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

Good morning or good evening, and welcome to Everest Medicines 2023 Full Year Financial Results Conference Call. Please note that today's conference is being recorded. [Operator Instructions] I just 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 or good evening, everyone, and welcome to our 2023 Full Year Financial Results Conference Call. Joining us today are Mr. Rogers Luo, our Chief Executive Officer of Everest Medicines; Mr. Ying Woo, President and CFO; Dr. Jennifer Yang, Chief Scientific Officer; and Sandra Zeng, Chief Medical Officer. Before we get started, I'd like to remind you that the speakers on this call -- 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 the financial position of the company, which can be identified by terminologies such as will, expect, anticipate, future, intend, plans, believes, estimates, confident and similar terms. 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. Company or any of its affiliates, directors, officers, advisers, 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 as -- except as required by law. And now I will turn over the call to our CEO, Mr. Rogers Luo, to provide you with more details on our business update and the 2023 full year results. Rogers?

Thanks, Leah, and hello to everyone. Thank you all for joining us on this call. I would like to start with a broad overview of our goals and what we achieved across discovery, clinical development, regulatory approval, commercialization and business development in 2023. We aim to become a leading biopharma in Asia Pacific by 2030. Towards that goal, we have 4 products launched or near commercial launch with aggregate [ net ] sales potential of RMB 10 billion. Beyond these products, we have a clinical validated in-house MRA platform that will support us -- our future pipeline growth. We plan to develop multiple prophylactic and therapeutic vaccines on this platform, which not only can potentially contribute to our future commercial sales but also generate global value as these programs advance in development and from potential partnerships. From 2023 to 2025, we will witness Everest's transformation from a biotech company to a fully integrated biopharma with a dual-engine approach towards building a differentiated pipeline. We will leverage our scientific expertise and through understanding of Chinese market, the licensing products that can leverage the current commercial platform to generate maximum synergies, whilst, simultaneously, we will develop proprietary products generated from our in-house discovery platform. We will plan to use this [ validated ] approach to drive significant global value creation going forward. We strongly believe in our [indiscernible] strategy in product launches from both the commercial and R&D perspective. Our core strategy will continue to focus on less profit, high value [ through ] therapeutic areas of infectious disease, renal disease and other immune diseases, while adding cancer vaccine from our advanced mRNA technology platform, with full intellectual property rights and global rights. We also adopt a lean and highly efficient commercialization model to maximize productivity and profitability. Strategically, our goal is to establish a leading position in Asia across carefully [ chosen ] less profit, high-value therapeutic areas. We are well on our way to achieving this goal with our core portfolio of [ 4 new-gen ] commercial products. Here, you can see XERAVA that's already in commercial launch in China, Nefecon to be launched the first half of this year, etrasimod and cefepime-taniborbactam. We also have 4 nearly earlier-stage therapeutics in preclinical to Phase II development stage set to launch in 2026 and beyond, which continue to drive revenue generation besides the full near-term commercial stage products. Furthermore, we continue to advance the discovery of vaccines and therapeutics through our mRNA technology platform for having long-term value creation. We have a very solid balance sheet of RMB 2.35 billion cash as of the end of 2023, which will provide the cash needed to support our strategic development. With our current product portfolio, we anticipate to achieve cash flow breakeven in 2025. As we speak today, Everest has transformed into a biopharma that has the full value share of capabilities from discovery, preclinical to clinical developments, regulatory filing, manufacturing, supply chain and commercialization. Compared to 2022, we newly added discovery capabilities with global rights in renal disease as well our mRNA technology platform [indiscernible]. And entire commercial franchise comprise of seasonal professionals who have led the successful commercialization of [indiscernible] products at various multinational pharmaceutical companies with a top lean and highly concentrated agile commercialization scheme. We will continue to upgrade and improve our capabilities in each of these functions [indiscernible] to solidify our position as a leading biopharma in China. Now I will hand over to our President and CFO, Ian, to discuss the future -- the further details of our 2023. Ian?

