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

Great. Thank you for joining the session. This is Ziyi Chen, China health care analyst, Goldman Sachs. And for this session with Everest, we have the President of Everest, Ian joining us.

To start with, Ian, we understand that there has been in the past 2 years, Everest being pivoting from multiple therapeutic areas now more focusing on renal diseases and focus on some of the new technology platform they included, right? So in the past 2 years, what have you learned about this a new strategic pivoting in terms of the organization, in terms of the biotech industry set up in China and also in terms of the operation wise, what you have learned in the past 2 years?

Thank you, Ziyi, and many thanks for the invitation again this year. Always happy to participate in these events. I think that's a very good question and one that we think about all the time. I think several things have changed since we set up the company and since we went public in 2020. I think the Capital Markets reality and our ability to access capital is different from 4, 5 years ago. I think the China commercial model is probably also different for a lot of investors. And I think what we have decided to do is that we want to focus on therapeutic areas that meet the following criteria. Number one, significant amount of unmet medical needs. And by the way, unmet medical needs may be different in China versus the U.S. And I think -- we think we have the right level expertise to figure out what the demands are in China. Number two, we want to play in areas that are not as competitive and as crowded. So we believe specialty renal disease and also infectious disease meet those criteria, where as you know, we got out of the oncology commercial space for the time being, we believe that is a much more competitive area, right? So number three, I think we also wanted to make sure that we are able to build a commercial team to tackle these therapeutic areas in a relatively efficient way because the Capital Markets reality means that we don't have the same access to capital that we had expected when we first started the company. So I think it's really from these areas -- these considerations that we decided to go all in on the renal space and the infectious disease space. And -- but at the same time, we also felt that the in-licensing model, if you were to focus on these areas; and b, be pretty aggressive on meeting these high standards, it is a business case that makes sense. But to complement that, we felt that we need to set up our own discovery engine as well, which is an effort that we started about 3 years ago that we enhanced with the licensing of the mRNA platform, and we're pivoting to therapeutic vaccines after spending a couple of years on the COVID-19 vaccine. We think that combination of in-licensing and internal discovery is the -- it's a formula that's worked in other parts of the world. We think it's also sets up the company well for sustainable growth.

Yes. Well, just a follow-up to -- the follow-up to the licensing model because there has been a lot of discussion around this business model in China now because [indiscernible] back in 2018, 2017, I believe there has been a lot of company looking in licensing models, getting assets from the U.S., from the Europe into China, prove to be a very successful model. But now in the environment, we see a lot of uncertainties in terms of geopolitics perspective. Does that affect your collaboration with your partners? And how should we think about the licensing model the China pricing environment, the profitability of this type of model in China for China biotech?

We -- I think -- the short answer is we don't think so, right? But I recognize that in our view, there may be a selection bias, right? People that we talk to are more likely to be less concerned about these sort of things, right? I think, at least the -- we just had a new partner, right, Kezar Lifesciences, which -- that licensing deal was signed in September of last year. So in the take of all of these new geopolitics realities, they had no concerns partnering with us. For them, it's really 2 rationales, number one, working with a credible party that could help them accelerate the clinical enrollment of the Phase III study or Phase IIb study. And I think they view us to fit that criteria. So -- and there was also -- we are paying them, right? So I think that's perhaps less challenging. I do think the kind of conversation that we hear is that, "Hey, we want to make sure that the supply chain can be independent. So that means at some level to create supply chains that are independent of China but on the other hand, I think it's also the same, right? You want to make sure that the supply chain for China may be -- may set up a redundant options -- if you're just sourcing from the West. We -- our cadence and the pace of discussions with potential partners has also changed, right? Because I think 3 years ago, we were talking to a lot of oncology companies and all the new companies. These days, we're pretty focused on what we speak to in the renal space. And also, we're starting to talk to a lot more companies about what we're doing in mRNA and we're getting -- but that's very different, right? That's collaborations and potentially platform-level partnerships or type -- some kind of out-licensing type of discussion.

Got it. Well, it comes down to the renal fees, you got the first [Technical Difficulty] launch in March. So just about a month. Tell us a bit more about team built up and [Technical Difficulty].

