CASI Pharmaceuticals, Inc. (CASIF) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to CASI Pharmaceuticals Second Quarter Financial Results and Business Update Conference Call. [Operator Instructions] I would like to hand the call over to Cynthia Hu from CASI for a preliminary statement. Please go ahead.

Thank you, operator. Good afternoon, and welcome to CASI's second quarter conference call. Earlier today, CASI issued a press release providing the details of our financial results for the quarter ended June 30, 2020 as well as a corporate and clinical update. The press release is available in the Investor Relations section of our website at casipharmaceuticals.com. Today's call will be led by our Chairman and CEO, Dr. Wei-Wu He. He, along with Dr. Alex Zukiwski, our Chief Medical Officer, and I will be available during the Q&A portion of the call. As a reminder, our remarks today will include forward-looking statements, including our business plans, objectives and milestones. These forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance upon them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from those projected or implied. For a description of important factors that could cause actual results to differ, we refer you to our statements in today's press release and in our SEC filings. It is now my distinct pleasure to turn the call over to our Chairman and CEO, Dr. Wei-Wu He. Dr. He, please proceed.

Yes. Well, thank you, Cynthia. Good afternoon, everyone, and thank you for joining us today. I will begin the call with a general update, followed with an update on our lead program and conclude with the second quarter financial highlights. Let me begin by saying that despite the COVID-19 disruption, we're incredibly pleased with the progress we have made in the second quarter from both a clinical and corporate perspective. I'm extremely proud of our current team across all functions for their dedication, resilience and focus. Building a company team is always the most important army, and I'm really, really pleased with our team. We are really in this difficult time. And there's no doubt in my mind that we are well on our way to build a fully integrated biopharmaceutical company, which is always our vision, which is to impact as many patients as humanly possible with high-quality innovative pharmaceuticals. From a corporate perspective, we are pleased to recently announce the closing of an underwritten public offering of over $40 million new capital to CASI. We're especially pleased to have a number of new, wonderful fundamental long-term health care investors joining us as our new investors. And I'm also very pleased to see that part of our management team also participated in this financing, which is -- really speaks to volume that we, as a team, really believe in our own company. Well, thank you to our investors. We really appreciate your trust. With additional resources, we are interested in licensing in more products that fits our corporate core competency in global drug development, especially leveraging China clinical development and patient population and China market as our first beachhead. We have built a commercial sales team that has been tested with the successful launch of EVOMELA. We will leverage our established commercial infrastructure to launch additional products in China one at a time. So with that said, I will turn to the update on EVOMELA. So EVOMELA really is our first drug being approved and commercialized. So our first commercial product is EVOMELA. It is a proprietary formulated melphalan. Although melphalan is a generic drug in many countries, it was not available in China. CASI currently markets the only melphalan in China, and its proprietary formulation pattern will last beyond 2030. So the product we are launching is really not the generic version of the melphalan. EVOMELA has received strong support and endorsement from our KOLs and physicians. We have built a sales and marketing team of over 70 people with deep experience in hematology/oncology, including previous experiencing launching some of the top oncology products in China. I'll just add a few words. I think I can never be more proud of our sales team. It's a global standard commercial team that we are building, targeting the hematology/oncology space. And our medical affairs team has done a lot of medical education and outreach to the KOL and physician networks, province by province, city by city, and continue to gain significant market insight. As a result of our team's efforts and the availability of EVOMELA, we expect that the autologous stem cell transplant market will continue to be increasingly adopted as the standard first-line treatment for multiple myeloma. One of our major developments with respect to EVOMELA this quarter was the successful transition to a new manufacturer for the commercial supply in China. This was a key accomplishment for us as we expected to be significantly reduce our cost of goods sold moving forward. To provide some context, the previous manufacturer has decided to eliminate their cytotoxic production line. So we inventorized a big batch of the drug, which is at much higher cost in order to get the drug approval in China and launch the drug. But while we were -- then we immediately started to work with our licensor to obtain regulatory approval for a change in manufacturer, keeping the previous production line open and working out the manufacturer's production issues impacted our cost of goods sold. So our new manufacturer will reduce our cost of sold to be less than 30%. So we will -- after the transition of this