributions from China, where our partner Pfizer launched in mid-2022. The overall positive trend through the first half of 2023 was demonstrated by multiple milestone payments triggered by Pfizer related to achieving certain sales levels in Europe and the Asia Pacific and China regions. We see significant growth potential for the brand going forward. Cresemba continues to gain market share in established markets and is the biggest-selling product by value for the treatment of invasive mold infections in the U.S. We also expect to see increasing contributions from China and also Japan, where Cresemba was launched only this year. These 2 countries alone represent approximately 25% of the global market opportunity for Cresemba. The commercial success of Cresemba is reflected in our strong financial results for the first half year 2023. The Cresemba and Zevtera-related revenue amounted to CHF 80.5 million, which is a 57% increase year-on-year. Included in this number is royalty income, which increased by 27% year-on-year to CHF 36.7 million, directly reflecting the continued growth of Cresemba in market sales in the key territories. Total revenue increased by 47% to CHF 84.9 million. Total cost and operating expenses amounted to CHF 48 million, with operating expenses decreasing by 28% year-on-year, reflecting the successful focusing of our business on anti-infectives and the completion of the ceftobiprole Phase III program. This resulted in an operating profit of CHF 36.9 million and a net profit of CHF 31.8 million for the half year versus losses in the previous year period. I would now like to provide a little bit more context on our Cresemba and Zevtera-related revenue. Royalties have been increasing year-on-year since 2015, reflecting the in-market sales performance of Cresemba in the major territories. Milestone payments have been more volatile. We have been recording milestone payments every year since 2017 with generally larger amounts since 2021 as compared to the period before 2021. Product revenues to our distribution partners as well as certain deliveries to Pfizer are also variable as deliveries happen in bulk and depend on the manufacturing schedules. However, the general trend for product revenue over time is as well reflecting the increasing demand for our brands across the world. If you look closer at 2023, you can see that we expect continued growth in royalty income in the second half of the year in spite of the unfavorable U.S. dollar-Swiss franc exchange rate trend. We also expect a significant increase in product revenue with the second half of 2023 expected to account for around 65% of total full-year product revenue. Revenue from milestone payments is largely derisked for 2023 as the majority of milestone events expected for the year have already occurred in the first half of 2023. The increase in cash flow contributions from our marketed drugs have been driving the consistent improvement of our net cash used for operating activities over the past years. Supported by the factors just discussed, we became cash flow positive in 2022 and have been able to increase cash flows from operating activities to CHF 21.9 million in the first half of 2023. In the first half of 2023, we have used our positive operating cash flow to start repaying our senior secured loan as planned. We have repaid CHF 18.4 million of our loan, which is around 25% of the initial CHF 75 million. We are planning to repay a further 25% of the loan in the second half of 2023 and intend to have it fully repaid by September 2024. This would mean that the only remaining debt as of the end of 2024 would be our 97 million convertible bonds, which are going to mature in mid-2027. Based on our strong financial performance and prospects, we are increasing our guidance for the full year 2023. Cresemba and Zevtera-related revenue is expected to increase more than 20% to CHF 147 million to CHF 150 million with a continued double-digit growth in Cresemba royalties to approximately CHF 76 million and CHF 33 million to CHF 34 million in milestone payments, of which 90% have already been secured in the first half of 2023. Total revenue is expected to amount to CHF 157 million to CHF 160 million, taking into consideration that we expect lower reimbursements from BARDA now that the ceftobiprole Phase III program is nearing completion. Cost of products sold are expected to increase to CHF 25 million to CHF 27 million, and operating expenses are expected to decrease to around CHF 80 million. Bringing all this together, we expect an even more significant increase in operating profit than previously guided for of now CHF 50 million to CHF 55 million and a net profit of CHF 41 million to CHF 46 million. Our guidance excludes the potential impact from any in-licensing acquisitions. In any event, our healthy financial situation allows us to build and progress a strong R&D pipeline to support the long-term growth of Basilea. I will now hand over to Marc for the portfolio update.

