Basilea Pharmaceutica AG (BSLN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Basilea Pharmaceuticals Full Year Results 2023 Conference Call and Live Webcast. I am Sandra, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to David Veitch, Chief Executive Officer. Please go ahead, sir.

Thank you, and hello, everyone. I'd like to welcome you to our conference call and webcast, reviewing our financial results and key achievements for the full year 2023, as well as highlight our upcoming key milestones. For further detailed information, please see the ad-hoc announcement issued this morning and also our full year report. These documents are both available on our website at basilea.com. I'd also like to mention 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'd like to start with a brief summary of our key achievements in 2023. Starting with our commercial products. Cresemba, our antifungal for invasive mold infections continues to perform very well as demonstrated by the 22% increase in global in-market sales according to the latest available data for the 12-month period to September 2023. For antibiotic ceftobiprole, which is marketed in many countries as Zevtera, we submitted a new drug application in August 2023 to the FDA, seeking regulatory approval for this broad-spectrum anti-MRSA antibiotic in the most important commercial market, the United States. The FDA set the PDUFA target action date to April 3rd, 2024. So this is the date when we expect the regulatory decision and we aim to enter into a commercial partnership before this date. Our financial performance in 2023 was very strong. Cresemba and Zevtera-related revenue increased by almost 23% to CHF 150 million. Our strong top-line results enabled us to fully absorb the investments for the expansion of our portfolio and still remain profitable, reporting a better-than-expected operating profit of CHF 19.2 million. We used our free cash flow and cash at hand to reduce significantly our debt level in 2023. Based on the positive cash flow from our commercialized brand, we were able to significantly strengthen our clinical portfolio, most notably by the acquisition of the Phase III-ready antifungal fosmanogepix but also by acquiring the rights to the antifungal BAL2062 and an evaluation license for the antibiotic tonabacase. Each of them has a promising potential and unique profile. With our expanded clinical pipeline, we are establishing ourselves as a leading anti-infective company, taking anti-infective drugs from research through clinical development to commercial success. I want to hand over to Adesh.

