Everest Medicines Limited (6HN.F) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Everest Medicines Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your host today, Mr. Ziyi Chen, China Health Care Analyst, Goldman Sachs. Please go ahead.

Sure. Thank you. Good morning, everyone, and welcome to Everest Medicines' Interim Results 2021 Corporate Update Earnings Call, and Goldman Sachs has the privilege to host this call. This is Ziyi Chen, China Health Care Analyst at Goldman Sachs. As a reminder, this call is being recorded. So before we kick off the session, I have to read our disclaimer. This call is strictly for clients of Goldman Sachs only, and these conversations are not intended for the media, and they are off the record. Participants will be removed on the call if they cannot be properly identified, and this call webcast is not for the purpose of sharing or receiving nonpublic or otherwise confidential information. Attendees are public-side market participants who may not receive and should not request nonpublic or otherwise confidential information about issuer or security or about the markets for securities. So joining me today from the company are CEO, Kerry Blanchard; President and CFO, Ian Woo; and our COO, Neo Zhang, will also be joining us for the Q&A portion of today's call. I would now like to turn the call over to Yihang Zhu, the Manager of IR from Everest Medicines. Please proceed.

Thank you, Ziyi, and good morning, everyone. We issued a press release with half year 2021 interim results before the call, and it is available in the Investors section of Everest Medicines' website. Speakers of this conference call may make statements that constitute forward-looking statements, including descriptions regarding the intent, belief or current expectations of the company or its officers with respect to the business operations and financial condition of the company, which can be identified by terminologies such as will, expects, anticipates, future, intends, plans, believes, estimates, confident and similar statements. Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ from those in the forward-looking statements as a result of various factors and assumptions. The company or any of its affiliates, directors, officers, the advisers or representatives has no obligation and does not undertake to revise forward-looking statements to reflect new information due to events or circumstances after the date of this conference call except as required by law. I will now turn the call over to Everest's CEO, Kerry, to discuss our business update and outlook.

