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

Good morning, and welcome to Everest Medicines 2023 Interim Results Conference Call. Please be advised that today's conference is being recorded. [Operator Instructions] At this time, I would like to hand the conference over to your speaker today, Ms. Leah Liu, VP of Corporate Affairs. Please go ahead.

Thank you Operator. Good morning, everybody, and welcome to our 2023 interim financial results conference call. Joining us today are Mr. Rogers Luo, CEO of Everest Medicines. Mr. Ian Woo, President and CFO; Dr. Zhengying Zhu, our Chief Medical Officer; and Dr. Jennifer Yang, our Chief Scientific Officer. Before we get started, I'd like to remind you that the speakers on 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 business operations and financial conditions of the company, which can be identified by terminologies such as will, expects, anticipates, future, intends, plans, beliefs, 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 and 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 as required by law. Thank you. And now I'd like to hand over to Ian to give you an update on our business in the first half of this year. Ian?

Thanks, Leah, and hello, everyone. Thank you very much for joining us for this call. I would like to start this call by highlighting on this slide that we have especially transformed from a clinical stage biotech to a commercial stage by a pharmaceutical company. On July 26, we launched our first commercial product, XERAVA in China. Besides XERAVA, we are in a fortunate position of having 3 additional drug candidates that we expect to commercialize in the next 12 to 18 months. And we believe these 4 products represent potential aggregate peak sales of approximately RMB 10 billion. Nefecon's NDA approval is expected in China later this year and we anticipate NDA approvals for cefepime-taniborbactam and Etrasimod in late 2024 and early 2025. We remain confident in the potential of our commercial portfolio and would like to reaffirm our 2023 revenue guidance over XERAVA of RMB 70 million to RMB 100 million and RMB 700 million for both XERAVA and Nefecon in 2024, our first full year of sales. We intend to build therapeutic area leadership in renal disease, infectious disease, and autoimmune disorders, anchored around our commercial products and late-stage product candidates, leveraging our proven business development engine and discovery capabilities. We will also continue to use our clinically validated mRNA technology platform to generate prophylactic and therapeutic vaccine programs that support our long-term value creation. Finally, our continuing transformation is supported by a strong balance sheet of USD 350 million at the end of the first half of 2023, substantially more efficient operating model and cash burn profile and the right management team in place to execute. I will cover this slide very quickly. This is our full pipeline of potentially first-in-class and best-in-class therapeutics. Besides the 4 near-term products, I have already mentioned, with 4 products in or near Phase I and Phase II development. There are also multiple indication expansion options with our late-stage pipeline products. Next slide. As mentioned before, our therapeutic areas of focus are renal diseases, infectious disease and autoimmune diseases. Additionally, we will continue to leverage our clinically validated mRNA platform to expand our discovery pipeline. We currently have 3 programs in renal disease. Nefecon our anchor product for this disease area that we expect to launch in early 2024, EVER001, a covalent reversible BTK inhibitor, which we currently are running a Phase Ib/II trial for primary glomerular diseases. And we expect top line data readout in early 2024. And internally discovered antibody program that we expect to file an IND in 2024. We have not disclosed the target of this program, but it is a novel MOA in the [indiscernible] psychology space. At the same time, we are actively working on bringing in additional differentiated assets that address large medical needs and are complementary to our investments in renal diseases. We also have 3 assets in our infectious disease portfolio, which address different unmet needs in the MDR gram-negative infectious market. This is the fastest-growing subsector within China's antibiotics market and one with the most attractive commercial outlook. As I mentioned, we just launched our first product, XERAVA, in China this July and expect to file an NDA for cefepime-taniborbactam by the end of 2023. We plan to advance EVER206 into Phase III development next year. For autoimmune diseases, we have Etrasimod, which is potentially a pipeline within a product as it is being investigated for a broad range of indications. Our partner, Pfizer, acquire the global rights of [indiscernible] and Arena Pharmaceuticals for USD 6.7 billion and has publicly disclosed that they are developing broad indications, including ulcerative colitis, Crohn's disease, atopic dermatitis, alopecia areata and EOE. The most advanced indication is ulcerative colitis with the U.S. PDUFA date this October, we expect to have -- in China, we expect to have 12-week induction of remission data from our regional Phase III study by the end of this year. We are also in discussions with authorities regarding the