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

Ladies and gentlemen, good day, and thank you for standing by. Welcome to Everest Medicines Transaction Announcement Conference Call. [Operator Instructions] Please be advised that the conference is being recorded. I would now like to hand the conference over to your speaker today, Leah Liu, VP of Corporate Affairs. Please go ahead.

Thank you, operator. Good morning, everyone. Thank you for joining us today. We have announced this morning our agreement with Gilead on the regional rights of Trodelvy and would like to share more insights with you on this transaction on this call. Joining me today from the company are Dr. Kerry Blanchard, our CEO; and Mr. Ying Woo, our President and CFO. 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 regards to the business operations and financial conditions of the company, which can be identified by terminology 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, advisers or representatives have no obligation and does not undertake to revise forward-looking statements to reflect new information, future events or circumstances after the date of this conference call, except required by law. And now I will turn over the call to Ian to give you more details on the transaction. Thank you.

Great. Thank you, Leah, and good morning, everyone. Thank you for joining us on this call. I will walk through this presentation to review the transaction and discuss our corporate strategic priorities going forward. So if we go to Slide 5. First, I just want to say that why we decided to pursue this transaction. While Everest continues to remain committed to developing a robust pipeline and address critical unmet medical needs, we recognize the challenges of today's volatile capital market. We believe this transaction will help us navigate through this critical period of time and achieve the following 3 important goals. And first and foremost, it's -- I think for us, it's patient first. We believe that this transaction will allow Trodelvy to get the right level of resources and attention to maximize the value and impact of this important drug to all patients in our territories and as well as maximize the value for our various stakeholders. Second is this transaction allows us to streamline resources to be more focused, focused on fewer therapeutic areas and position ourselves for future growth through development of our internal pipeline, further acquisitions and the internal discovery effort that we initiated about 18 months ago. Third, this transaction will allow us to achieve, we believe, capital markets independence and allow the company to rightsize ourselves in this capital markets downturn. And we think this is exceedingly important for a biotech company to be able to weather the current volatilities and the capital market challenges and come out at the other end as a stronger company. Next slide, please. So since April 2019, when we in-licensed Trodelvy from Immunomedics, which is now a subsidiary of Gilead, Everest has demonstrated superior clinical and registrational execution capabilities through successfully completing our own Trodelvy trial in metastatic triple-negative breast cancer in China, receiving NDA approval in China and in Singapore and launching the product in Singapore. And we have also completed NDA submissions in Taiwan, Hong Kong and South Korea. Going forward, we're very confident that this -- through this transaction, Gilead will maximize the value of the impact of Trodelvy. As a leading global pharmaceutical company with worldwide operations, Gilead has the capabilities and capital to continue to invest in this key global strategic asset. Consolidating control over Trodelvy's global development and commercialization will also provide better access and development for further and future indications. Gilead will have broader involvement in clinical and commercial development for patients in Everest territories going forward. Next slide. So moving on to the financial terms. The total deal value is USD 455 million. This includes a significant upfront payment of $280 million, milestone payments of up to USD 50 million in regulatory and up to USD 125 million in commercial milestones, contingent on various mutually agreed milestone of the events. So further, we will no longer have to pay the up to USD 710 million of further obligations to Gilead that was previously part of the license agreement with Immunomedics. We also wanted to highlight that we have worked diligently with the Gilead team to ensure that employees critical to the development and commercialization of Trodelvy will have the opportunity -- will have the chance to continue to work on Trodelvy. So this is quite important to us as many of our employees have been with the company for a long time, and we want to ensure that through this transaction, there will be an opportunity to interview with Gilead and potentially have ongoing roles at the company. These financial terms will provide Everest with capital markets independence and extend our runway into 2026, which is especially important given the broader macroeconomic uncertainties we are facing today. Next slide. We have gone through a comprehensive and diligence process over the past few months to arrive at what the company and the Board considers to be the best transaction for Everest at this time. We ran a competitive process, which included a range of multinational pharma companies as well as local Chinese biopharmas to evaluate various options for Trodelvy. After extensive discussions with counterparties and our advisers, we are moving forward with a proposal that best reflects our goals to expand patient access and maximize shareholder value. As I mentioned in the previous slide, this transaction with Gilead best achieves all of our objectives. We are also confident that consideration captures the full intrinsic value of Trodelvy with significant upfront cash derisking our portfolio, while the regulatory and commercial milestones provide significant participation in the future success of Trodelvy. We are confident that the team at Gilead will drive success for Trodelvy, and we will further share the upside, thanks to our team who have successfully developed Trodelvy to the current stage. Next slide. So this slide just shows you our current cash situation. We are expecting that in July or in the midyear, we will have roughly about USD 300 million of cash. And this transaction will provide $280 million of additional cash and up to another $175 million in future regulatory and commercial milestones. So in total, this will bring our cash balance to -- if you just include the current cash and the upfront, $580 million, and the milestones could bring another $175 million. In total, this represents a attractive return on what we have paid upfront for Trodelvy. And this is -- we could get up to a 3.6x return on the capital that we have invested in the -- in-licensing in the Trodelvy for our territories. Now we plan to utilize this capital to continue the development of Nefecon and the rest of our existing pipeline assets, expand our drug pipeline through business development and further strengthen our discovery platform to build up our in-house R&D capabilities. We look forward to advancing our mission and key priorities on our path forward. And with that, I will hand over to Kerry now to discuss further.