Thanks, Yihang, and good morning, everyone. Thank you for joining us today to review Everest's 2021 interim results and recent business highlights. 2021 has been a highly productive year for Everest Medicines. We -- as we continue to drive progress toward our corporate goals across all pillars of our business, we have successfully submitted an NDA for eravacycline in complicated intra-abdominal infections and a BLA for sacituzumab govitecan-hziy in second-line plus metastatic triple-negative breast cancer. Meanwhile, we are rolling out our commercialization plan and building up our commercialization infrastructure to ensure the successful launch of our products as they receive regulatory approval. We are also making good progress advancing our other pipeline products into and through clinical development. In addition, we have hired Dr. Jennifer Yang as our Chief Scientific Officer to lead the establishment of a robust discovery organization. Furthermore, we are well on track for the construction of our GMP production site in Jiashan in Zhejiang province of China. Looking ahead, we are very excited for several key near-term milestones and the next phase of growth as a commercial-stage company. Finally, we continue to be active on the business development front about weighting multiple strategic opportunities and hope to complete 2 to 3 in-licensing deals and R&D partnership and other strategic transactions before the end of the year. To start with our anchor product in the oncology therapeutic area, sacituzumab govitecan, our BLA submission for the treatment of second-line plus metastatic TNBC was accepted by the China NMPA in May of 2021, and we received priority review for the submission. We are very excited to prepare for a potential launch in China anticipated in the first half of 2022. We believe sacituzumab govitecan has been significantly derisked after our partner, Gilead, received full U.S.A. FDA approval for the treatment of adult patients with second-line plus metastatic triple-negative breast cancer in April of 2021. Our Phase IIb bridging study of sacituzumab govitecan in metastatic triple-negative breast cancer in China completed enrollment well ahead of schedule, and we expect to announce top line results in the second half of 2021. In addition, we received pediatric and rare severe disease priority review designations by the Taiwan FDA for sacituzumab govitecan in second-line triple-negative breast cancer and orphan and fast track designations for metastatic triple-negative breast cancer from the Ministry of Food and Drug Safety in South Korea in May of 2021. In January 2021, we submitted an NDA to the HSA of Singapore for sacituzumab govitecan for the treatment of second-line triple-negative breast cancer and are preparing NDA submissions for the same indications in South Korea and Taiwan in the second half of 2021. Moving to hormone receptor positive HER2 negative breast cancer, we expect to complete patient enrollment of our fully powered Phase III Asia study in early 2022. This trial is currently enrolling across sites in Mainland China, Taiwan and South Korea. For urothelial cancer, Gilead received accelerated approval from the U.S. FDA in April 2021 for locally advanced or metastatic urothelial cancer following a platinum-containing chemotherapy and a PD-1 or PD-L1 inhibitor. As part of the collective effort to make this innovative drug available to patients around the world, we started patient enrollment in China as part of Gilead's global Phase III confirmatory trial in August of 2021. Working with our partner, Gilead, we endeavor to develop sacituzumab govitecan broadly across a number of additional cancer types that overexpressed TROP-2. In March, China's NMPA approved a CTA for a Phase II basket trial in 180 patients with relapsed/refractory esophageal squamous cell carcinoma, gastric cancer and cervical cancer. We expect to initiate this study in the second half of 2021. Looking at our cardio-renal therapeutic area, we completed Chinese patient enrollment as part of our partner's -- Calliditas' Phase III global registration trial to evaluate Nefecon as a treatment for IgA nephropathy. We expect to have proteinuria data readout in Chinese patients in the first half of 2022 and are preparing to file an NDA in China following the readout in 2022. I also would like to highlight that our partner, Calliditas, committed -- submitted an NDA to the U.S. FDA for Nefecon for the treatment of primary IgA nephropathy with a PDUFA date of September 15, 2021. Calliditas also filed an MMA (sic) [ MAA ] to the EMA for Nefecon for the same indication. If approved, Nefecon would be the first-ever drug with the label for IgA nephropathy. Moving to our infectious disease portfolio. First, we have eravacycline. And as I previously mentioned, the NDA for eravacycline in complicated intra-abdominal infections was accepted by the China NMPA in March of 2021. In addition, China NMPA approved a CTA for eravacycline for the treatment of community-acquired bacterial pneumonia. In addition to eravacycline, we expect to have top line readouts -- results readout for taniborbactam, a novel injectable beta-lactamase inhibitor, in the first half of 2022. For corporate update. In the first half of 2021, we have also focused on initiatives in 3 key areas: commercialization, discovery and manufacturing. We are building an industry-leading commercial team with 3 business units in Mainland China focused on oncology, internal medicine and infectious disease under the leadership of Kevin Guo, who joined us as Chief Commercial Officer in February of 2021. We have also expanded our geographical footprint with newly established offices and general managers in South Korea, Taiwan and Singapore to ensure commercial success in those markets. With Jennifer Yang, our Chief Scientific Officer, joining us in April, we are actively building our discovery team by recruiting experienced talents in drug discovery and translational medicines and exploring new modalities and technology platforms to accelerate our discovery efforts. Our new research laboratory in Zhangjiang, Shanghai is expected to be fully operational in the first quarter of 2022. Furthermore, we are making steady progress on the construction of our global manufacturing site in Jiashan, Zhejiang. Phase 1a of the facility construction, including quality control and office building, is expected to be completed in 2022 and Phase 1b containing production, repackaging and warehouse is expected to be complete in 2023. We will continue to expand our innovative drug portfolio in areas of high unmet medical needs through in-licensing and building of organic discovery capabilities. Our business development team is actively working on a number of licensing, research collaborations and partnership transactions across our therapeutic areas of focus, which complement our existing portfolio and offer opportunities for commercial synergy. With that, I will now turn the call over to Ian Woo to review our financial highlights. Ian?