regulatory pathway for Etrasimod in the UC indication in our territories. Lastly, with our mRNA platform, we are developing mRNA prophylactic vaccines, including a bivalent COVID-19 vaccine, which we expect to receive an IND in the second half of this year and Rabies vaccine. Our discovery team is also building a pipeline of other prophylactic vaccines and therapeutic cancer vaccine programs. Turning to the key achievements in the first half of 2023. We're extremely proud to have commercially launched our first product in China, XERAVA on July 26. XERAVA is a first-in-class novel fluorocycline antibiotic for the treatment of infections caused by gram-positive, gram-negative and anaerobic pathogens, including multidrug-resistant isolates. It's only been less than a month, but we have already had XERAVA scripts written in 60 hospitals in China. We're extremely proud of this track record and early reactivity that we are seeing in the market. We are receiving very positive feedback from physicians based on its broad bacterial spectrum coverage, high potency and well-tolerated safety profile. XERAVA is now included in over 10 treatment guidelines in China, the United States and the EU. And as I mentioned before, we are confident in delivering or reconfirming our sales guidance of RMB 70 million to 100 million for this product for 2023. To support XERAVA in China, we are building a main and efficient commercial team of approximately 180 people in 2023, around 120 of which are frontline sales staff, the infectious disease commercial team will focus on 300 to 500 core Tier 1 hospitals. So this slide shows some of the other business achievement year-to-date. As you can see, we are seeing positive momentum across all of our key therapeutic areas. Our NDA application was accepted for Nefecon in Singapore and the Fast Track Designation for Nefecon was granted in South Korea. We launched an early-access program for Nefecon in the Hainan Boao Pilot Zone and completed patient enrollment for our China open-label extension study. There was a Phase III -- positive Phase III trial readout and data presentation for Nefecon in IgA nephropathy, which were published in The Lancet last week. Based on this data, our partner, Calliditas submitted an sNDA for Nefecon in the U.S. for full approval. The NDA was accepted on August 18 with priority review and the PDUFA date has been set in December. In addition to the NDA approval for XERAVA and its subsequent commercial launch in China, the U.S. FDA accepted our partner Venatorx NDA filing for cefepime-taniborbactam for the treatment of complicated UTI with priority review and a PDUFA date of February 2024. We also recorded positive top line results from a Phase I trial of EVER206, our novel polymyxin derivative program and completed patient enrollment of our Phase III clinical trial for Etrasimod for the treatment of moderate to severe active ulcerative colitis. Next slide. So you can see on this slide, we've been pretty busy on the commercial side, owning a number of strategic partnerships with leading pharmaceutical distribution companies in China. Our partners include the [indiscernible] of large distributing companies in our market including Shanghai Pharma Keyuan Pharmaceuticals, Chongqing Pharmaceuticals, Guangzhou Pharma, Sinopharm and the broader Shanghai Pharma Group. We believe that there are nationwide distribution networks and logistics systems will help accelerate the breath and depth of the reach of XERAVA across China. In addition to Mainland China, we hold rights for XERAVA in Singapore, Taiwan, Hong Kong, South Korea and certain Southeast Asian markets. Our in-house team launched XERAVA in Singapore since December 2021, where it has already replaced over 80% of tigecycline's volume in listed hospitals. We anticipate NDA approval for XERAVA in Taiwan. During the second half of this year in Hong Kong, we expect an in-house team to launch XERAVA by the end of this year. Lastly, we are in discussions with local authorities regarding regulatory pathways for XERAVA in South Korea as well as other Southeast Asian markets. So one of the reasons we have so much transition in the potential of XERAVA is because of the critical unmet medical needs -- with multidrug-resistant gram-negative infections in China. As you can see on this slide, the mortality rate of ICU-acquired infections is over 30%. Meanwhile, as you can see in the bottom right chart, carbopenem-resistant rate to Klebsiella and Acinetobacter baumannii infections continue to rise in China, making the treatment of MDR infections more challenging. We also hear from ICU physicians that patients with severe infections under critical care may only have time to use on one broad antibiotics. Therefore, the clinical practice in ICUs is empiric treatment with combination therapies. We believe that XERAVA with its broad spectrum coverage strong efficacy against MDR gram-negative pathogens and well-tolerated safety profile, is well positioned to become a foundational therapy in empirical combination treatments in the ICU. The substantial unmet needs for MDR gram-negative infections in China has driven attractive growth of treatment options in this space. The chart on the bottom left shows that this market has grown at a 45% CAGR over the last 6 years. Even though there were only one new product launch during this