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

Good day, and thank you for standing by. Welcome to the Everest Medicines Full Year 2021 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Leah Liu, VP of Corporate Affairs.

Thank you, operator, and good morning, everyone. Thank you all for joining this call. For this call this morning, we would like to discuss our 2021 full year results and give you an update on our business. The details of the full year results is available on our website. Joining me today from the company are Dr. Kerry Blanchard, our CEO; Ian Woo, our President and CFO; and Neo Zhang, our COO. Before we get started, I'd like to remind you that the 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 conditions of the company, which can be identified by terminology such as will, expect, anticipate, 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, advisers or representatives, have no obligations and does not undertake to revise forward-looking statements to reflect new information, future events or circumstances after the date of this conference call, expect as required -- except as required by law. I will now turn the call over to Kerry to give you more details on our 2021 operations and 2022 business update. Kerry?

Thanks, Leah, and good morning, everyone. Thank you for joining us today. I'll walk through this presentation to review Everest's 2021 full year business highlights. Since the company's founding in July of 2017, we have strategically built a portfolio of 11 promising clinical-stage drug candidates. We established our platform with 4 key areas with late-stage products to be launched in 2022 and 2023 that address critical unmet medical needs. Our 4 therapeutic areas are oncology, renal diseases, infectious disease and messenger RNA therapeutics. In oncology, we have Trodelvy, a TROP-2-directed antibody drug conjugate expected to be approved in China in the first half of 2022. In cardiorenal, Tarpeyo or Nefecon is the first and only treatment approved by the U.S. FDA for IgA nephropathy. And there are about 5 million IgA nephropathy patients in China. In infectious diseases, we have Xerava for the treatment of complicated intra-abdominal infections to be launched in China within this year. And our messenger RNA platform, with a potentially best-in-class PTX-COVID-19-B vaccine, is exploring multiple regulatory approval pathways and has potential to be lost -- to launch in 2023. Apart from the 4 mentioned anchor assets, we have remaining 7 assets we are expecting approvals for over the next 2 to 6 years, ensuring that we will have continuous growth momentum. 2021 has been a banner year for Everest, with important achievements across all aspects of our business. Next, I'll review our key accomplishments in 2021 and thus far in 2022. I believe we have achieved China speed with global quality. We received the first in a series of expected approvals for Trodelvy in Asia from the Singapore Health Science Authority. We also filed 6 NDAs or BLAs for Trodelvy and Xerava in Asia, a testament to the impressive execution capability of our team. We had 4 positive top line data readouts from trials conducted by Everest and our partners during this period. Trodelvy had positive top line data from our Phase IIb bridging trial in triple-negative breast cancer, and TROPICS-02 trial in hormone receptor positive HER2-negative breast cancer. Our partner, Venatorx, reported positive results from its pivotal Phase III Cefepime-Taniborbactam trial, which included patients from Everest territory. In March, our partner for etrasimod, Pfizer, announced positive top line results from the Phase III ELEVATE 12 trial in ulcerative colitis patients. We have to also receive 4 IND approvals from the China NMPA to execute our future clinical development plans for Trodelvy, Xerava and SPR206. 2021 was also a breakout year for Everest in broadening its pipeline by licensing of potentially best-in-class and first-in-class drug candidates. We entered into a comprehensive licensing agreement with Providence for their RNA -- messenger RNA platform, including their best-in-class messenger RNA COVID vaccines. In addition, in September 2021, Everest licensed EVER-001 or XNW1011, a covalent reversible BTK inhibitor from Sinovant and SinoMab, to complement our existing portfolio in renal disease. To form a multipronged approach to combat COVID, we license global rights to Singapore's experimental drug development center's oral -- viral 3C-like protease inhibitors as potential best-in-class treatment for COVID-19. To boost the build-out of our discovery capabilities in oncology, we also established a collaboration with AbCellera's AI-powered antibody discovery platform. On our -- on top of our top line milestones, we built our organization to over 400 employees. Our expanding discovery team moved into a new 1,700 square meter research facility in Pudong Zhangjiang Hi-Tech Park while advancing multiple projects in oncology, renal diseases and messenger RNA vaccines. Additionally, our manufacturing facilities in Jiashan, Zhejiang Province was topped out in 2021. To supplement our commercialization efforts, we entered into a series of strategic collaborations with Tencent, Medbanks, MediTrust and Yuanxin Group in digital platforms, mobile terminals, medical insurance, innovative payment solutions and other initiatives. Also, Everest formed a strategic cooperation with Sinopharm for supply chain and distribution. Here's our overall pipeline. We have 10 potentially first-in-class or best-in-class assets in our 4 therapeutic areas as well as on late-stage messenger RNA COVID vaccine and 3 preclinical messenger RNA vaccines for infectious disease from our messenger RNA platform. Trodelvy is the first FDA-approved TROP-2 antibody drug conjugate. It has been approved by the U.S. FDA for second line or greater metastatic triple-negative breast cancer and for metastatic urothelial cancer. The left side of the slide shows the breadth of the clinical program carried out by our partner, Gilead. Gilead is running Phase III trials in breast cancer, lung and bladder cancers. For Everest, we have filed BLA or NDAs for Trodelvy in second line or greater metastatic triple-negative breast cancer in China, Taiwan and South Korea, with the expectation approval in China and Taiwan in 2022. In hormone receptor positive, HER2-negative breast cancer, our fully powered Phase III regional trial will enroll 330 patients in Asia. The enrollment is