Sure. Yes, early days, but we are off to a good start. As you know, we had done quite a bit of [Technical Difficulty] IgA nephropathy, so Nefecon product for treating IgA nephropathy. And we believe that there are a lot more IgA nephropathy patients in China than they are in the U.S. or in Europe where it's an often indication, right? So we've started about a year ago, working with the foundation to -- in an effort to create a patient. And that at the time of the launch was about 23,000 patients, not all of them are going to convert to prescribing patients but we are working on converting these patients. Number 2 is that we have done 2 EAP programs. One, as you probably know, in Hainan, right? And the second is when our product, Nefecon was approved in Macau, which is also one of our territories. We started a second EAP to bring Chinese patients to Macau for treatment. In total, I think it's quite interesting, we had probably about 1,000 patients sign up for both of these programs and we treated 200 -- about 150 in Boao. And that's important because we now have most of these patients have started on the EAP program about sort of a year ago, right? And it's really interesting for us that 92% of those while EAP patients have used the entire 9 months of treatment course. And this involves -- I mean, obviously, it's at a relatively high price. They have to fly to Hainan 3 times try to get the drug every time they can only get 3-month supply and the full course of treatment is 9 months. So we think that this is a very positive sign that clearly, Nefecon is working for them, right? So the formal launch in China, we're focusing on a combination of online and offline, strategies online converting those 23,000 patients to prescribing patients and adding to those 23,000. And offline is the sort of the traditional method. We still expanding the sales and marketing team. But we are engaging with KOLs. We are about 400 hospitals. The way we get to the 400 in China, as most of you probably know, IgA nephropathy is definitively diagnosed with a kidney biopsy. And in China, there are about 1,000 hospitals that are able to do kidney biopsies, right? So we think that's our core focus group of hospitals. I mean, these all tend to be larger hospitals in cities and provinces, about 400 of what we believe are the most attractive to expand that 600 to 800 and eventually to the entire 1000. So that combination of approach, the traditional on the ground, right, sales reps approach combined with the online, we think is the right way to go for this product prior to NRDL inclusion, right? So it's off to a good start. I guess the first sign of how we're doing will be made public when we disclose our midyear results in August. But I'd say we're at a place that we're pretty happy about. And of course, the other part of the commercial effort right now is very much focused on preparing the company and the market for NRDL negotiations.

Got it. Well, there's some -- well, of course, you have already got some of the patients in for early prescriptions. And if you look at a patient profile coming from the EAP and also coming from those early prescriptions, could you help us understand the profile of those patients? Is early-stage patients at what stage, what kind of volatility, we talking about is currently, I think, before they're being covered by national reimbursement, that is still pretty expensive drug in China.

No, it is. It is arguably a lot more expensive than those drugs are in the U.S., right, because it's mostly covered. So the EAP program, just as a reminder, it's priced at RMB 18,600, so roughly USD 2,500. So those 150 patients, the full data, this is done with one hospital, the Ruijin Hospital in Shanghai, and the EAP program data will be published in a journal article. But I can say that it's actually mostly younger patients, probably in their 30s and 40s and some in their 50s. I think those patients have both the financial wherewithal as well as the willingness and the interest in treating their disease aggressively. Their eGFR, I would say CKD probably level 2 or 3. eGFR is a range from 30 mL to 90 mL per minute. Most of them are sort of between 30 mL to 60 mL. The UPCR is probably -- the cutoff is 0, 0.5 grams a day. But I would say probably more of them are over 1 gram. So I mean it's pretty -- that is -- that has been our sort of core patient group, right? And clearly, from the compliance track record, it shows that Nefecon is probably working pretty well for them.

Yes. If we look at the age group, in their 20s, 30s, 40s in CKD Stage II, III, what percent of the total patient population we're talking about here in terms of a number of patients in China addressable market for Nefecon?

Yes. I mean that's a very good question, and we have done a lot of work on this, but I think because there really has not being taking the drugs that are effective, right? So it's a little bit hard to say. So it's all modeling. What we are pretty certain about is that every year they're about between 300,000 to 350,000 kidney biopsies done. And we're also pretty certain that about 30% to 35% of those kidney biopsies are diagnosed positive for IgA nephropathy. So that means there are roughly 100,000 newly diagnosed patients. So what kind of patients will actually go to get a kidney biopsy. Well, ordinarily, these are patients who are [Technical Difficulty] maybe even a little bit higher, right? Otherwise, people don't want to go for a very invasive procedure, right. So if you look at that and saying, that's -- and patients -- these are for Chinese patients, I think what we have seen in our Phase III study as well as the wealth of academic data available. Actually, the disease progresses pretty fast for Chinese patients. That said it is chronic disease, right? So over time, we do think that our modeling is there about like 1 million to 1.2 million patients who are definitively diagnosed so they meet this criteria, right? But we think there are about 4 million to 5 million patients. So 20% of the total. The others are not diagnosed. We don't know if they are not diagnosed and they actually also have these high levels of proteinuria but we hope that the fact that when there are with Nefecon in the market and with other products coming on to the market and more education in the marketing. And as you know, we're working on a GdIgA1 diagnostic as well. The combination of all of these factors would convert, will help us to bring more of these patients out.

Well, given the size of the patient population in China and what could potentially be the best market access strategy? Well, you mentioned about online, offline combination type of strategy, international penetration, and also, we are thinking about potentially reimbursement coverage. So what should potentially be the best timing get into the national reimbursement because we know that we're going to have to compromise on the pricing side. Yes, but gaining more penetration for the broader patients. So how should we think about the best timing, best combination of that strategy?

Yes. We actually think it's important to try to get reimbursement as soon as possible. This is for a few reasons. I mean, affordability, as you say, is an issue. So what we're doing now is we did launch at RMB 18,600 at the same price as the EAP, but we are offering a patient assistance program. It's buy 4 get 1 free. So it's essentially a 20% discount, if you use the full course of treatment. So that's still RMB 14,600. So still quite expensive for out-of-pocket. We do think that with reimbursement, you're looking at not only the price -- the gross price declining rapidly but the out-of-pocket pay for the patients decline significantly as well, right? So we think that's important to drive the number of patients. So look, we're doing everything you would expect us to be doing, doing the pharmacoeconomic analysis, engaging with KOLs, all with a view of trying to have a successful negotiation with the national payer towards the end of this year.