time frame. The chart on the bottom right shows that pricing for these antibiotics have also been attracted. Zavicefta is priced at RMB 4,000 a day. While Colistin, which is often used as a last time treatment option is priced at about RMB 2,500 to RMB 3,500 per day. This is already after the price has declined over the last couple of years. If you look at the pricing of Colistin and the polymyxins 2 years ago, they were up to -- they were between RMB 6,000 RMB 9,000 for this, which innovates to us the market receptivity for truly efficacious life-saving antibiotics is clearly there. So our pricing for XERAVA is going to be in line with these market presidents. You can see this slide, which we have shown many times before, we have a portfolio of 3 frist-in-class and best-in-class antibiotics with complementary spectrum coverage across multi-drug-resistant gram-negative infections. In addition to XERAVA, we have cefepime-taniborbactam, novel beta-lactamase inhibitor combination with strong activity against pseudomonas infections. And the next-generation polymyxin derivative EVER206 was reduced renal toxicity compared to currently marketed products. Renal tox has been a key competitive to the broader use of polymyxin class of antibiotics. With respect to cefepime-taniborbactam, the U.S. FDA has accepted our partner Venatrox NDA filing and granted priority review. We plan to file an NDA in China later this year. Our in-cost commercial team will be efficiently mobilized around this complementary proportion this slide just gives a quick summary of the cefepime-taniborbactam low Phase III study, which demonstrated that cefepime-taniborbactam was superior to meropenem for the primary efficacy endpoint of composite microbiologic and clinical success at the Test of Cure visit of day 19 to day 23 in the micro ITT population. In addition, cefepime-taniborbactam demonstrated potent antibacterial activities against various MDR Enterobacteriaceae and MDR pseudomonas. And with broad activity against beta-lactamases including metallo-beta-lactamases that are not well covered by existing [ BLs ]. Cefepime-taniborbactam was also well tolerated. With that, let me pass the call over to Dr. Zhengying Zhu. to discuss Nefecon.

Yes. Thank you Ian. So next, I will provide updates that we have been achieved on our 2 late-stage assets, one is Nefecon and the other one is Etrasimod. So for Nefecon, next slide, please. So Nefecon specifically designed to delivered active ingredient which is for this generation the disease origin of IgA nephropathy, which is located in the distal ileum area. So Nefecon will be delivered to that target area and will be sustained release of budesonide to modulate the attract immune system in that specific region. And as you all know that budesonide is a local, highly potent, locally acting corticosteroid. And with a very low systemic exposure will lead to a favorable safety profile in the clinic. So since we are enlighten partnership with Calliditas, our partner in 2019 and the project of Nefecon developer and being made significant progress. So Nefecon has been designated as the first oncology breakthrough therapy destination in China. And we had a positive readout in a Phase III program in Part A. And then later on, we showed consistent profile of Nefecon in China IgA nephropathy patients. So in the past 6 months, also, we've been successfully issued NDA submission in China, in Singapore and in Hong Kong that we expect that product NDA approval will happen in China and in Singapore this year. We're -- simultaneously we prepared to submit NDA in China, Taiwan region and later on in South Korea later in this year. We expect the product will be approved in all territories in 2023 and 2024. So we are very pleased to see that the Nefecon pivotal Phase III study named Nefecon has been disclosed a very impressive data. Further this year in eGFR, [ IgAN ] and now just being fully published in The Lancets a couple of weeks ago. The study has been -- it's a double behind randomized, placebo-controlled trial with 9 months Nefecon treatment followed by 15 months offshore observational period. The primary endpoint of this study is time-weighted average change from baseline in eGFR over the 2 years period, and we observed 5.05 eGFR benefit IgA nephropathy favour of Nefecon over the 2 years time period. And we see that eGFR benefit observed at the end of the 9 months was well sustained and durable over -- until 24 months. So at the 24 months in the placebo arm, the renal function is keep deteriorating and decreased 12mL per months, ex 24 months and in contrast with Nefecon, the renal function deterioration is only half of that is 6mL. So we observed a 50% loss of kidney function in Nefecon treatment, which is a I think the first product has been demonstrated long-term clinical -- kidney function preservation in the clinical study. So if we calculate the 2 years role of eGFR improvement in this study, we observed 2.95mL per minute per year in Nefecon arm. So this translates to -- we know that the minimal difference of this drop is 1.23. So this observation of 2.95 is well above the best threshold. And indeed, in the study that we showed a significant delay in Nefecon treatment into kidney failure or 30% of reduction in eGFR. So besides we all know the treatment of IgA nephropathy overall is to preserve