Thank you, Adesh. So let me start with Zevtera and advanced generation cephalosporin for the treatment of bacterial infections, for which we've just submitted an NDA to the U.S. FDA. Based on this pharmacology and antibacterial spectrum, the data from various Phase III studies and the post-marking experience, we considered ceftobiprole treatment option in difficult-to-treat patients presenting to the hospital with severe infections when the clinicians expect to involve from positive pathogens, including methicillin-resistant staphylococcus on MRSA. For these patients, ceftobiprole provides a single-agent first-line battery-eye treatment option with proven efficacy in SAB, ABSSSI and CABP. The U.S. is the most important market for commercialized and branded hospital antibiotics and is estimated to account for up to 90% of global sales for anti-MRSA treatments as shown by Dr. Meisen and ceftaroline. Considering the need for antibiotics in the U.S. This is why one of our key priorities is to gain access to the U.S. market for ceftobiprole. Our NDA submission in early August 2023 underpins this strategy. With the NDA, we are seeking approval for SAB, ABSSSI and CBP based on 3 successful completed Phase III studies in these indications. The SAB and ABSSSI studies were supported by and received significant funding from BARDA. Following the NDA submission, the FDA will decide within 60 days, whether the review process can start. Ceftobiprole QIDP status, which provides for a priority review of 6 months compared to 10 months on the standard review. Therefore, we expect the FDA to decide on the NDA within 8 months after submission, which means in the second quarter of 2024. SD QIDP status also provides for additional market exclusivity, a 10-year market excuse period would start at the date of approval. In line with our business model, we plan to commercialize [ ceftaroline ] in the U.S. with a partner and intend to enter into such a partnership prior to the FDA decision on the NDA. If ceftobiprole was approved in the U.S., we would envisage to lead the launch with SAB because we believe that SAB is the indication with the highest medical need supported by the data from the ERADICATE study, which was the largest randomized study performed in SAB for registrational purposes of a new antibiotic. Based on the profile of ceftobiprole and the available data from clinical study in skin infections and pneumonia, we anticipate a broadening of the use into other disease areas over time and ceftobiprole used in these indications whenever [indiscernible] and especially MRSA are important causative pathogens or when the gram-negative coverage provided by [ ceftobiprole ] is also desirable. Now let's move to Cresemba. In the EU, market exclusivity is until October 2025 and can be extended by 2 years based on Cresemba's orphan drug designation, the completion of a defined pediatric program and the subsequent European committee decision. The pediatric clinical study program with Cresemba included 2 clinical studies, and this program was successfully completed. So we are on track with the pediatric label submission to EMA in the second half of 2023, and we expect the pediatric labeling would be obtained in 2024. The successful completion of this procedure will trigger the market exclusivity extension until October 2027 in the EU. In the U.S., based on the QIDP and orphan drug designation, the current market exclusivity is until March 2027. And pediatric labeling by the FDA would extend the market exclusivity by 6 months to September 2027. To support the utility of Cresemba in the pediatric population, we have also developed a smaller capsule, and we are convinced that Cresemba, if approved, will address important medical needs in the treatment of invasive staphylococcus and mucormycosis in children. I will now turn over to David.

Thank you, Marc. Before we open the floor for questions, let me close with a quick summary and an outlook. We reported very strong financial results for the first half 2023, where we continue to significantly increase our revenues and reduce our operating expenses, leading to a significantly increased operating profit as well as net profit compared to 2022. With the NDA submission, we are also in parallel progressing discussions with potential partners for the commercialization of Zevtera in the U.S., which we intend to execute prior to the FDA's decision. While partnerships for commercialization are one part of our business model, complementing our portfolio by in-licensing or acquiring further anti-infective assets is key for us, too, in order to build and progress a strong R&D portfolio. When looking at potential candidates, we are focused on antifungal and antibacterial assets from late-stage preclinical research to the end of Phase II. We put a strong focus on innovation and differentiation, but also importantly consider commercial viability as a key factor and whether assets could benefit from the existing push incentives and potential new pull incentives, which are currently being implemented or in progress. We believe with our strong track record, our expertise and our financial strength, we are the partner of choice when it comes to taking anti-infective drugs from research through development to the market. Thank you for your attention, and we'll now open the line to your questions.