manufacturer, some of the investor always question us, you launched the drug, but it looks like you have no margin. And so around August, we finally transitioned the -- a much lower cost manufacturer during this period. This is actually one of the reasons why our second quarter revenue is low. So we recorded EVOMELA revenue of $2.6 million for the second quarter and $3.4 million for the first quarter for a total of $6 million for the first half of the year. And the decrease, as I said, in the second quarter was primarily due to the change of manufacturer. We are pleased to report that the shipment of EVOMELA from the new lower-cost supply has been received in China and is expected to be released to our distribution channel this month, August, the mid-August, we -- actually, our drug finally will be a much lower cost of goods sold. We expect our revenue of EVOMELA will resume its normal projected cost in the second half of 2020 with much better gross margin. With that said today, we issued EVOMELA revenue guidance of at least $10 million, which personally, I think we're being conservative. We also expect significant improvement in our gross margin for EVOMELA due to our recent manufacturer change. Strategically, the launch of EVOMELA is really helping CASI to establish a commercial team and a focused hematology/oncology commercial channel, which will enable us to launch many products to come. So now let me -- we have quite a number of drugs in the pipeline. So today, we will actually emphasize two lead compound, we think that if these compound complete the key milestones of clinical development, it will have tremendous value inflection for CASI shareholders. Let me give you a little bit update for our CAR-T 19, CNCT19, which is currently in Phase I trial for B-cell non-Hodgkin lymphoma and B-ALL, conducted by our local development partner, Juventas, and this drug is currently enrolling patients and expect to complete the Phase I trials and to initiate the pivotal registration trial by Q1 2021, with NDA filing expected in 2022. Now a few factors to highlight our CNCT19. First, there are currently no approved CD19 CAR-T therapy product in China. We believe this therapy has the potential to meet a critical unmet need in this -- in patient population. And CNCT19 will be locally developed and manufactured, which greatly distinguish it from other CAR-T 19 therapy developed and manufactured outside of China. Drug pricing is still a huge issue for patients in China, particularly for premium and innovative products. U.S.-developed CAR-T 19 therapy has a very high drug cost. Each dose of drug is well over $300,000 per treatment. This price tag is still beyond the reach of many average Chinese patients. With this in mind, Juventas has designed a product with much lower cost of manufacturing. We believe that we can provide a CAR-T 19 therapy in China at a much reduced cost compared to that of the drugs developed in the U.S. Secondly, we already have a trend hematology/oncology-focused sales team that has been in place since -- with our first launch of EVOMELA. So it's really a great strategic fit by the time our CAR-T 19 is approved in China. We will probably have one of the best hematology/oncology team, commercial team, in China to commercialize our CAR-T 19 therapy. So the efficacy of this drug is actually very well documented in the most recent ASH report by the lead investigator at the Institute of Hematology & Blood Diseases Hospital of the Chinese Academy of Medical Sciences. This institute, we -- in China, with nickname called Tianjin hematology institute, is the #1 hematology/oncology institute in China. They, by the way, have been working on the clinical development of this drug for over -- almost 10 years. And so far, the data presented showed a 90% complete response rate, which is very consistent with other CAR-T 19-directed CAR-T therapy that has been published in literature. The follow-up and overall survival data shown was also very consistent with other data that has been published. So there's very little doubt in our minds the CAR-T 19 drug we are developing has similar efficacy and safety profile as the U.S.-approved CAR-T 19 therapy. But our drug will be at a significantly reduced cost of goods sold. We think this drug will have a very reasonable market share in China. The two trials currently conducted by our partner Juventas are single-arm, open-label, non-randomized dose-escalating Phase I studies to determine safety and efficacy in adult patients with relapsed and refractory acute ALL and in adult patient with relapsed/refractory non-Hodgkin's lymphoma. So far, complete response has been observed in the lower dose cohort and we are seeing a level of activity that is very encouraging, such that we expect the final complete response -- overall response and durability will be consistent with the previous data reported in the investigator-initiated institutional study. Our development partner, Juventas, remains on track to complete Phase I trials and to initiate the registration trials by early 2021. The registration trials to be conducted by our partner are expected to be single-arm, open-label and non-randomized with expected enrollment of approximately 35 to 40 evaluable patient for each trial. So we believe the Phase II registration trial will be a pretty short 35- to 40-patient trial. So the Phase II registration study are expected to be completed in 2021 and with NDA filing potentially by 2022. So we -- our short-term near significant product line will be our Chinese version of CAR-T 19, and our commercial team will probably start to prepare