the renal function. In addition to that, we observed a durable proteinuria reduction over the 2 years period of time. With the lowest proteinuria reduction observed at month 12, which is 3 months after Nefecon treatment discontinuation. And the maximum proteinuria reduction is 51%. So you see that over the period of off-drug at month 12 to month 24, we have observed about 40% reduction in proteinuria. You see a gradually recover of the proteinuria level to 30% versus baseline at 24 months indicates that warrants a future exploration of a longer-term period of treatment of Nefecon in the clinical study. So we all know that in IgA nephropathy besides proteinuria, hematuria is a very often observed symptoms in the disease. So indeed, in the Phase III trial, about 2/3 of the patients has hematuria at baseline. And in the Nefecon treatment arm at 24 months, we see significant less proportion of subjects which seems to lower in Nefecon arm which indicates that Nefecon not only has a positive effect on proteinuria, on eGFR, but as well as on the hematuria. Last but not least, Nefecon is very well tolerated and safe in IgA nephropathy patients and this is very consistent with the local acting of the proteinuria in this disease. So with this very impressive data that absorbed from the Phase III study Nefecon which really supports Nefecon as the first disease modifying treatment option for IgA nephropathy patients. We all know the current therapies announced specific [ ACEi ] supportive, appear to control the disease or with a systemic steroids use or immunosuppressive agents with undesirable side effects, so for that, we are very excited that Nefecon demonstrated, the first therapy has been demonstrated a durable effect in not only in proteinuria reduction, but also in delaying the eGFR decline in IgA nephropathy patients. And this is a -- I think this is the first therapy also has a differentiated effect to treating the disease origin, which is the gut immune system to change the disease course of IgA nephropathy. So we are very look forward to bring this product to the patients in this region. So in order to -- like I mentioned before, for the Nefecon we have already submitted NDA submission in China last year and the NDA review process is on track. So we launched early access program in Hainan Boao early April this year. It's been -- received a very -- I think this is a really approach that Everest is making efforts to provide products or accessible to IgA nephropathy patients in China. And so far, more than 500 patients has been signed up for the EAP program. And the patients will need to travel to go out to have very 3 months prescription time and to complete nine months treatment period. So for our -- besides Nefecon -- in addition to Nefecon for our future, either discovery efforts or in-licensing new asset effort we have been focusing on a huge unmet needs area in glomerular disease area. They include IgA nephropathy, membranous nephropathy, minimal changes disease, and focal segmental glomerulosclerosis. So all of this type of glomerular disease again the lack of the specific targeted treatment therapy and has a huge money in this area and Everest system is committed to continuously make efforts to address these serious diseases. So for the other basic asset, we can say, a very promising asset is Etrasimod which is the potential best-in-class therapy in IBD area or other autoimmune disease? So Etrasimod is the selective S1P receptor inhibitor and mainly binding to S1P receptor 1, 4, 5. It has the potential to treat multiple autoimmune diseases, including the leading indications that the underdevelopment, including ulcerative colitis, Crohn's diseases in IBD area as well as the dermatology area, including atopic dermatitis and alopecia areata, all of this autoimmune disease has a large population that still has a huge need for innovative therapy. So for UC indication later this year, FDA is expected to approve this indication in October this year. And in China, we already completed Phase III trial in Asia region with a total sample size of 233, and we expect to see the topline results in induction period at week 12 by the end of this year. So for the other indications in the global development is in Phase II or [ in training of ] Phase III and Everest is considering to adjoining the developments in the future. So for Etrasimod, based on already concluded 2 pivotal global Phase III study. In UC study, Etrasimod demonstrated clinical meaningful and statistically significant improvements in all important outcome actions. This including the clinical remissions, symptoms improvement and endoscopic improvement. So if you're looking at the Etrasimod, the clinical remission rate has been observed as a clinical meaning for remission rate around 27% at week 12 and 32% at week 52. So the clinical remission rate was well sustained throughout 52-week treatment period. Overall, Etrasimod is well tolerated and safe, it has a very convenient administration [indiscernible]. So for comparing on to, of course, this is a cross-study comparing to current available treatment option as [indiscernible] only the efficacy profile of Etrasimod as well as the safety profile makes it a very attractive future option in the UC patients. And with that, I will hand over to Jennifer to provide an update on our mRNA platform.