[Operator Instructions] Our first question comes from the line of Louise Chen with Cantor.

Congratulations on the quarter. So I wanted to ask you a few. First, where do you stand on a partner for ceftobiprole in the U.S. market? And who is the ideal partner for you? Do you think we might hear an announcement before the end of the year, more likely in 2024? How do you think about expanding your product portfolio? I know you addressed it a little bit, but maybe a little bit more color on where you see the best opportunities. And then lastly, any important cash milestone payments that we should be focusing on in the next 12 months that we should be modeling into our financial model.

Yes. Thanks, Louise. Very good questions. Let me – actually, Adesh, do you want to take first of all, where we were the partnering for the U.S. for ceftobiprole?

Yes. So Louise, thanks a lot for your question. As you are aware, we have been actually in discussions with potential partners for quite some time. Given that we have now clear timelines based on submission that we have done, we're getting now into – I would say, the decisive phase of our partnering. And hence, we are now getting to a point where we will see which of the partners eventually align or potential partners, and I'm best with our vision for the product. With the goal, as you indicated, to have actually a partner signed on prior to the regulatory decision next year. Your second part of the question was about the ideal partner or the set of partners that we are discussing with. In essence, I think you could more or less say there are 3 buckets or 3 types of partners or potential partners we are talking to. First of all, more or less, the obvious candidates where you say, companies that are already marketing hospital antibiotics. Those companies would have synergies with the existing infrastructure and will benefit from those synergies. Secondly, there are also companies that have already an existing hospital sales infrastructure, but that they are looking at expanding their business to additional specialties in this area. And thirdly, there are partners or potential partners that may not have an existing sales infrastructure in this specific area but are interested from a strategic perspective to enter the space as they see significant potential in an area of high unmet medical needs going forward. So these 3 types of potential partners. And as I said previously, in the course of our discussions, we'll have to see where our vision for the product aligns best with the vision of the parties participating in departing process.

Let me take the question about the expanding the portfolio to give you a little bit more color. Louise, from our perspective, we are looking at -- and I alluded to this in the words earlier, we're looking at antibacterials antifungals. We're not particularly driven by necessarily traditional versus nontraditional approaches. So both are open to us. We're looking at assets from the late preclinical to the end of Phase II across both those areas. And as I said, our key thing is about can we see a way to differentiate the product. And can we see a way for the product to generate meaningful commercial returns? And they're some of the key criteria we use when we assess assets. And the final thing to say is, and we said this earlier in the year, we are actually confident enough to say, repeat again that we hope to be able to show execution of such transactions in 2023 as well as obviously on an ongoing basis. Maybe your last question was about cash milestones coming. Adesh, do you want to take that?

Absolutely. So for this year, as we have indicated in our guidance, in essence, we believe that we could achieve eventually milestones in the range of CHF 33 million to CHF 34 million. And as you've seen at the half year, we already reported CHF 30.6 million. So in essence, milestone events for the second half of the year are quite limited, but dearly as we have already achieved most of the goals. Going forward, it's difficult to really say when and to which amount we would actually be achieving milestones. But what I would like to point you to is that in the last few years, if you just take an average we have been, on average, recording CHF 30 million to CHF 35 million in annual milestone payments. And we have actually no reason in general terms to believe that going forward that, that's going to be fundamentally different.

Hope that answered your question, Louise.

Yes. Yes, it does. Thank you very much.

The next question comes from the line of Brian White with Calvine Partners.

Financial question to begin with announcement about Cresemba and if you have any insights that you can share with us agar performance post-launch in key new markets such as China and Japan. And then back to the partnering activities. And I guess more of a general question about how have you been pleasantly surprised about the quality of potential in-licensing opportunities. And I guess, finally, just thinking about your ability to secure any of these programs. Is it really just a financial transaction, do you think? Or does Basilea have more to offer potential partners to secure these new contracts, do you think?