Thank you, David. I'd 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 would like to mention that all figures I refer to are in Swiss francs unless specifically stated otherwise. Cresemba in market sales in the 12-month period to September 2023 amounted to USD 445 million and continued to show double-digit growth. We are already seeing notable contributions from China where our partner, Pfizer, launched the drug in mid-2022. We see significant growth potential for the brand going forward. Cresemba continues to gain market share in established markets. In the U.S., Cresemba is the biggest selling product by value for the treatment of invasive mold infections and our partner Astellas recently reported 22.5% growth year-on-year for full year 2023. We also expect to see increasing contributions from China and Japan where Cresemba was launched more recently. These 2 countries alone represent approximately 25% of the global market opportunity for Cresemba. The continued commercial success of Cresemba is reflected in our strong financial results for 2023. Cresemba and Zevtera-related revenue amounted to CHF 150.3 million, which is a 22.9% increase year-on-year and at the upper end of our guidance. Included in this number is royalty income, which increased by 21.4% year-on-year to CHF 78.9 million, directly reflecting the continued growth of Cresemba in market sales in the key territories. The reported growth rate is even more remarkable when taking into consideration that the Swiss franc has appreciated significantly versus key currencies in 2023. Total revenue increased to CHF 157.6 million. Total cost and operating expenses amounted to CHF 138.4 million. Overall, this resulted in an operating and net profit of CHF 19.2 million and CHF 10.5 million, respectively, and both exceeding our guidance. The increasing cash flow contributions from our commercialized drugs have been driving the consistent improvement of our operating cash flow over the past years. This reflects the significant leverage provided by our commercialization model, which allows us to minimize our investments during the commercial phase. In 2023, we were able to double our cash flows from operating activities to CHF 14.2 million compared to 2022, while absorbing an investment of almost CHF 40 million related to our newly acquired and in-licensed assets. Besides investing into the expansion and progression of our pipeline, we use the cash flows from our commercial business to strengthen our balance sheet. Since January 2022, we have significantly reduced our debt level in a completely non-dilutive way, starting at a level of CHF 221 million at the beginning of 2022, we've extinguished CHF 108 million in debt by the end of 2023 and going to repay the remaining CHF 15.6 million of the senior secured loans by the end of the first quarter 2024. All in all, we will have achieved a non-dilutive debt level reduction of CHF 124 million between 2024 and -- 2022 and 2024. So that the only remaining debt as of Q2 2024 will be our CHF 97 million convertible bond, which is going to mature in mid-2027. Moving now to our guidance. Cresemba and Zevtera-related revenue is expected to increase by about 20% to approximately CHF 180 million. We expect continued double-digit growth in royalties to approximately CHF 89 million. Total revenue is expected to amount to approximately CHF 183 million. As a result of an increase in product sales, cost of products sold is expected to increase to approximately CHF 33 million and operating expenses are expected to be around CHF 120 million. We expect a more than 50% increase in operating profit to approximately CHF 30 million and a more than doubling of net profit to approximately CHF 25 million. The disproportional increase in net profit versus operating profit is partially explained by lower interest payments and fees in 2024. This is due to the accelerated repayment of the senior secured loan in 2023 and 2024. Our healthy financial situation allows us to build and progress a strong R&D pipeline to support the long-term growth of Basilea. With respect to our guidance on Cresemba and Zevtera-related revenue, I would like to provide a little bit more granularity. Royalties are expected to continue growing at a healthy double-digit range. This royalty growth in Swiss francs; however, not fully reflect the underlying in-market growth of our brands due to the negative currency impact in the mid-single-digit percentage range as compared to 2023. Milestone payments have been more volatile in the past years but have been generally at higher levels since 2021. We expect 2024 to follow this pattern with an approximately 15% growth in milestone payments versus 2023. The third major component of our revenue or product revenues from selling products to our partners. These are also variable as deliveries happen in bulk and depend on the manufacturing schedules, but in general, are reflecting the increasing demand for our products. In 2024, we expect approximately 40% higher product revenue as compared to 2023, reflecting the expected continued strong growth of our products in 2024 and 2025 as product revenue can generally be considered as a lead indicator for expected future in-market demand. I will now hand over to Marc for the portfolio update.