Thank you, Rogers. So in the next couple of slides, I'll take you through achievements that we met in 2023 across multiple functional areas. So first in commercial. 2023 was the first year of commercialization in China for Everest. We launched 2 products, instituted a focused commercialization model driven by product clinical value, and built a lean and efficient commercial team. We are thrilled to announce that we generated total revenue of RMB 126 million. This is achieved under a challenging macro environment in China and is based on only 5 months of XERAVA sales because it was launched at the end of July of last year, and Nefecon's launch in Macau in December. XERAVA's prescription has been accelerating. This antibiotic -- this high-end antibiotic product has been prescribed by over 4,000 physicians in more than 200 top-tier hospitals across 22 provinces in China. And in Macau, Nefecon was launched and the Nefecon will soon be launched in Mainland China as well. We are excited to see over 20,000 patients in China having registered in our innovative prelaunch charity program that we -- it's a very good tool to warehouse patients that we believe will drive quick ramp-up of Nefecon when it is available in China. It is also worth noting that from submission to approval in Macau, it only took about 2 months. Now we believe that's a record, although it's clearly 2 months from submission to approval is a reflection of our execution capabilities. So here, let's talk about regulatory clinical achievements. We are exceedingly proud of our achievements in these areas. First of all, we saw 6 regulatory approvals last year. And there is a seventh, the approval of Nefecon in Singapore, which was achieved in early 2024. This included the XERAVA approvals in China and in Taiwan. This also included multiple approvals for Nefecon including in Mainland China and Macau and also the U.S. full approval that our partner, Calliditas, was able to achieve. We also saw the approval for VELSIPITY in the U.S. by our partner Pfizer. And we -- in addition to approvals, we have advanced all of these products in regulatory development as well. You also see that for our pipeline product, zetomipzomib, we have received the China IND acceptance, and we will be initiating our part of the clinical development in the global Phase IIb study this year. Now clinically, Nefecon, we were able to complete the patient enrollment of the China open-label expansion study. This is important because we want to generate more data to support the long-term use of Nefecon for IgA nephropathy patients. we have presented multiple posters, including at the ASN Kidney Week for Nefecon in Chinese patient subpopulation. I think a lot of people on this call is aware that IgA nephropathy progression in Chinese patients are different from the global population. We believe that the disease progresses faster, and we believe this will be to patients' willingness and interest in treating -- in seeking treatment. VELSIPITY, we were excited to announce the top line data from the 12-week induction phase of the Phase III study in Asia. We will be announcing the full 52-week maintenance data later this year as well. And of course, our partner, Pfizer, is conducting clinical trials for etrasimod over multiple indication. For XERAVA, we were able to generate clinical breakpoints for the product that was approved by ECAST. This is actually quite important because, in the past, breakpoints in China would just use the global breakpoints. But as most people know, the antibiotics infection dynamics in China is vastly different from the global. So this is a small detail, but it's very reflective of our ability to execute commercially and putting together all of the tools necessary to help with the commercialization efforts. Let's look at the financial and the BD achievement. So here, first of all, we executed a number of business development transactions. The Kezar collaboration around zetomipzomib is right now the fair way of what we used to do, the in-licensing of regional rights for an exciting product that we believe has generated a very interesting early clinical proof of concept, is being developed in a pivotal study for a severe disease, lupus nephritis, where there's high unmet medical need. And -- but we also believe that this product has the potential to be developed across multiple autoimmune indications. And in fact, we are -- our partner, Kezar, is developing this product in an early study in autoimmune hepatitis, where we believe the unmet need in China, in particular, is very high. So we look forward to working with Kezar to advance this product in LN as well as potentially in additional indications. This is also a in-licensing transaction that we believe we negotiated very attractive terms upfront, and the future milestone obligations are quite attractive, we believe, for Everest, and the ongoing royalty obligations start in the single digits. In fact, it's probably one of the most attractive licensing deals we negotiated in terms of economic term. Secondly, I'd like to highlight that we terminated the collaboration with Providence Therapeutics. This is an important step that we believe now clears the path that provides us with full flexibility to leverage the