expected to be completed in the first half of 2022 with data readout in early 2023. For bladder cancer, we joined Gilead's global Phase III confirmatory trial last August and will continue -- and will contribute to patient enrollment in our territories. In lung cancer, Everest will be a part of the global Phase III trial led by Merck through our existing collaboration agreement with Gilead. Finally, we are also running a Phase II basket trial in esophageal, gastric and cervical cancer and potentially additional cancers to evaluate Trodelvy as a treatment for cancers prevalent in Asia. Moving to the market opportunity for Trodelvy. As you can see on the left-hand side of the slide, the indications currently in our clinical trial programs. The incident patients in 2019 in China totaled 1.9 million patients. On the right-hand side, given about 80% of cancer incidents have TROP-2 overexpression, we view Trodelvy as having substantial upside in a broad range of tumor types. The next slide shows the clinical trial data for Trodelvy in metastatic triple-negative breast cancer in the global ASCENT trial. The median PFS, progression-free survival, was 5.6 months for Trodelvy versus 1.7 months for chemotherapy with an objective response rate of 35%. The right-hand side highlights the results from our Phase II bridging trial. In this trial, we generated an objective response rate of 39%, numerically higher than in the global ASCENT trial with a similar progression-free survival to ASCENT. It is gratifying to see the results of the Chinese trial replicate the ASCENT trial. Moving on to Nefecon or Tarpeyo, our anchor product in renal diseases. Our partner, Calladitas, received accelerated approval from the U.S. FDA for Nefecon to reduce proteinuria in IgA nephropathy last December. Nefecon the first and only FDA-approved treatment for this disease state. We joined Part B of the Phase III global NefIgArd trial by contributing 60 patients in China. We expect to file an NDA in China in the second half of 2022. Nefecon has been granted breakthrough therapy designation by the China NMPA, and we expect priority review once the NDA is filed. In our antibiotic portfolio, we have 3 best-in-class assets in various phases of development. Xerava is already approved and commercialized in Singapore and is expected to be launched in China in the second half of 2022. We see our messenger RNA platform having 3 pillars in development. The first is PTX-COVID-19, which is in a pivotal trial and to which we have rights in China, Southeast Asia and Pakistan. Second, our 2 collaboration assets with Providence Therapeutics, which are in preclinical development with expected entry into clinical stage next year. These 2 candidates will be messenger RNA-based upgrades of marketed inactivated or protein-based vaccines that are designed to offer enhanced dosing and safety profiles. A third asset is under development in our third pillar for which Everest owns full global rights. The third candidate will be for a viral-based disease with no existing marketed vaccine. This is data from the Phase I trial of our COVID-19 vaccine, PTX-COVID-19-B. As you can see in the right-hand panel, there is robust neutralization antibodies against COVID-19. And the comparison of our 40-microgram and 100-microgram dose levels to convalescent titers result in an 8.6 and 23-fold higher than convalescent serum. In terms of time line and pathway to approval. Our partner Providence is running a head-to-head Phase II study against Pfizer's messenger RNA vaccine to demonstrate our messenger RNA vaccine will generate similar antibody titers. After close consultation with the stringent regulatory authority, we expect the Phase II study to be a pivotal registration trial. Data readout of this trial is expected in the second -- in mid-2022 and rolling EUA submission to follow at the end of 2022 or early 2023 with a potential launch in 2023. Meanwhile, a Phase III registrational booster trial will be initiated in Asia in mid-2022. The company's manufacturing plant, with an annual capacity of 700 to 800 -- 700 million to 800 million doses will become commercially ready by the end of 2022. Phase 1 of our manufacturing plants is intended for messenger RNA COVID vaccine production with a planned capacity of 700 million to 800 million doses annually. The top half of the slide shows the mockup of the site in Zhejiang, in Jiashan. The bottom half of the slide is our new research, a lab research, a laboratory in Zhangjiang, Shanghai, which will help accelerate the growth of our discovery platform. It is fully operational with 1,700 square meters of state of the art facility, with a 1,000 square meter lab space, including a BSL 2 laboratory. During 2021, Everest has transitioned into a commercial-stage company under the leadership of Mr. Kevin Guo, Chief Commercial Officer. The commercial team's headcount has grown to over 120 employees and includes industry-leading commercial experts. And we have already initiated our commercial operations in Singapore. For Trodelvy, we're building our commercialization efforts with the aim at the launch to cover 80% of the market in China for breast cancer. The team has already conducted more than 90 symposiums with about 400 expert speakers and more than 300,000 attendees from the health care professions. Our commercial team has been working extensively on the launch of Tarpeyo or Nefecon as well. Everest has a proven track record in asset selection through our business development effort. For 5 of our licensed assets since 2019, our overseas partner has been acquired by a large MNC or biotech. In December 2021, Arena was acquired by Pfizer for etrasimod. In July of 2021, Spero was -- licensed SPR206 to Pfizer. In October 2020, Immunomedics was acquired by Gilead for Trodelvy. In July 2020, Tetraphase was acquired by La Jolla for Xerava. In January 2019, Arena licensed out Ralinepag to United Therapeutics. This really showcases Everest's extraordinary strength in identifying promising drug candidates ahead of key data readouts or the culmination of strategic bio interest. It is worth noting that we have been approached by various global and regional companies who view our portfolio of late-stage, first-in-class and best-in-class products to be undervalued and who have expressed interest in collaboration. We will entertain these discussions that create substantial shareholder value. With that, I'll turn over the call to Ian Woo to review our financial highlights.