Thank you, Adesh. Starting with our antibiotic ceftobiprole. We believe that the United States is the most important market for ceftobiprole, which is why we have submitted an NDA to the U.S. FDA in early August 2023. With the NDA, we are seeking approval for SAB, ABSSSI and CABP based on 3 successfully completed Phase III studies in these indications. The SAB and ABSSSI studies were submitted by and received significant funding from BARDA. In line with our business model, we plan to commercialize ceftobiprole in the U.S. through a partner and aim to enter in such a partnership prior to the FDA decision on the NDA. Just a quick reminder on the NDA review process. Ceftobiprole was granted QIDP status, which provides for a priority review of 6 months compared to 10 months on a standard review. Hence, 60 days after our NDA submission, the FDA started a 6-month review process and set the PDUFA target action date to April 3rd, 2024. As the QIDP status also provides for additional market exclusivity, a 10-year market exclusivity period would start at the date of approval. Based on the pharmacology and anti-bacterial spectrum, the data from of our various Phase III studies and the post-marketing experience, we consider ceftobiprole as excellent treatment option in difficult-to-treat patients presented to the hospital with severe infections when the clinicians expect involvement of f Gram-positive pathogens, including methicillin-resistant Staphylococcus aureus or MRSA. For these patients, ceftobiprole provides a single-agent first-line bactericidal treatment options with proven efficacy in SAB, ABSSSI and CABP. As already mentioned, we believe that the U.S. is the most important market for commercializing branded hospital antibiotics and is estimated to account for up to 90% of global sales for anti-MRSA treatments as shown by Dr. [indiscernible]. Considering the need for an anti-MRSA antibiotics in the U.S., this is why one of our key priorities is to gain access to the U.S. market for ceftobiprole. Now let's move to our recently acquired or licensed products. Starting with fosmanogepix. Fosmanogepix is a novel, broad-spectrum antifungal that is targeting the treatment of resistant invasive yeast and mold infections. We're very excited about fosmanogepix because it holds a lot of promise in the fight against invasive fungal infections. We've acquired the drug from Pfizer, who maintains the rights of first negotiation for the commercialization of fosmanogepix. With its extended spectrum covering both yeast and molds, fosmanogepix opens up a significant opportunity for treatment of invasive fungal infection and has the potential to become our next lead commercial product and value driver in the midterm. To date, more than 300 patients have been treated for up to 6 weeks with fosmanogepix in Phase I and Phase II studies. Fosmanogepix is ready for clinical Phase III and we plan to initiate the first Phase III study in invasive candidiasis around mid-2024 followed by an invasive mold study towards the end of 2024. Fosmanogepix is the product of the active compound manogepix. Manogepix inhibits the GPI-anchored wall transfer protein 1 or Gwt1, which is responsible for keeping important fungal surface proteins such as cell wall mannoproteins attached to the fungal cell membrane. By interfering with the anchoring of these cellular proteins, manogepix causes multiple and unique effects that lead to fungal cell disintegration and death. The FDA has acknowledged fosmanogepix potent broad-spectrum activity and has granted a fast-track and orphan drug designations for 7 separate indications, including invasive candidiasis, invasive aspergillosis, scedosporiosis, fusariosis, mucormycosis, cryptococcosis and coccidioidomycosis. And in addition, it has received QIDP designations for these indications. Fosmanogepix provides activity against all fungi that the WHO has included in a list of critical priority pathogens. The urgent and unmet medical needs for developing new treatment options for patients infected with these pathogens is evident when looking at the high mortality rates that have remained at 25% to 40% over the last decade in these yeast and mold infections. The antifungal spectrum of fosmanogepix addresses these urgent needs, and it is favorably, differentiated against existing antifungal treatment options and against other novel compounds that are in clinical development. The broad tissue distribution of fosmanogepix enables penetration into the central nervous system and into the eye. Because fosmanogepix is available IV and oral with high oral, IV availability, it can be used in both inpatient and outpatient settings. Finally, fosmanogepix has a favorable drug-drug interaction profile and may be synergistic with amphotericin B and echinocandins,, which provides additional options in difficult-to-treat patients. We are planning a double-blind Phase III non-inferiority study in candidemia and invasive candidiasis that will include approximately 450 patients, randomized to initial intravenous therapy with fosmanogepix or caspofungin. We foresee an oral step-down option to fosmanogepix in the fosmanogepix group and to fluconazole in the caspofungin group. The primary endpoint for the FDA is 30 days survival and for EMA overall response at the end of study treatment. It is a noninferiority study with a noninferiority margin of 15%. The prior sponsor already obtained initial health authority approvals from the FDA and in Europe for this protocol. Basilea has selected a CRO for the Phase III program, and we are now in the process of operational study set up and expect study initiation in mid-2024. Our planned Phase III study in invasive mold infections will include a total of approximately 200 patients. Patients will be enrolled in an open-label randomized portion comparing fosmanogepix with respective best available therapies for separate cohorts of patients with invasive fungal infections caused by Azole-Resistant Aspergillus species, Fumigatus species, Scedosporium species, Lomentospora prolificans and Mucorales fungi. In addition, patients requiring salvage therapy will be enrolled in a separate cohort. We anticipate initiating the invasive mold infectious study at the end of 2024. If successful, this Phase III program will provide a comprehensive data set supporting broad use of fosmanogepix in yeast and mold infections as primary therapy and as a salvage therapy option. Moving to our second clinical asset, BAL2062 is a first-in-class acetyl hexapeptide, antifungal targeting patients with invasive aspergillosis. It is actively transported into fungal cells through the siderophore iron transporter 1, or sit1, which is not present in mammalian cells. One of the key attributes of this compound is its rapid killing and fungicidal activity against aspergillus species. BAL262 does not show any cross-resistance with marketed antifungal agents. It is active against azole and amphotericin b-resistant aspergillus species and has shown activity in invasive pulmonary aspergillosis in animal models. In addition, it has a low propensity for drug-drug interactions. Clinical safety has been demonstrated in the Phase I study, and we expect to start the Phase II program in early 2025, based on results from the additional preclinical profiling studies. BAL2062's FDA QIDP, orphan drug and fast-track designation for invasive aspergillus. Turning to our third new program tonabacase. Tonabacase is a potent bactericidal endolysin derived from bacteriophages with potential utility for the treatment of severe, life-threatening Staphylococcal infections, such as endocarditis. We are currently evaluating tonabacase on an exclusive evaluation license and option agreement with iNtRON Biotechnology. Tonabacase is characterized by potent and rapid bactericidal activity and biofilm degradation that is superior to exebacase which is a compound in the same class. Tonabacase can be dosed multiple times, which may significantly increase exposure. We are currently conducting preclinical studies, including PK/PD investigations. Upon successful completion of this preclinical profiling, Basilea has the exclusive option to in-license of tonabacase. Once in licensed, we plan to start a Phase II study in the second half of 2025. Our clinical program would be focused on the high unmet medical need indication of infective Staphylococcal endocarditis. I will now turn over to David.