Great. Thank you, Kerry. So I will now review the financial results for the 6 months ended June 30, 2021. And please refer to our interim results announcement from yesterday for some of the detailed numbers. So as of June 30, 2021, the group's cash and cash equivalents was RMB 3.971 billion. Net loss for the period decreased from RMB 240.4 million from RMB 623.5 million for the 6 months ended June 30, 2020, to RMB 383.1 million for the 6 months ended June 30, 2021. This is primarily attributable to changes in fair value of financial instruments issued to investors. Adjusted loss for the period increased by RMB 57.2 million from RMB 245.9 million for the 6 months ended June 30, 2020, to RMB 303.1 million for the 6 months ended June 30, 2021. This is primarily attributable to increase in R&D expense and distribution and selling expenses related to the buildout of our commercial organization. Moving on to specific line items. Research and development expense increased by RMB 89.8 million from RMB 161 million for the 6 months ended June 30, 2020, to RMB 250.8 million for the 6 months ended June 30, 2021. This is attributable to 3 factors: number one, additional clinical trials for our drug candidates; number two, continued expansion of our R&D team; and number three, the establishment of our internal discovery platform for in-house R&D capabilities. General and administrative expenses increased by RMB 6.1 million from RMB 101.3 million for the 6 months ended June 30, 2020, to RMB 107.4 million for the 6 months ended June 30, 2021. This is primarily due to increases in employee remuneration in connection with the organization's expansion. Distribution and selling expenses increased by RMB 32.9 million from RMB 9.2 million in the 6 months that ended June 30, 2020, to RMB 42.1 million for the 6 months ended June 30, 2021. This is primarily due to the buildup of our commercial team and prelaunch activities for the commercialization of upcoming products that we expect to be approved and launched in 2022. Finally, I would like to just highlight the fact that the company stock was included as a constituent stock of the Small Cap Index, the FTSE All-Cap Index and FTSE Total-Cap Index in the Global Equity Index Series. This concludes our prepared remarks for today. I will now pass the call back over to the operator for questions.

Thank you. Thank you, Kerry, and Ian. So operator, please remind participants how to raise questions.

[Operator Instructions]

And alternatively, if you wish to send -- for me to raise the question on behalf of you, you can also send the questions over to me through e-mail. My e-mail address is ziyi.chen@gs.com. So before we're waiting for questions, I actually got 2 questions to start with. Number one is, definitely a lot of investors are looking forward to more BD deals. As Kerry just mentioned that we're looking at potential to do 3 more BD deals in the second half of this year. Well, I think it's more like in the upcoming 4 months. So any color on that? And could you elaborate a bit more about what kind of specific areas you will be looking at? What kind of stage you -- of assets we will be looking at? Any potential time line for that? I think this is one of the questions we have keeping asking. And broader on top of that, I think still, we're trying to understand a bit more on the overall BD strategy over next few years and also things -- company also ramping up the in-house discovery capability. So trying to understand a bit more about how you're going to balance the resources between those 2 efforts, the BD and also in-house discoveries. And also in the in-house discovery part, any progress on the team buildup and also any specific areas we'll be looking at for the in-house discovery?

Okay. Thank you, Ziyi. This is Kerry, and I will start with these questions for the -- I'll start with the second question first, which is the overall BD strategy and portfolio expansion strategy over the next few years and the balance between organic and inorganic growth. So from the licensing perspective, we have not changed our direction substantially in that we still firmly believe that a global innovation with first-in-class or best-in-class assets is the target zone that we pursue. And we also spend most of our attention on assets that have achieved a clinical proof of concept. So these are later-stage assets usually in Phase II or even early in Phase III. So as in the past, 6 of -- 8 of our assets fall into those categories. And I would say we maintain that same kind of ratio. We are spending some time looking at earlier assets, things that are in Phase I or early in Phase II. These carry a higher risk profile but also have a substantially different value proposition in taking assets to POC and with the opportunity with earlier assets to try to gain access to some of the global economics rather than just China and regional economics. From the discovery side, the team is growing well. Jennifer has hired the bulk of her leadership team. This is today about 10, 11 people. And of course, we have to build out our wet lab in Zhangjiang, in Zhangjiang Hi-Tech Park in Pudong, Shanghai. So that space has been acquired and is being fitted out now. And currently, the team is working on their early projects and starting the strategy for the discovery area. We are really modality agnostic with my experience and Jennifer's experience crossing small molecules, large molecules, ADCs and even nucleic acids. And so we're much more focused on the target category than we are on the modality because modality changes depending on the target. But we do have interest in ADCs. We have -- because we have one of the leading ADCs in the world today with Trodelvy or sacituzumab govitecan. And so we would like to enhance our capabilities in that area. So that team is growing quickly and, I think, in the right direction. As far as the balance between license and in-license, of course, the next 2 or 3 years will be largely in-licensing. Discovery takes some time to move from project's initiation to clinic. So we think our first assets will approach clinic in the next 2 to 3 years. And I would say if we think about the whole size of the discovery organization, we expect it to be in the neighborhood of 40 to 60 people when it is complete. So that's my answer to the second question. To the first question on some more character about the near-term deals, we have a very active BD plate right now with multiple deals that we are in or have completed due diligence. And these deals cross all of our therapeutic areas with a focus on renal disease and on oncology and on infectious disease. We have -- we are looking and have very active deals in all of those areas. And the spectrum of the deals range from a clinical development perspective from assets that are in early Phase II to assets that are ready to go to Phase III. So that's about the answer to question 1. So Ian, Neo, do you have anything to add to the questions -- or to the answers?