mRNA platform for discovery products that we own full global rights and upside. Now this termination, the key terms are really that we -- for USD 4 million, we were able to have Providence forfeit any and all future milestone and royalty obligations that we owe them, but more importantly, this gives us a full freedom to operate with this platform. And over the last 2.5 years, our discovery team, our CMC team and our manufacturing team has mobilized this platform in China, which we think provides the foundations for us to really leverage this clinically validated platform for future therapeutic vaccine development. Last but not least, on the financial side, I think the key message here is that we saw significant increases in revenue, and we have been laser focused on controlling our operating expense. In fact, compared to 2022, our operating expense was reduced by 476 million. This is a -- this will be a continued drive to drive efficiency that we will continue in 2024 and beyond. And of course, in March of last year, we received a full upfront payment of $280 million from Gilead Sciences for the divestiture transaction around Trodelvy. So let's take a look at our income statement. Again, the key message here is revenue ramp and the operating expense rationalization, right? So let's first look at the revenue. Revenue was CNY 125.9 million in 2023. This is almost 10x the 2022 levels. The 2023 revenue was driven by XERAVA in Mainland China and in Hong Kong as well as in Singapore, and it was also driven by the launch of Nefecon in Macau. There's also a small amount of legacy Trodelvy sales in Singapore at the very beginning of 2023. The cost of revenue was RMB 34.4 million. Now this includes noncash items that were amortization expense from some of these licensing costs that were capitalized. If we take out the impact of these items, then our gross margin was greater than 80%, which has always been our guidance. Okay? And we believe that, in the long run, our steady-state gross margin will be between 80% to 85%. That's inclusive of the royalty obligations that we owe our licensing partners. G&A expense, moving on to operating expense, decreased by RMB 111.3 million. That's a 40.3% reduction compared to 2022. This is entirely due to the optimization and rationalization of the organizational structure. And part of the cost controls that, I think, Rogers and I have both highlighted. R&D expense decreased by quite significant amount, CNY 270 million. That's a 33% increase. This is attributed to a number of our drug candidates moving through clinical and regulatory development. So they are advanced to the commercial stage, so no longer clinical development expense attached to them as well as the rationalization of our discovery efforts and R&D efforts so that we are focused on the products that we believe drive -- are aligned with our new corporate strategy and priced at the highest risk-adjusted returns for our shareholders. Moving on to distribution and selling expense. This declined by about almost 30%. Again, this is due to the focus on driving a lean and efficient commercialization model. 2022, we were not commercial in China. 2023, we are commercial -- we were commercial and we were able to do it at a more efficient way. Okay? Other income increased by about RMB 7 million -- 8 million. This is primarily due to an increase in government grants received. The other losses was RMB 100 million in 2023 versus a significant gain in 2022. This is primarily due to -- the 2022 number is due to the onetime disposal gains from the Trodelvy transaction, which contributed a onetime gain of RMB 1.32 billion. There was also a -- the loss is actually primarily due to the disposal of ralinepag, which is a program that we've decided to terminate for a number of reasons. So moving on to financial income. This increased to CNY 84 million -- CNY 84.6 million. Compared to 2022, this is a significant increase. And the reason is really a concerted effort to manage our cash to drive for interest income, but of course, with the proviso that we protect our principal amount. And we were able to do that in an increasing interest rate environment, and we generated a significant amount of financial income. So loss for the year, by IFRS measures, increased by CNY 597 million to CNY 844 million in 2023. I'm looking at the third line from the bottom now. And again, compared to 2022, this is an increase because the 2022 numbers were impacted positively by the disposal of Trodelvy, right? As we always do at these annual results disclosures and interim results disclosures, we also look at a non-IFRS measure, where we back out noncash items, and we back out onetime items. So if you look at the bottom line, right, this is the number that we believe is a truer reflection of our financial results comparing apples to apples between 2022 and 2023. So you can see that, by the non-IFRS measures, our loss was CNY 713.6 million. This is a reduction of over CNY 600 million compared to 2022, which was a loss of CNY 1.33 billion. Again, in this number, we have backed out the impact, the positive impact from the Trodelvy transaction, which we believe is the right measure to look at. Now on a cash balance basis, we ended the year with CNY 2.35 billion