Yes. Thanks, Brian. Just let me attack the question about the Cresemba. What I would say is, obviously, we haven't reported on the specific China and Japan data, but what we can clearly show is globally, as we alluded to in our words, a moment ago, Cresemba, from an in-market perspective is still nicely double-digit growing as a compound. It's almost $400 million of global sales. What I would refer you to, which is public information from Astellas recently is that their 6 months of net sales in the first 6 months of this year versus the first 6 months of last year was in excess of 20% year-on-year growth. So even in our most mature market, this is the volume market share that you can gain with this product year after year, after year, that gives us the confidence to believe that this should continue to grow until peak in the 2027 period. So China and Japan, all I would say there is that there's no reason we would believe that they should perform worse than any other markets that have been launched and they occupy about as Adesh said in his words a moment ago, they are about 25%, we believe, of the potential for Cresemba. And that really would just clearly start -- I mean, Japan has just launched in this half year. China we launched last year. So we see all the signs pointing towards the analyst expectations for this compound have peak year sales of CHF 600 million to CHF 800 million range. We see no reason today why well, that's not achievable, but that answers our view, I think, of the Cresemba point. In terms of the in-licensing opportunities and the quality of the assets that we're looking at, Adesh or Marc, do you want to comment on that? Because clearly, from us, when we apply our criteria, it's not a massive volume game in terms of the number of assets in antibacterials and antifungals. But clearly, there are assets that we are attracted to. But maybe Marc and Adesh, do you want to comment?

Yes, I would completely agree. So we see several antifungal and also antibacterial compounds and programs that are clinical stage of late preclinical innovative addressing unmet medical needs and have the potential of being commercially viable and attractive. So I would clearly say that the quality of potential inducing opportunities is good. I think your other question was whether this is a financial consideration only. And from our experience, what partners looking for is, of course, has a financial component, but also has a component on reaching out to a development partner that has the knowledge and experience, the track record and the infrastructure to deliver on these assets. And we believe that we are seeing by many of the partners we've been speaking with, and we are speaking with [indiscernible].

Yes. So the only thing I would add is to build on something that Marc said. I think financials or financial structure is only really a challenge if we're in discussions with parties that are looking for an exit in essence. But a lot of our parties are looking similar as we do for [ Astella ] over the lifetime of an asset. And then, of course, it's the ability and the commitment that you're bringing to maximize the value of that. And I think that's basically where we can truly leverage our experience and track record.

The next question comes from the line of Soo Romanoff with Edison.

A lot of my questions have already been answered, but it was nice to see the Zevtera NDA submissions. Could you give us an idea of the distribution model, if it's going to be similar to the Cresemba approach?

Yes, sure. Adesh, do you want to take that in terms of because that is our thinking at the moment?

Yes, absolutely. Thanks. So in essence, we have successfully managed, as you know, licensing and distribution models for Zevtera would be open for both. But in general, I think the way that we think about it is really that we would maintain responsibility through our CMOs for global supply, just given our existing partnerships outside of the U.S. as well and the economies of scale with respect to manufacturing. So probably would find a structure where we would keep on supplying a partner, and we would then be participating through some royalty structure in the actual sales.

The next question comes from the line of Ram Selvaraju with H.C. Wainwright.

Just a couple of quick big-picture ones. In terms of what you would expect to accomplish potentially on the in-licensing or asset acquisition front, can you talk through what you expect to do with those assets, assuming that they are successfully in-licensed and developed successfully? And if you expect them to effectively sit into the model that you've used for Zevtera and Cresemba? And also as an adjunct to that, whether you expect to ever establish your own commercial infrastructure in the United States? And if so, what criteria might determine that?

Yes. No, thank you. Good question. I'll make a comment, and then I'll also ask Adesh to jump in. But I think in essence, we feel that for this stage in our evolution as a company, the model we have where we in-license compounds, late research through to the end of Phase II, as Marc said, then develop them with the capabilities that we've got all the cross-functional capabilities to take a compound from research all the way to the market, but then look for a partner to commercialize whether the many different players then come into the frame in terms of more big pharma that are willing to commercialize, but don't do the research and development themselves. So we feel that there's lots of small companies doing innovative research. There's lots of big companies doing commercialization. But in the anti-infective space, we feel this gap really, we think in the value chain where -- and we think it works for us as a model. I think in terms of would we have one day in selected markets like the U.S. commercialize. I think we probably -- you can never say never, but you do need, I think, critical mass. And so clearly, that's obviously one reason why now we're looking for and discussing with partners for ceftobiprole in the U.S. because of the fact that we haven't got a portfolio of compounds, Cresemba is successfully with Astellas, so we only have Zevtera. So actually, our model for the foreseeable future, I think, makes incredible sense to us. We think it's a very effective model. But Adesh, you would you add any...