for the launch of this drug sometimes next year. Now let me shift a little bit to the -- our anti-CD38, the CID-103. CID-103 is a fully human IgG1 anti-CD34 monoclonal antibody, recognizing a unique epitope. It is selected to have strong ADCC activity against CD38-positive malignant cells and with a reduced CDC activities with a potential reduction of infusion reaction observed with existing anti-CD38 treatment. Preclinical data demonstrates that CID-103 has enhanced activity against a broad array of malignancies expressing CD38 and potentially a better safety profile when compared to other CD38 monoclonal antibodies in a non-GLP, nonhuman primate dose range finding studies. There were no cytokine release-like syndromes symptoms observed in 16 monkeys dosed. In the GLP nonhuman primate toxicity studies, there were no clinical observations suggesting an overt infusion reaction in any of the 32 monkeys tested. In addition, the results of in vivo studies have shown promising data that outperforms what is currently available on the market, including the current blockbuster drug, dara. The data front in vivo efficacy model have shown higher CD38 plus killing high ADCC activity, recognized a unique epitope on CD38, improved safety profile, no overt infusion-related reactions, less cytokine release, decreased binding to human RBCs and the potential for shorter administration time versus competitors. Based on these data, we remain encouraged we believe our CID-103 is potentially a best-in-class anti-CD38 antibodies, and we are very much looking forward to initiating our clinical study. As we guided last quarter, the COVID-19 pandemic impacted the targeted start date of our CID-103 trial, but our expectations remain on track with what we reported last quarter. We recently filed our IMPD application with MHRA, the British health authority, and we expect to initiate our Phase I study in which sites in U.K. and France as soon as the institutions are open for clinical activities, which we expect in Q1 2021. As we reported, the Phase I study will be an open-label dose escalation study with an expansion phase to determine the safety and preliminary activity of CID-103 in patients with relapsed/refractory multiple myeloma. The trial protocol is designed to test a priming dose as well as dose escalation with the objective to reduce the infusion duration as recommended by the Data Review Committee and the U.K. health authorities. This completes the update of our two lead assets in our pipeline. For the other assets in our pipelines, please find in-depth information by referring to our website and filings. Of course, we also are happy to address any question during our Q&A session. Before we turn to our financial highlights, a few words about the status of our future manufacturing facility. As you may recall, as part of our long-term strategy to build a fully integrated pharmaceutical company and to support our clinical and commercial manufacturing needs, we obtained rights on extremely favorable terms to develop and use state land for the construction of a GMP manufacturing facility in Wuxi, China. Although the full-scale long-term development and construction plans are still subject to further discussion with the government, we intend to enter into early phase of the construction and the land improvement later this year. Our engineering and design phase is still ongoing. Our motto is to commercialize drugs and therapy to as many patients as possible using China as our beachhead. Having our own GMP state-of-art facility support our supply channels and manage the cost of goods sold is an integral part of our future business plan. So let me turn to our financial highlights. With that said, I will now review our financial highlights for the 3 and 6 months ended June 30, 2020. Our press release contain details of our financial results for the first quarter of 2020. Rather than read through all of these details, my comments today will address the key highlights. For the 3 months ending June 30, 2020, CASI recognized $2.7 million revenue and we have reached just -- $2.6 million of that $2.7 million is attributable to EVOMELA sales. And for the 6 months ended, a total of $6 million revenue was booked for EVOMELA compared to 0 revenue for the same period last year. As we previously highlighted, EVOMELA is the only commercially available melphalan in China, and we're seeing autologous transplant being adopted as a first-line standard of care for multiple myeloma patients in China. And despite a decline in the second quarter due to manufacturer changes, change and residual impact of COVID-19 on supply channel, we expect a strong momentum for the second quarter of 2020. So in addition to our 2020 full year EVOMELA revenue guidance of exceeding $10 million, we also expect significant improvement in our margins for EVOMELA with a new manufacturer now in place. As of June 30, 2020, cash and cash equivalents totaled approximately $44.9 million, with working capital of approximately $50.4 million. Taking into consideration the cash and cash equivalent balance as of June 30, 2020 and the net proceeds from our July capital raise, the company believes that it has sufficient resources to fund its operations at least through 2021. We continue to be extremely thoughtful on how we deploy our cash expenditures with a focus on building shareholder value. Our team remain very positive about the financial outlook for the company. We look forward to continuing our -- execute our milestone, building our company and driving progresses. I will now turn it back to the operator for questions. Operator?