in cash and cash equivalents, which we believe provides a sufficient amount of funding for the company to continue the transformation journey that we have been on in 2024 and will drive towards -- will fund the company through what we have guided The Street that we intend to get to cash flow breakeven in 2025, right? So we do not -- with our current portfolio of products, we do not need to raise additional capital, but of course, if we see interesting strategic opportunities for us to execute on, we will try to raise the capital appropriately. So next, let's talk about 2024. So 2024 will be -- will continue the transformation journey that we have been on and we will continue to execute. We -- as Rogers mentioned, we are on this path to transform from a biotech to a biopharma and to become a leading biopharma company in Asia. And we believe this requires 2 different components. First is our commercialization efforts, which will continue to advance; and second is the establishment and hopefully, this year, where we will disclose more information about what we have been doing with our in-house R&D capabilities, right? So if you look at below, on the commercial side, we are truly excited and highly expect the long-term Nefecon in Mainland China, which we believe will be in the second quarter of this year. The product, again, is already launched in Macau. We have also received the approval of Nefecon in Singapore, and we intend to launch over there as well as in Hong Kong. We will also be disclosing the results of our open-label extension study. I think that will really help us inform how patients ought to use the product long-term. For XERAVA, I think we're coming on the back of a successful execution on the launch over the 5 months in 2023. We intend to continue to ramp up the sale of XERAVA. And we look forward to submitting the NDA in China for our second high-end antibiotic product, cefepime-taniborbactam, this year as well. And last, but not least for VELSIPITY, we have submitted for NDA approval in ulcerative colitis in Macau, and we look forward to launching the product in Macau, which will also allow us to provide access to patients in China through the Greater Bay Area policy arrangements. As I mentioned before, we look forward to announcing the Asia Phase III full 52-week data and then submitting the NDA in China in this year as well. Now on the discovery side, this may be the first time we're disclosing a product name EVM-16. This is our first mRNA cancer vaccine program. It is our personalized cancer vaccine program. And we intend to take this into the clinic this year. So look for that, I would say, in the second half of 2024. And then I'm going through this in a little bit more detail, but we will be advancing additional programs as well. We're also hoping to deliver preclinical proof of concept for our in vivo CAR-T programs as well. Finally, I think all of the commercial achievements that we intend to execute on this year, hopefully, will lead to us meeting and exceeding the revenue guidance that we have provided. This has been consistent over the last 6 months or so that our guidance remains at RMB 700 million for 2024. This is the commercial, a little bit more details, right? So we currently have a 150-person ICU hospital sales force to [ sell ] XERAVA. When we launched, we covered 300 hospitals. And this year, we will continue to cover 300 hospitals. However, we do intend to work with CSOs potentially to help us go deeper and broader into areas that we are not currently covering. Month-on-month growth in 2023 has been very attractive. I don't think we will commit to doubling ourselves every month, but we certainly do believe XERAVA sales to increase in 2024. For Nefecon, we will start with 120-person sales team to cover 600 hospitals. We believe that covers about 60% of the addressable patient population. And as I mentioned, we already have a patient program registered in a charity program of over 20,000 members. Pricing-wise, XERAVA is priced at RMB 5,500 a day and the Nefecon EAP program is priced at RMB 18,600 per month on a net basis. We've not disclosed the launch price for Nefecon yet in China, but we will be doing that in due course. And on the bottom, you'll see just the commercial platform that we have built up and we will expand our reach and maximize patient access through strategic partnerships and the innovative programs that we will make available. I'll probably go through the next few slides very quickly because I think most of you have heard this multiple times. Nefecon, it's the first and only fully approved treatment targeting IgA nephropathy globally. We believe it's the first product that truly have demonstrated the ability to control disease progression and delay the deterioration in kidney function and it's because of the mechanism of action for the cause of the disease, right? And the data that we have announced has been reflective of this profile. And clearly, just as a reminder, right, in Chinese patient populations, the efficacy of Nefecon is more pronounced. Nefecon, over a 9-month treatment period and a 15-month follow-up, demonstrated 66% less deterioration in kidney function compared to placebo plus background RAS therapy. And this is consistent for proteinuria