The only thing is that we would, of course, also take into consideration just financial considerations in the sense that if there are any new pool incentives and so on, that would make it, for instance, more attractive to just commercialize or lead with a single asset, for instance. That's certainly something that we would take into consideration. So it's more or less like building on what David was saying, we are not shying away from commercializing but not for the sake of commercializing ourselves, but if it makes sense from a value creation perspective.

Does that answer your question?

Thank you very much.

[Operator Instructions] The next question comes from the line of Dan Akschuti with Pareto Securities.

Hello, everyone, and congrats for the stellar results and continuing to positively surprise the market. One question I would have is on the Zevtera market in general. If you have any insight from, let's say, South America where it's already commercialized that you think would also apply to the U.S. but help you gauge the potential as well in the U.S. mention some details here that would be appreciated.

Yes. No, thanks, Dan. I'll make a comment, and then I'll hand over to Marc. But I think there's one important aspect that we found actually when way back in 2014, '15, when we were commercializing ourselves in Europe, Zevtera, we found that one of the key aspects of the drug, which is why we focus on it, I think in Marc's comments earlier, is this MRSA activity. So one of the key reasons why people use the drug, it's a broad spectrum antibiotic, but it has usefulness against MRSA, which obviously limits the number of competitors that also are effective against MRSA. And that's what we focus a lot on that in terms of delineating the potential of the product. The other comment I would just say is that whilst MRSA can occur in many geographies of the world, it's very different in the prevalence. And the U.S. is significantly of the developed markets of the world is significantly the biggest market, which is why Marc said earlier, up to 90% of the potential for the compound is in the U.S. So the U.S. has a big commercial potential due to the MRSA prevalence versus other markets of the world. And then the other thing, which is also very different, and Marc will come back to this, but is the indication that we would have. So the indication in the U.S., to remind you, is SAB and then skin and then community-acquired pneumonia if we were to clearly get a positive decision in Q2 next year. And that's different. The SAB indication has not been -- the study has only just been completed. And so actually, we haven't got that same indication. And this is the indication and maybe this is the segue to Marc to comment that we believe is the real value-created indication. But maybe on that note, I'll just pass over to Marc.

This is also what comes out on the discussions we have with experts in this field. I think they clearly prioritize on the SAB indication. It's a complicated infection with a high medical need, only a few drugs that are really used for MRSA SAB. And I think clearly, ceftobiprole is the product for complicated house manufacturers. And I think that in the U.S., the strategy would clearly be to build on the SAB data. And then as we have broader indications with ABSSSI and community [ pie ] ammonia, there is if it's approved, of course, then there is a potential to just have more a wider scope going along. But I think the medical need and the strength of the data are strongest for the SME indication.

Does that answer your question, Dan?

Yes. Just a follow-up a bit on the antibiotics. As you know, there's a bit of a shortage [indiscernible] U.S. doctors in June about that. Is that something you're considering in terms of manufacturing? Is it going to be maybe even an opportunity for you? Or do you see any risks for manufacturing slots at your partner site? Or is there any implications that you could share with us?

Yes. Maybe I'll take that. So I think from our perspective, I think we have basically the capacity that we need. We are not concerned from that perspective. So it's not that our manufacturers would reallocate the slots. When it comes to opportunity, I think the question is less from the manufacturing side. The question is basically what is available in the market to treat disinfection. So if the shortage event concerns key MRSA drugs that will probably be an opportunity for Zevtera, but that's really more the way that we are looking at it. So it's not a shortage itself that creates an opportunity.

[Operator Instructions] There are no more questions at this time. I would now like to turn the conference back over to David Veitch for any closing remarks.

Okay. Thank you very much for your interest, everyone, and enjoy the rest of your day. Thank you very much.

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