[Operator Instructions] Your first question will come from Nathaniel Calloway with Edison Research.

I just have a few basic questions that I hope you can clear on. First off, I was just wondering what other preparations still need to be done for the CID-103 trial to start here at the beginning of 2021.

So maybe, Alex, you can chat. Alex, our CMO, is probably better equipped to answer that question.

So this is Alex Zukiwski. I'm the CMO for CASI. The IMPD has been approved. We've submitted a protocol amendment to the MHRA that simplifies some of the testing, makes it easier for the patient. Then there's an ethics committee that we will need to go through. We did not do the combined process because many of the institutions in the U.K. have basically been closed for new studies. We are still working with the investigative sites to see when we will be able to get into the queue to get the protocol reviewed at the institutional level and then with one of the regional ethics committees.

That's really helpful. My next question is just regarding some of the planned studies for CNCT19. So you mentioned for, I believe, the first time that just the size and scope of the pivotal study that you're planning to do, approximately 30, 40 patients and open-label study. Is that based on feedback from the Chinese authorities? Or where does that come from? Where does that plan come from?

Yes. That's actually -- we had almost 30 meetings with the Chinese authorities, and that's the conclusion of the kind of, you can call it, negotiation or discussion with the Chinese authorities.

Okay. And my last question is just regarding an impairment charge that I saw on the cash flow statement of approximately $1.5 million. Can you just give me a little bit more clarity into what exactly the reason for the impairment charges?

Maybe Cynthia, can you answer that question better than me?

Sure. Nathaniel, thank you for that question. And thank you for reading our financial statement. That is an impairment charge that we took in connection with the divestiture of the few ANDAs that we had purchased last year. These ANDAs were not material to operations, and we had a purchaser that was very interested in taking it to their product line. So we jumped on the opportunity to sell it to them. So that was an impairment to -- which resulted in impairment because we had some valuation that was attached to it in prior periods.

All right. And which ANDAs were that, that were divested? Has that been disclosed?

We have not disclosed that, at least of 4 that were acquired last year that, again, were not material to our product line and certainly not to our plans going forward.

Your next question will come from Sean Lee with H.C. Wainwright.

My first question is maybe you can provide a bit more color on the impact of the COVID pandemic and also the switch on manufacturers. So what exactly has been the limitations for you during the second quarter on your marketing effort? And also, did the switch from being manufacturer lead to any inventory shortages or difficulties on your supplies?

No, that's a very good question. So obviously, COVID-19 limit our sales team's ability to detail the physicians because many of the hospital -- it probably impacted us more in the first quarter because the first quarter, actually, the government -- most of the hospital will not see any salesperson or marketing people. China is now more and more back to normal operation, at least in the southern part of China. Northern part is still being a little bit more cautious. I would argue that COVID-19 probably had less impact on us than the inventory issue because, remember, when we get an imported drug approved by Chinese authority, we cannot, in the middle of application, change the manufacturer. So we literally backed our first manufacturer to supply us a batch of drug because they were planning to terminate the cytotoxic plant. So we -- since we backed them to make this plant, they charged us an arm and a leg for it. And obviously, we didn't want to buy too much because then it would be too much cash impact. So we plan -- that batch is enough for us to get approval and then launch through the initial launch, but our cost of goods sold will be ridiculous. So as soon as we know that plant is going to discontinue the production, we already worked out with our current supply to transition. And the cost of goods sold is much, much lower. And you will see it as we -- in the next quarter, the number will be coming out. So this supply -- so we basically work out. So after we worked out the second manufacturer, we have to resubmit to the Chinese regulatory agency for approval of the second manufacturer. So in between this transition, we probably had about a month or so has very shortage of drugs. And so originally, without COVID-19, the shift of the manufacturer probably will be completed in May or June. But now it's been completed in August. So during that period, we did create a little bit of inventory shortage for us. But I think now we are mostly over. So I think we -- I think it's been about a week or so, our whole drug will be coming from this new manufacturer. It's already approved, and it's already -- so we're very pleased to share with investors that, moving forward, after August, EVOMELA will be at a much lower cost, and we will have a decent -- very decent gross margin on this drug. Does that answer your question, Sean?