and micro hematuria. And of course, I mean, I think it's also important to note that safety-wise, it's a very safe product. This is actually quite important because the KDIGO treatment guidelines are being updated. These are being put out for comments. And you can see that we're quite excited about this because what this shows is that the recommendation is to use Nefecon for all patients that have a proteinuria of greater than 0.75 milligrams per day. And we believe it's likely that the China treatment guidelines will follow the global guidelines as well. For XERAVA and the cefepime-taniborbactam, we think we have an optimal portfolio, right, for treating multi-drug resistant gram-negative infections or just treating multi-drug resistant infections in the ICU setting. They have complementary spectrums of coverage and are both very safe products, right, that are amenable for empirical treatment in the ICU, right, in a combination setting. Cefepime-taniborbactam, we're super excited about this product as well. We believe it's a best-in-class BL/BLI. And in particular, its activities against both serine- and metallo-beta-lactamases is a true differentiating factor for this product. VELSIPITY, again, a really exciting product, and we'll be launching this product this year, right? And our partner, Pfizer, has been able to get a very good label for VELSIPITY in UC. This is approved as a first-line therapy. It is oral, convenient, safe and effective. So again, we believe this has best-in-class characteristics for the treatment of first-line advanced UC, and potentially in additional autoimmune diseases as well, which Pfizer is running Phase II trials for. We have end-to-end capabilities in mRNA. We've done a lot of work over the last 2.5 years since we brought in this platform to establish an R&D team in Zhangjiang that have developed a number of capabilities, including AI and machine learning capabilities, to optimize the design of mRNA sequences that deliver the desired characteristics. Whether it's maximizing immunogenicity and others, we have that capability. We are working on next-generation delivery systems. That gives us additional optionality in terms of designing for mRNA products. And we have manufacturing. And this manufacturing facility is in Jiashan, which is right on the borders between the Zhejiang Province and Shanghai. It's about 1 hour drive from downtown Shanghai. We have commercial scale. The facility is built for commercial scale but, of course, we will be using it first for clinical development of our programs. Again, just to give a teaser on what we are working on. EVM-16 is our personalized cancer vaccine. It's probably our most advanced therapeutic vaccine program. We're expecting to initiate clinical development through an IIT this year. Our second program is called EVM-14. It's a tumor-associated antigen cancer vaccine program. So this is an off-the-shelf allo program. I think the timing for this is the IND submission in early 2025 in the U.S. We have a third program. It's an immunomodulatory cancer vaccine program, and we're expecting to submit IND for this program in 2025. Last, but not least, I think this is really at the cutting edge of the mRNA technology, it's our ability to deliver mRNA coding CAR-T in a targeted fashion in vivo, right? And we are working on generating clinical proof of concept for this program, which will have very interesting utilities for autoimmune diseases as well as oncology indications. 2024 is a catalyst-rich year. We have already achieved quite a number of these in the first few months of 2024, but we look forward to continue to advance Nefecon across our regions but, most importantly, getting the product launched in Mainland China. We look forward to a Phase Ib interim data for EVER001. This is our covalent reversible BTK inhibitor that we are developing for autoimmune renal diseases. And again, as a reminder, we have global rights for this product for renal indications. And if our Phase Ib data is positive, right, this could be a very interesting product where we will be discussing global development plans, right, and potential partnership options. I think I have covered the other products quite well. But we're truly excited for 2024 and to continue the transformation that the company has started over the last 18 months. Thank you.

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

This is Linhai Zhao from Goldman Sachs. Congratulations on the 2023 earnings results. I have two questions. One is about the Nefecon launch in China. So particularly, I noticed that you're targeting to recruit up to 120 sales reps by the end of 2024. I believe previously, our target was to recruit around 180 to 200. Can you explain what has been the changes, if any? Or do you feel that, to cover 600 hospitals, you don't necessarily need 200 sales reps? That's the first question. And the second question, I'm just curious about our recent plan to develop the IVD test for IgAN. How do you plan to position this test along the patient journeys? Particularly, I believe that currently, the patients are using the blood test, urine test to determine their disease progression. What kind of gap do you expect that the test that we are targeting to develop would fulfill?