Thank you, Kerry.

Ian?

I will now -- yes. Can you hear me?

Yes.

Yes, we can.

Thanks, Kerry. I will now review Everest's financial results for the full year 2021. So we generated revenue of RMB 54,000 in 2021 through commercial sales of Xerava in Singapore. Cost of revenue was RMB 23,000. This is the first step in our transformation to a commercial-stage company, which is expected to accelerate in 2022. General and administrative expenses decreased by RMB 35.1 million to RMB 242.7 million for the year ended December 31, 2021. And this is primarily due to decreased expense related to the company's public listing in 2020. Research and development expenses increased by 63% to RMB 613.4 million for the year ended December 31, 2021, primarily due to increased number of clinical trials for our drug candidates and the expansion of internal development and discovery teams to build up in-house R&D capabilities. Distribution and selling expenses increased by RMB 165 million to RMB 198.2 million for the year ended December 31, 2021, primarily due to the expansion of our commercial organization and prelaunch and launch activities. Our IFRS net loss for the year ended December 31, 2021, was RMB 1.0087 billion, primarily attributable to the decrease in loss from fair value change in financial instruments issued to investors that is tied to the conversion of preferred stock to common at the time of our IPO. So now turning to non-IFRS adjusted loss, which is the figure that we disclose every year. This was RMB 777.1 million for the year ended December 31, 2021, representing an increase of RMB 174.4 million, primarily due to an increase in R&D expense and distribution and selling expense. So we ended 2021 with a cash balance of RMB 2.6401 billion. We also had investments in I-Mab Biopharma, with RMB 798.5 million as of December 31, 2021. In terms of cash needs for 2022, we are guiding to RMB 1.5 billion to RMB 1.8 billion. The range will be impacted by a number of factors, including the timing of commercial launch of our products which will generate revenue. We will also explore a number of options at our disposal to strengthen our balance sheet. Our goal is to ensure that the company has at least 2 years of cash. Now turning to the last 2 slides. These slides summarize our upcoming catalysts. Our team is committed to advancing our drug candidates, and we look forward to sharing our progress with you over the coming years. I would like to reiterate some of the key milestones coming up in 2022, which Kerry had already highlighted earlier in the presentation for individual assets. So in the second quarter of 2022, we expect BLA approval of Trodelvy in second-line metastatic TNBC in China and commercial launch in the second half of 2022. While in the second half of 2022, we expect approval of Xerava in complicated intra-abdominal infections in China. Also in the second half of 2022, we expect: NDA filing for Tarpeyo or Nefecon in China for IgA nephropathy; Phase I initiation for EDDC-2214, that's our 3CL protease inhibitor; Phase II immunogenicity data readout for our mRNA COVID-19 vaccine; and the completion of the build-out of our Jiashan manufacturing facility. So clearly, I did not touch upon all of the milestones on these 2 slides, but I just wanted to highlight a few of the -- what we consider to be the most important items. So for 2022, again, we believe it will be a year where we continue to build our capabilities, advance our portfolio and initiate commercial activities in China. We look forward to sharing these exciting developments with you throughout the year. So with that, I will invite the operator to begin the Q&A.

[Operator Instructions]

Yes. I would like jump in and say if you want to ask a question, you have to dial in the telephone line instead of using the online link. So I think give people a few seconds to actually dial into the conference line versus the website link.

And it does look like we have a question from Linhai Zhao with Goldman Sachs.

Hi, can you hear me?

Yes.

Yes, we can.

Yes. This is Linhai Zhao, Goldman Sachs. And I'm just curious about our R&D expenses this year. And I know that we have this agreement with Providence about the messenger RNA vaccines which includes upfront payment of USD 100 million. And am I right to say that these expenses are not included in this year's R&D expense? And what is our plan to recognize this expense?

Ian, I think we'll send that missive to you, the question.

Sure. Thanks, Kerry. Yes. Let me just make sure that I understand the question. Do you mean the -- are you referring to the milestone payments?

No, the upfront payment.

Yes, the upfront payment. Yes, okay. Yes. So as you know, under IFRS, the upfront and milestone payments associated with licensing deals are capitalized. So they do not impact our -- so they're not in the R&D expense and do not hit our P&L.

I see. So not only the upfront, and the falling -- the future milestones will also be capitalized, right?

Correct.

And our next question comes from the line of Jack Lin with Morgan Stanley.