Thank you, Marc. Let me close with a quick summary and outlook. We reported strong financial results for 2023, a year in which we significantly expanded our clinical-stage pipeline. We were able to fully absorb these investments by the positive cash flows generated from our commercial brands while still remaining profitable with operating profit as well as net profit up by guidance. We have provided a strong financial guidance for 2024 to reflecting the robustness of our business model. We are also very much looking forward to the FDA decision on the ceftobiprole NDA. An approval in the U.S. would mark a major milestone in the history of our antibiotic, which would then have 10 years of market exclusivity in the U.S. And as we said, we're in discussions with a few potential partners for the commercialization of Zevtera in the U.S., which we aim to execute prior to the FDA's decision. Our focus for 2024 is to keep supporting our commercial partners to maximize the revenues of Cresemba and Zevtera whilst at the same time progressing our clinical and preclinical assets through research and development. We are planning to start 2 global Phase III studies for our most advanced clinical asset, the antifungal fosmanogepix, one in candidiasis in mid-'24 and the other in mold infections by the end of 2024. So we will see many important milestones during 2024. Thank you for your attention, and we'll now open the line for any questions you may have.

[Operator Instructions] The first question comes from Brian White from Calvine.

Just looking at first manogepix in the Phase III program. I just wondered why is the gap between the 2 studies in terms of the 6 months, if there was manufacturing issues or what we're looking for there. And then just secondly, in terms of is this something that either Basilea expects to bear the cost of itself over the next couple of years? Or is the opportunity of nondilutive funding? And then just finally on ceftobiprole, obviously, we're all very much looking forward to the action date in the U.S. And assuming that you do, in fact, managed to execute an agreement prior to that date, when do you expect formal launch of Zevtera in the U.S?

Okay. Thank you, Brian. So first of all, at the high level, the reason why fosmanogepix candidiasis and mold infection studies, the Phase III studies are starting so you could argue sort of 6 months apart if we talk about midyear and end of year, that's -- it's nothing to do with supply. It's actually just a practical point that the candidiasis study had been -- the protocol had been agreed by EMA and by FDA, whereas actually there's some finalization some details of the mold protocol still to happen. But maybe, Marc, do you just want to build on that?

That correct. I think Candidiasis studies also, they follow a more standard approach, while invasive mold studies usually require more discussion with the regulators. These studies are somewhat smaller. And then the statistical assumptions can require a little more discussions with regulators. And that's why the candidemia and invasive candidiasis study is just more straightforward type of study that has much more precedent. But we still expect, as the candidemia study, the 450 patients study in invasive candidiasis study and the invasive mold studies were around 200 patients. So we expect that these studies, although they are 6 months apart, they will finish around at the same time.

Maybe, Adesh, you pick up the point around the cost of the fosmanogepix program.