Okay. Thank you for your question. So I can go first and then Ian can add on. So for the first question, about the sales rep numbers, we believe that 120 sales reps on the ground covering close to 600 hospitals, that's the first step. As you know, for this year, Nefecon will be the self-pay product. And this product is, I would say, very popular and has very high patient awareness. In our patient community, if you look at a lot of online communities, a lot of patients just queue up. It's close to 20,000 patients waiting for the product. So I think, for this year, 120 probably is a good number. But of course, if we see there's opportunities beyond these 600 hospitals in other markets, a broader market, then we can, of course, add more sales reps for this year. But this product is, I would say, not a promotion-heavy kind of product as it is a first-in-disease and has a higher awareness even before product approval in China. As we emphasized many times, even for XERAVA, we adopt a very lean and efficient business model, which is focusing on high-potential hospitals and customers, clinical value-oriented promotion model, combining with sales, marketing, medical affairs and access. So sales reps, I don't think we need -- at least as of now, we were testing this 120 sales reps covering close to 600 hospitals. That's already covering more than 60% of the market potential. For the second question, you know that currently, the golden standard for diagnosing IgAN is kidney biopsy, which is critical and with risk, right, bleeding, those kind of risks. And if you can see actually, every year, more than kind of 300,000 patients go through this painful diagnosis, too; about 100,000 patients are diagnosed as IgAN. But we see a lot of patients are not willing to take this kidney biopsy to diagnose the disease because, number one, it's painful and with risk; number two, even if they're diagnosed with this disease, there is no kind of approved treatment, so they are reluctant to take the biopsy. That's why we are looking at this IVD testing TDI Tier 1, which is a very important biomarker to diagnose and monitor the disease progression. I think this diagnosis can help to diagnose IgAN with or without kidney biopsy. If the patients refuse to do the kidney biopsy, doctors still can use this as a tool to help them diagnose with their patients' history, symptoms and all the other lab test results. That's number one, which is improving their diagnosis rate without a painful kind of kidney biopsy. Number two is that I think this helps to differentiates Nefecon from other products currently in the market. We know, as of now, there's no other data to show those supportive therapies like [ placebo ] or other hemodynamic modulators can help to decrease their level of TDI Tier 1. And the TDI Tier 1 is the one biomarker that shows the disease progression. You can see that from our Phase III trial as well. So it can differentiate Nefecon from other therapies and also monitor the disease progression when you want to test once the patients stop treatment after 9 months with Nefecon. Let's say, if the patients stop treatment for 3 or 5 months, you can see gradually the TDI Tier 1 level picks up, then probably that helps doctors to decide to restart the treatment, right? So this helps the doctors to keep the patients on therapy. Usually, for those chronic disease, patients are reluctant to take the drug for quite a long time, right? Then this biomarker testing can have to help doctors to decide when to restart, when to stop and whether the patient should, if any, stop the treatment. So that's from my side. Ian, you can add.

Well, maybe just one thing, I think that was already very comprehensive. I think maybe one thing is that you think that somebody who doesn't want to go through a biopsy, maybe in the self-pay setting, right, they can just buy Nefecon and give it a try. And we think if they have a positive TDI Tier 1 test, maybe they're more willing to try Nefecon. But when we're in NRDL, and NRDL requires a definitive diagnosis for reimbursement, then this may push somebody to, if they have TDI Tier 1, they may actually encourage them to get over their fears of doing a biopsy, to seek a definitive diagnosis. And then they can continue their disease management journey this way. So I mean, overall, I think in the long run, we certainly want to see that once we have this product on the market, and if we see an opportunity to establish this as a diagnosis, as a definitive diagnosis in addition to kidney biopsy, that will be the best outcome. But that requires a longer-term development and use, right, and the collection of data to get to that point.