Yes. Maybe I'll just add a couple of quick points. One is that I think as a management team think about our approach to business development, I think maybe 2 years ago, we would just be talking about in-licensing transactions. And today, we also still -- we still talk about in-licensing, but I think what we can do on the business development front is a lot broader, right? We could do R&D collaborations. We could explore more strategic transactions. We can still look at late-stage assets. We can also look at earlier-stage opportunities. And whereas the last 4 years, we were really looking at assets with regional rights, today, we are -- there are a number of opportunities that we're in late-stage discussions with that would have global upside or global rights. And I think this is just because of the scale and the expertise that the company has gained over the last 4 years and really has accelerated with the buildout of our discovery organization. And that allows us to expand really the range of opportunities that we could look at. And that will also allow us to create shareholder value not just from our core regional territories but potentially with global upside as well. Now these sort of R&D collaborations that potentially could allow us to access to enabling technologies could be very strategic and really position our -- the company well for the next phase of growth.

Sure. Operator, let's open the line.

The first question we have is from Sean Wu from Morgan Stanley.

Congratulations on how the progress is there and remains with [ the department ]. I have 2 quick questions. The first is about your commercialization plans for all your assets in China, in Korea and other places. You mentioned like you have multiple commercial offices, you have multiple chief commercial officers to be in charge of kind of sales, of product investment areas. Some of the products, you may give to maybe third party to prepare new products. That's number one. Number two, it's about your buyback plan. You just announced very big and I can point out, company, USD 100 million. I understand that you -- many people still think the [indiscernible] just not sure. Like what's the time line that you can deploy this USD 100 million? And the COVID [ spike is ] going up and will make us [indiscernible] at certain points, we hope it happens soon. On the other point, [ I invest in stock ] may not always be necessary. [ When funds ] grow up, those [indiscernible] amount to huge buybacks since the start until now kind of [ less than half of them since they ] announced buybacks. Of course, I think the business should have been [ improved ] while the company develops many programs [indiscernible] in some sense [ across the government ]. So I'm just kind of curious to see for us, we have kind of large use of cash in the $100 million in the [ last year eating up ] a lot of news. Okay.

Thank you so much for your questions. I'll take the second question first on the stock repurchase. Just to be clear, it's HKD 100 million, not USD 100 million. And so it's a substantially smaller amount of...

My bad.

Yes. So it's Hong Kong dollars. And you covered the points well, I think. We certainly believe our stock is significantly undervalued and that our Board believes that share repurchase under these current conditions demonstrates our confidence in our business outlooks and the prospects for the company. And we're authorizing just 2% of our cash balance for repurchase. And we believe that we can replenish cash balance in the future at a lower cost of capital. So I think those are the sort of the simple answers to that question. From the first question about the -- our commercialization and general approach, without question, we will only have one Chief Commercial Officer. That's Kevin Guo. Very talented, very experienced gentleman, was the previous BU2 leader at Roche and was an executive at Eisai in China and globally, decades of experience in many therapeutic areas. So one of the benefits of Kevin is that he has been in the antibiotic area. He's been in vaccines. He's been in cancer. He's been in renal disease. So he has a broad experience, including deep experience from Roche in breast cancer where he led the commercialization efforts for Herceptin and for Xeloda. So we believe he's the right person. He's certainly demonstrated that in his time here and putting together a great team. Our team structure under Kevin is set up in a BU fashion for oncology, for infectious disease and for internal medicine. The international group comes in through -- under Kevin, which is led by Alex Wang, a talented, experienced person with a background from -- in Asia. And so that's how our structure will work. In China, certainly for oncology, we intend to build that sales force, entire -- and commercialization force ourselves. Same for Nefecon. In other therapeutic areas, we have not -- we're not completely -- we have not completely decided the model, but the marketing -- central marketing access, government affairs, medical affairs, all those functions will be internal to our company. Ian, Neo, any clarifications on these answers?

Not from me.

No, I think you answered great, yes.

Yes, yes.

Yes. I would like to [ pardon ], I see with 100 million the USD next [indiscernible].

No problem.