Thanks, Ian. Please go to the next slide. First, I want to reiterate that the sale of Trodelvy rights do not change Everest's business focus. We remain committed to developing novel and differentiated therapies to address critical unmet needs in Greater China and other emerging Asia Pacific markets. After completion of the transaction with Gilead, our path forward will be driven by 2 strategic priorities: one, to accelerate the development of the other 10 assets in our pipeline such as Nefecon, etrasimod and developing multiple vaccines from our messenger RNA platform; and two, to pursue business development and drug discovery programs to further expand our asset portfolio. Next slide, please. Since the company's founding in 2017, we have strategically built a portfolio of first-in-class or best-in-class candidates in all different stages of development to sustain healthy and consistent future growth of our business. After this transaction, we'll continue to develop 10 candidates currently in our pipeline and expect 7 BLA NDA approvals in the next 2 to 6 years. We have 3 best-in-class assets in various phases of development in our antibiotic portfolio, among which we have eravacycline, a novel, fully synthetic tetracycline approved in the U.S. and EU with the treatments of complicated intra-abdominal infections. This product has already been approved and commercialized in Singapore, and we expect NDA approval and commercial launch in China within this year. Apart from eravacycline, we also have taniborbactam, a beta-lactamase inhibitor in Phase III clinical trials with positive top line results announced in March of this year as well as SPR206 that's currently in Phase I trial. Next slide, please. Our internal medicines portfolio has, first and foremost, Nefecon, a first-in-class therapy targeting -- a first-in-disease therapy targeting IgA nephropathy. Our partner, Calliditas, received accelerated approval from the U.S. FDA for Nefecon under the name of TARPEYO to reduce proteinuria in IgA nephropathy in December of 2021, making it the first and only FDA-approved treatment for this condition. We joined Part B of the Phase III global NefIgArd trial by contributing 60 patients in China, and we reported on these Chinese data this year. Nefecon has also received EMA approval earlier this year. The NDA filing for Nefecon is expected within this year as Nefecon has been granted breakthrough therapy designation by the NMPA, where we expect Nefecon to be approved in China in the first half of 2023. Next slide. Etrasimod is our potential best-in-class product in the autoimmune disease area. Etrasimod has therapeutic potential in many autoimmune and inflammatory mediated diseases, including ulcerative colitis, Crohn's disease and atopic dermatitis, among which prevalence of UC in China is expected to reach 900,000 by 2023. We are currently conducting a Phase III trial for Etrasimod for the treatment of ulcerative colitis in China and plan to conduct trials for other indications as well. Next slide, please. Etrasimod has demonstrated efficacy in ulcerative colitis in 2 global pivotal trials announced by Pfizer earlier this year, and the 52-week ELEVATE UC 52 trial clinical remission for Etrasimod was 27% compared to 7.4% in patients receiving placebo at 12 weeks. In the 12-week ELEVATE UC trial, clinical remission was achieved among 24.8% of patients receiving Etrasimod compared to 15.2% of patients receiving placebo, while demonstrating safety profiles consistent with our other studies. Etrasimod has not only demonstrated best-in-class potential, but outstanding efficacy signal compared to several categories of drugs, including biologics and JAK inhibitors already approved for the treatment of UC. In 2021, the company entered into a collaboration agreement with Providence Therapeutics. The partnership not only adds to best-in-class potential messenger RNA COVID-19 vaccine to our portfolio, it also establishes a broad strategic partnership, giving us exclusive access to a clinically validated messenger RNA technology platform. Today, Everest Medicines has made significant progress on the development of our messenger RNA platform. First, on the discovery and development side, we have completed the technology transfer related to antigen design and sequence optimization and messenger RNA vaccines and continue to develop a lipid nanoparticle delivery system with Providence. We've also assembled a vaccine R&D team made up of highly experienced and multidisciplinary talents to further the development of this platform. Everest has built a fully independent messenger RNA vaccine manufacturing platform with full tech transfer from Providence, which will enable us to be a local manufacturer of messenger RNAs in China. Our manufacturing plant in Jiashan will be ready for commercial production by the end of 2022 with the planned annual capacity of 700 million doses. The messenger RNA pipeline currently consists of Phase III-ready COVID-19 vaccines, PTX-COVID19-B and the second-generation bivalent vaccine EVER COVID-19 M1 as well as 3 preclinical vaccine candidates for other infectious disease indications. We have regional rights to the 2 COVID vaccines, 50-50 shares in global rights for the first 2 preclinical candidates and 100% global rights for the third and subsequent candidates developed from an mRNA platform. COVID-19 -- PTX-COVID19-B is designed as a polling S protein candidate that can be stored at minus 20. The data from the Phase I trial of our COVID-19 vaccine shows robust neutralizing antibody activity against COVID-19 and the comparison of our 40-microgram and 100-microgram dose levels to convalescent titers result in a 8.6x and 23x higher than convalescent sera. Our safety profile is