Yes. That makes it much clearer. Okay. My second question is on the CD19 CAR-T program. As you mentioned, you expected the current study is going well with response rates expected to be in line with what currently marketed CAR-T therapies are doing. So I was wondering, will we see these results published on the big journal or presented in your conference before the pivotal study starts next year?

We've -- yes. So we probably will publish it, but you probably wouldn't see it anytime soon because the Phase I probably will be finished by end of this year, right? So -- and if we submit an abstract or write a paper, you won't see it until sometimes next year, right? So the data -- there's an institutional sponsored data of the same drug had been published in the ASH abstract and all that. That's the exactly same anti-particle, the same process, except that today, we are building them into a real GMP facility. And the GMP facility will be the NMPA-approved GMP facility, right?

Okay. I see. So you do expect to publish that, the data, later on but it's probably not going to be before the study?

Yes, absolutely. Yes.

My final question, as you mentioned, you guys are always looking to license more products and with pro forma cash position, you have more than $80 million, you're in good position to do so. So I'm just wondering, what are your preferences in the type of products you're looking to license? And can we expect one or more products to be licensed before the end of this year?

Yes. No, it's -- I think in the pharmaceutical industry, it's very difficult for a company to be all over the places. And because now we have a very good commercial team in hematology/oncology space, we probably were overly focused on innovative drugs in hematology/oncology space for now. And we will never say never. If you find $1 billion drug in lung cancer, we probably will not turn it down. But our focus right now is on hematology/oncology. And there's a lot of innovation in that space, right? So if you look at GSK just got there, multiple myeloma drug approved. And so there's still a lot of innovation in this space. We are continuous -- we have a very aggressive commercial team, a business development team, and we're looking over probably half a dozen, a dozen molecules every month. Whether we will definitely cut a deal or not, it's not always under our control. Let's put it this way. But personally, I'd love to see we cut a few deals before end of the year. So we are continuously working on in-licensing drugs. If anything, I would like to overemphasize to our investors that we probably will be more aggressive moving forward to in-license in compounds.

Okay. All right. So I understand you are very aggressively looking for one, but just because of the nature of the deals, you can't really predict the time for them.

Yes, yes. Well, because it takes two parties to dance, right?

Yes, I understand.

Yes. Thank you. Thank you.

We have reached the end of the question-and-answer session. I would like to hand the conference back to CASI Chairman and CEO, Dr. He, for closing remarks.

Well, again, thank you very much for the trust of our shareholders. And we really -- we are really -- personally, I think we're on our way to build a fully integrated global pharmaceutical company, one drug at a time. I'm more confident today than ever about the CASI's future because our sales team is wonderful. Our first drug, EVOMELA, is the only melphalan, proprietary formulated melphalan. The patent won't expire until 2030, and it's going to be a reasonable-sized drug in China. And with that drug, we touted a beachhead in the hematology/oncology space in China. But with that beachhead, we have a pretty reasonable pipeline coming, CAR-T 19, CD38. By the way, both CAR-T 19 and CD38, we have global rights for it. So if we indeed commercialize a low-cost CAR-T 19, there's a lot more market needs a low-cost CAR-T 19. So we are going to continue execute and finding new innovative drugs, continue to launch one drug at a time until we can help millions of people on earth. And thank you for your trust, and thank you for your continuous believing in our company.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.