Yes. So maybe to start out with and to broaden a little bit your question or the answer to your question is that we believe that we'll be able to finance basically not only for fosmanogepix, but also if tonabacase and BAL2062 would advance further everything through the cash flows that we will be generating from our commercial business. So we are not factoring in any nondilutive support that we may get. However, as you know, we believe that all actually our programs that we have in-licensed and acquired tick the boxes in principle of the projects that would be eligible in general terms for non-dilutive support, and we will certainly be pursuing as we have done in the past, opportunities to get support from government agencies, from other sources that support the development of novel antimicrobials.

And then your final question around the cefto sort of launch timings. I mean you're correct that we have a PDUFA date, April 3. And then we plan to launch with a partner as soon as possible afterward. And usually in the U.S., that can be quite quickly. So we haven't given an exact date, but that should be relatively soon afterward.

The next question comes from Lee Chien from Pareto Securities.

Congrats on with strong financials. Just a few questions from my side. So for your '24 guidance on the operating costs, how much are attributed to the R&D cost of fosmanogepix and how much are other activities? And do you expect the operating costs will remain stable over '25 and beyond? And the next question is a follow-up on BARDA reimbursement. So as you just mentioned, you are confident that you fulfill all the criteria, but do you have a timeline on when this decision can happen?

Thanks, Chien, for those questions. Maybe, Adesh, do you want to take the point about the operating costs -- R&D cost fosmanogepix versus other for '24 and what the outlook looks like after that?

Maybe for 2024 first. So we are guiding for about CHF 120 million in operating expenses. What you can assume is just given our model that the SG&A costs are fairly stable sort of year-on-year. So if you would be roughly thinking about CHF 35 million relating to SG&A costs that would leave you with about CHF 85 million related to R&D., substantial part of that is attributed to start-up activities for fosmanogepix. We're not breaking down the exact numbers per project, but that's certainly going to be one of the key drivers of the R&D expenses in 2024, and as a matter also in 2025. If we look forward, I would build on the question -- on the answer to the question from Brian before. Most importantly, going forward, we believe that we can finance all the trials, our existing portfolio with the cash flows that we are generating from our commercial business. From a P&L perspective, there are, of course, a lot of moving parts. So our expenses in 2025 will partially be driven by the results or the decision to move forward into Phase II with the 2 assets that we were discussing before. It will also depend on whether or not we would get any support from non-dilutive sources. So it is too early to say how exactly the P&L would look like in 2025.

And then maybe, Marc, pick up on the point about potentially getting any BARDA reimbursement for fosmanogepix?

Yes, I'd like to say that as we indicated, I think the product characteristics of compounds, they tick the boxes, they address the urgent need pathogens. Also we have a long-standing relationship with BARDA, we've been working with them since [ 2012, ] almost without interruption. So I think we should be able to get more information during 2024 when it comes to the availability of -- potential availability of undiluted funding from BARDA.

And clearly, just to state the obvious, if we were to succeed in achieving non-dilutive funding from BARDA or for that matter for anyone else, we'd obviously, as soon as we know that, for sure, we would communicate that.

The next question comes from Edouard Riva from ZKB.

My first question would be, should we expect any surge in net working capital or net capital buildup, I'm thinking about inventories with the arrival of ceftobiprole in the U.S. And my second question, I'll right away, it would be -- regarding the guidance, do you include any upfront payment from the upcoming distribution partner that you will partner with for the U.S. for ceftobiprole?

Thank you, Edouard, for your questions. So maybe on your first net working capital, we don't expect any massive changes. Also, I think what you can see just a way that the demand for our products are going. It's not that we are holding a lot of actual finished product inventory. So from that perspective, no significant change in net working capital. With regard to guidance, let me just take your question a little bit one step back. The way that we intend to structure the partnership for the U.S. for Zevtera is that we would like to secure an appropriate participation over the lifetime of the product. So we want to participate over the entire 10-year period. So the focus is, therefore, more on having an appropriate royalty rate, having milestones as the product is commercialized. So we're not necessarily looking at front-loading the transaction. And our guidance, as such, does not include any potential upfront payments that we may get into a partnership. But it does include some initial contributions from a launch in the U.S. as we would expect that the drug could be launched actually late [ this year, ] subject to being positively approved.