similar to the 2 approved messenger RNA vaccines. Next slide. EVER COVID-19 M1 is a second generation of the COVID-19 vaccine, a bivalent vaccine, which contains the S protein RNA of both the original D614G strain and the Omicron variant. It is intended to be used as a bivalent booster vaccine. Next slide. Our preclinical MOV study results have shown that the bivalent vaccine candidate as a booster generates high neutralization titers against Omicron sub variants BA.1, BA.2 and BA.4, 5. Next slide, please. Here, we've laid out the time line and pathways to approval for COVID-19 messenger RNA vaccine programs. Our partner Providence has finished a head-to-head Phase II trial against Pfizer's messenger RNA vaccine, and we're expecting immunobridging data and safety data this month. Meanwhile, in the Phase III registration booster trial for COVID-19-B will be initiated in Asia in the second half of this year as well as a Phase III booster trial of PTX-COVID-M1, our bivalent vaccine. We anticipate approval and launch of the COVID vaccines in 2023. After consultation with stringent regulatory authority, we expect to initiate rolling EUA submissions in 2023. Next slide. In addition to our extensive current pipeline, we look to further expand our portfolio -- our product portfolio through BD and interim discovery. Our top-tier business development team has continually executed on our strategy of identifying promising high-quality, first-in-class and best-in-class molecules and therapies with an unmet medical need where we have acquired regional and global rights. Our track record in asset selection has been shown today in our transaction with Gilead and also by 5 of our licensed asset having subsequently been acquired by large MNC or biotech since 2019. Now Pfizer acquired Arena for etrasimod in December of '21. Pfizer licensed SPR206 from Spero in July of '21. Gilead acquired Immunomedics for Trodelvy in October of '20. La Jolla Pharmaceuticals acquired Tetraphase for XERAVA in 2020. And United Therapeutics licensed ralinepag from Arena in 2019. Apart from those 5, we have a lot of list of global partners whom we work closely with in developing our in-licensed assets and technologies. We are currently in active discussions with different parties for 5 assets, 2 that are in late stage, 1 in Phase III. We're also exploring many opportunities in early -- with early diligence, including 3 Phase II assets and more than 5 late-stage preclinical, early or early clinical stage assets. We'll continue to build and move through business our -- we'll continue to build and move through business development pipelines as we continue to invest in our portfolio and create value for our shareholders. Shifting to our internal R&D. We continue to add to our pipeline with our strong expertise in discovery and translational research led by Dr. Jennifer Yang, our Chief Scientific Officer. In the first quarter of this year, we opened our research labs in Zhangjiang, Shanghai, giving us access to 1,700 square meter state-of-the-art facility. We are proud of our experienced informatics team who are capable of comprehensive and integrated analysis of genomic transcriptomic and immune profiling data and our deep understanding of disease biology and strong capabilities in small molecules in therapeutic antibody drug discovery. We're also partnered with AbCellera, which gains us access to cutting-edge AI-powered antibody discovery platforms, and we are working with Providence for messenger RNA-based prophylactic vaccines against infectious disease. Next slide. We currently have 8 internally-discovered assets in preclinical development. Some of these assets, we expect to see IND approval late this year or early next year. In addition to our internally-discovered assets, we also have 3 in-licensed assets, for which we own full global rights. Together, that makes for a total of 11 assets in our pipeline for which we own global rights. Next slide. Finally, I would like to highlight the achievements that have been made so far this year within our portfolio. Other than advances in Trodelvy, we've also had great top line readouts for Trodelvy in the Phase III trial for IgA nephropathy in Chinese patients. Next slide. Looking ahead, we're excited for important upcoming catalysts within our strong pipeline for the next 12 to 18 months. Notably, in the second half of this year, we expect NDA filing for Nefecon in IgA nephropathy in China, an NDA approval in complicated intra-abdominal infections in China for XERAVA. Our partner, Pfizer, is expected to file NDA for Etrasimod in ulcerative colitis in the U.S. In 2023, we expect NDA approval for Nefecon in IgA nephropathy in China. We will continue to update the market on our exciting progress. Next slide. Now to wrap up our presentation, I want to summarize this transformational deal with Gilead, which supports our near-term priorities. We've already -- as we've already discussed on this call, this transaction maximizes value for Everest shareholders and patients worldwide, allows us to continue to focus on our other pipeline assets to pursue additional opportunities to further expand our growing pipeline as well as optimize our capital structure to support our long-term strategy and extend CapEx and our cash runway through at least 2026. Beyond 2026, we hope to have commercial stage assets in internal medicine and infectious disease, advance our messenger RNA platform with broad applications in multiple therapeutic areas, bolster our robust research pipeline focused on indications with high unmet needs and to develop total assets, all of which we now have the financial strength to advance. With that, I invite the operator to begin the question and answer period. Thank you.