Thank you, Dr. Zhu. At Everest Medicines, we have established end-to-end capabilities of their industry-leading clinically proven mRNA platform, covering the whole chain of this platform. At our research side in Zhangjiang, we are able to do target [indiscernible] identification and gene sequence design immunogenicity evaluation and process development. At our Jiashan manufacturing site, we are able to produce mRNA vaccines at commercial scale with annual capacity of 700 million doses. This mRNA platform has been successful implying the development of the first-generation COVID vaccine PTX-B. In a Phase II clinical study, PTX-B had demonstrated noninferiority to Pfizer's [indiscernible] in terms of GMT ratio of neutralizing antibody with comparable safety profile. With such platform, we have quickly [indiscernible] a discovery portfolio consisting of prophylactic vaccines against certain infectious diseases and therapeutic vaccines targeting solid tumors. All projects are progressing well at this stage. In addition, we continue to innovate on this platform to enhance its performance. We are developing a next-generation LNP delivery system to enhance the T-cell immunity and our novel new generation algorithm based on total optimization can increase the expression of target antigen, therefore, further enhanced immunogenicity. With that, I will now pass over to Ian to talk about financials.

Thank you, Jennifer. We will now review with you our financial data for the first half of 2023 that ended June 30. I think overall, the key takeaway is that the company operated much more efficiently compared to the first half of 2022, with expenses decreasing significantly across various options and so just going through the -- these numbers in more detail. Our revenue increased by RMB 7.9 million to RMB 8.9 million in the first 6 months ended June 30, primarily due to sales of Xerava and Trodelvy in Singapore. As you may be aware, we continue to sell Trodelvy during the transition period in the first half of this year before Gilead fully took over the commercialization of Trodelvy in Singapore. Cost of revenue are associated with the cost of importing Trodelvy and Xerava. And that increase was corresponded to the increase in our product revenues. General and administrative expenses decreased by RMB 35.8 million or 30.1%, primarily due to the organizational optimization and rationalization and the associated decrease in share-based compensation expenses. R&D expenses decreased by RMB 57 million or 16.5%, primarily due to a number of drug candidates having moved through clinical development and advanced to the regulatory submission for commercial stages as well as the transfer of Trodelvy clinical development activities to Gilead. Distribution and selling expense decreased by RMB 84 million or 56.8%. This decrease was primarily attributable to the transfer of Trodelvy-related commercial activities to Gilead and the related organizational restructuring since August 2022. Other losses net were RMB 50.1 million for the 6 months ended June 30, primarily attributable to the impairment of an intangible asset Ralinepag, which we terminated the clinical development in our territories in the first half of this year. Finance income net increased to RMB 54.8 million for the first 6 months ended June 30, primarily from interest income bank balances. The combination of the above-mentioned results resulted in the overall loss for the period in IFRS measures to decrease by RMB 244.4 million, again attributable to all of the reasons that I mentioned previously. The overall loss in non-IFRS measures narrowed by RMB 196.8 million. The adjustments were primarily due to 2 items. Number one is the Ralinepag impairment costs. This is onetime and noncash and also share-based compensation expenses, which we typically reverse in the non-IFRS measure. In cash balance, we ended June with RMB 2,540 million in cash and cash equivalents. We maintain our full year guidance of cash burn to be less than RMB 1 million for this year. In financing activities for the first half of the year, we redeemed an equity interest held by [indiscernible] equity investment company in Everest Medicines China co. The investment was made in the second quarter of 2020 in the amount of [indiscernible] And was [ repaid ] in the second quarter of 2023 and includes an 8% annual interest cost. This amount has been carried on our balance sheet as a liability, so this liability has been reversed. The total repayment of principal net interest was RMB 442 million and change. We have secured 2 [ loan ] packages new with lower interest rates of between 4% to 4.5% that can cover the full amount of the repayment. Therefore, this event will be cash neutral to the company. So this is our second half catalyst slide. We're obviously already into the second half, but we still have a busy calendar coming up. For Nefecon, we expect to receive NDA approval in Mainland China and in Singapore, and we intend to file NDA for Nefecon in Hong Kong, Macau, Taiwan and South Korea. And building on Xerava's successful commercial launch in Mainland China, we anticipate NDA approval of Xerava in Taiwan. For cefepime-taniborbactam, we will file an NDA in China for complicated urinary tract infection later this year. For Etrasimod, we will share 4-week induction of remission data on a multicenter Phase III clinical trial in Asia for the treatment of moderate-to-severe active ulcerative colitis. Additionally, our partner Pfizer expect to receive FDA approval for Etrasimod for the treatment of ulcerative colitis. In the mRNA space, our bivalent COVID-19 vaccine M1.2, the data submission is ongoing, and we expect to receive IND approval in China in the second half as well. So with that, I would like to turn back to the operator to start the Q&A portion of this call.

[Operator Instructions]

Actually, I have a text question that we've received from Linhai Zhao of Goldman Sachs. The question is, can you share updates on the commercialization preparation for Nefecon? How is the anticorruption growth impacting the market initiatives and then any impact on the EAP program in Hainan as well.