The next question comes from Leonildo Delgado from Baader-Helvea.

First question is, could you shed some light on how the economics of the ceftobiprole deal might look like in terms of upfront milestones and royalties, especially when compared to Cresemba, for example? And second question would be, should we expect additional asset acquisitions in 2024? Or do you feel that the pipeline already has sufficient value at the moment?

Thanks, Leonildo. Actually, I'll take the second one about the assets. Adesh, you can build on your answer with regard to the cefto deal. With regard to future assets, I think it's fair to say that we've got a great foundation from what we did in terms of activity around BD&L in 2023. But what's clear is with all biotech companies, there's attrition, products, don't all make it to the market. So clearly, we have a view that we want to keep identifying the right opportunities that are both innovative but also can be commercially viable. And so we are actually -- we're actively discussing all the time with potential companies with regard to their assets in this antibacterial antifungal space, will continue do that. I mean, I think it's fair to say that the limiting factor is not going to be on our sort of financial ability, I think, to do deals, but it's actually us identifying, the quality assets to bring in, but we will continue to do that. I mean maybe not as much activity as we saw in 2023 and 2024, but we'll continue to look as we sort of, I think, proved by the Spexis deal, which was for an earlier deal, preclinical deal, that we announced in January. So we'll continue to look for assets in our sweet spot of late preclinical through to the end of Phase II. We'll continue to do that. But maybe then on the point about the terms of a cefto deal, Adesh?

Yes. So we, of course, can't be specific before we haven't executed an agreement that disclosed sort of the economics or the structure of such an agreement. However, I think in general terms, what you'll be looking at is tiered royalties in essence, starting in the -- somewhere in the double digits or in the teens going to the 20s and some product sales that you will be getting and sales milestones, but the numbers can really vary because depending on who -- which counterparty you're talking to, they may be more leaning to having more sales milestones, other parties have a preference for having higher royalty rates. So there's not like a general statement. If you look at the totality of value distribution, I think probably looking at what we have been guiding for, for Cresemba in general, is a good starting point, where we said that we are participating in the Cresemba in-market sales to an extent of about 30% to 40% over the lifetime of the drug. And probably that's a good rough indicator for Zevtera in the U.S. as well, depending on what your peak sales estimates are. So if you are at the higher end, we probably have a participation that's close to 40%. if it's at the lower end, then it's close to 30%. But that's sort of the order of magnitude in the area under the curve of sales in the U.S. Does that answer your question, Leonildo to the extent that [indiscernible] with it?

[Operator Instructions] We have a follow-up question from Edouard Riva from ZKB.

And could you give us an idea of the sense of urgency there may be or not to find a partner for ceftobiprole the U.S? In other words, when can you afford without taking the risk of losing precious exclusivity time until when can you go?

Yes. I think Edouard, I mean that's clearly why I think we've said consistently that we'll announce a partnership before the PDUFA date before the approval date. So clearly, that's always been our aim, and that we're consistently just saying that, and we're saying that again today that we -- that is the aim. So in terms of that answer to your question that we don't really want to go after the PDUFA date because then, as you said, we'll start eating into that 10 years exclusivity period.

Sorry, my question would be, how long would it take once you have the partnership signed for the partners to be, I would say, ready to march -- to be -- ready to sell, what time do you guess that would be?

Yes. And that's sort of -- that's similar to a question I think, answer I gave a moment ago, which is that we assume we could launch with a partner. I mean obviously, we have to finalize the discussions following the PDUFA. There are certain things that need to happen around product supply, et cetera, but we can launch pretty quickly. So we're aiming to launch definitely in 2024 following the PDUFA date. And obviously, it's as quick as we've obviously been doing activities in preparation ourselves. So actually, some things have already happened that we want to happen, but we -- it will be a final decision taken in discussion with the partner that we announced in the coming weeks.

Gentlemen, there are no more questions from the phone.

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

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.