[Operator Instructions] The first question comes from Anmei Zhi of Goldman Sachs.

Can you hear me?

Yes.

This is Zhi. Trying to have a few questions. Number one, you mentioned about the upfront payment of the bill terms. I'm trying to understand a bit more about how much money Everest has been spent on Trodelvy? I think you paid about, upfront payment $65 million plus a $60 million milestone for the approval. Have you guys paid any milestone, additional milestone yet? . And also, what about the development cost in China after licensing for Trodelvy? And particularly, you guys have built a commercial team. So how much money you have been spending on all building up the commercial team and also for the pre-marketing prelaunch marketing to physicians? I'm trying to understand a bit on that, see how $280 million upfront is going to cover that. And also, you mentioned about in terms of the milestone payment, it's going to be breaking down to 2 different tranches, right, $50 million regulatory and $125 million milestone -- commercial milestone. Trying to understand a bit more on that, too. For the $50 million regulatory milestone, what kind of milestone we need to achieve. And for $125 million commercial milestone, how we should be expecting when and how we're going to get that? That's my first question. And second part is really on the oncology therapeutic areas. So Trodelvy used to be the core assets in oncology while the visibility on the FGFR4 has been relatively limited at current stage. So what's going to be your strategy on oncology going forward? Is it going to be a deprioritized therapeutic area? Or do you have any other new ideas on that? And the third question is on the existing commercial team in oncology -- clinical development team within Everest for the oncology area. So could you elaborate a bit more about how big the team is and what's going to be the future plan for the commercial team? We understand that you mentioned about you have the option to transition into Gilead for Trodelvy commercialization, so we're trying to understand a bit more color on that. And what about the oncology clinical development team, what they're going to do over the next 12 months to 18 months?

Thanks, Zhi. I think I'll turn these questions to Ian. Ian, particularly the first and second question.

Okay. Sure. Zhi, I'm not sure if I got all of your questions. So I'll try to do what I can. And -- but just please let me know if I missed anything. So on the first part of your first question, the milestones paid, you got it right. It's the $65 million upfront and the $60 million U.S. FDA TNBC approval, right? So a total of $125 million, that's what we have paid. On how much we spend on the clinical development, and you had also asked about the commercial team, that is a little bit harder to capture because as you recognize, we have other products within the oncology portfolio. We also have other products that are close to commercialization. We're already commercial in Singapore, for example, for eravacycline. So some of these functions are shared and some of the costs are shared. But -- so it's a little bit harder to put a number on it. The way we look at it is if we think about the specific milestone spends on Trodelvy, it's $125 million, okay? I think you had asked more details about the regulatory and the commercial milestones that we expect to get as part of this transaction. So for the $50 million regulatory milestones, there are 3 indications where we would get approval for. Those are not disclosed at the moment, but you can probably guess what they are, what are the #2, #3 or #3 indications to come after TNBC? The commercial milestones are kind of typical milestones set at achievement of aggregate annual sales in our territories. And I think it starts at levels that we believe to be very achievable. Now your second question, I think it's related to oncology therapeutic area.

That's right.

I can -- I'm sure Kerry will have additional inputs on this as well. We still have FGFR4, which we have global rights. We have an oncology R&D organization or I should say we have an R&D organization that have -- that are working on a number of oncology products, but those are early, right? But the underlying threat to all of this is that we have global rights to those, right? So we have an opportunity to realize potential value creation, not just in China, but also outside of China, right? And so that is certainly something that, going forward, we would look to do more, right? On the business development side, we haven't stopped looking for additional assets, and we're also seeing -- the market has been volatile for everybody, right? And we are seeing some interesting opportunities for us to look at. But clearly, I think we'll also have to think about ways to be able to get broader territorial rights, right, rather than just China. So I don't know if that answers your question. And maybe I'll hand it over to Kerry for the third question.

Thank you, Ian. Yes, the third question was about the existing teams in oncology. And as we mentioned in the presentation, the teams that have focused predominantly on Trodelvy will have an opportunity to be interviewed and reprove by Gilead. And so that would be our path going forward.

Yes. And what about the clinical development team in oncology because previously, we do have 3 -- like 3 CMOs on different therapeutic areas. So what about now? Because currently, your internal R&D pipeline on oncology is pretty relatively early stage. And in the clinical stages, it's only FGFR4. So trying to understand on how you're going to deal with the existing oncology development team?

Yes. I think the -- as I mentioned, the bulk of the development team works predominantly on Trodelvy. And the value of Trodelvy in China will continue. And the difference is it will continue through Gilead. So again, we will Gilead has expressed interest in recruiting our team, if possible.

Yes. So maybe just to add a little bit on that, right? As I think clearly, oncology for Gilead is an important corporate effort, right? And I think Trodelvy is the anchor product for their oncology franchise. And you probably have seen that they announced TROPiCS-02 hit statistically significant improvements in overall survival, right? And there is a clear pathway to BLA submission in that indication in the U.S. and other territories. So clearly, it's very important to them. When you look at their oncology presence in China and in Asia, it's -- today, they are not in Asia, right, in -- or I should say, in our territories, they are not in our territories for oncology. So clearly, now that they have rights to Trodelvy in these territories, we expect them to build out oncology presence. And it just makes a lot of sense to -- for our team, people that we have hired and built to be the foundations of that buildout, and that's our understanding.

Got it. Congrats on the deal.

Thanks, Zhi.

Thanks, Zhi.

[Operator Instructions] The next question comes from Huang Yang of Credit Suisse.

I have 2 questions. The first one is I wonder if the management can give us some background or some color about negotiation or when is the Trodelvy licensing deal with Gilead started, so to help us understand motivation or kind of rationale behind the deal from kind of Gilead's point and from Everest Medicines' point? So yes, that's my first question.

Okay. Ian, do you want to address that?

Sure. Yes. So yes -- so thank you for the question. I mean, I think, as you know, Gilead and Everest, we are existing partners, right? So we have ongoing discussions all the time. And you also know that we originally signed the Trodelvy licensing agreement with Immunomedics, which Gilead acquired in the middle of the pandemic, right, in September of 2020. We have built a very good relationship with Gilead and the working and the interactions have been very constructive. Nevertheless, it's a relationship that we were put in with each other during a pandemic, it will be difficult for people to meet face-to-face and really build a relationship. It's also -- I think what Gilead wants out of this partnership may -- different companies have different needs and objectives, right? And as we went along, we were just sort of at a point where it felt like a reset of the relationship will be ideal for both parties. And that sort of was the trigger to this. And then when we started to work through various options on what that reset could look like that's when the proposal came for a full restructuring of the partnership. And then, of course, we -- as I mentioned earlier, with that interest in hand, we reached out to a number of other, I would say, usual suspects and the people that we felt and our advisors felt could be interested in Trodelvy as well. And after a robust process, we ended up where we are today, which is sort of where we started off that we felt that Gilead will be the best partner for this.

Okay. That's great. My second question is our another asset since -- it shows more, things has a similar scenario also...