Faron Pharmaceuticals Oy (FARN) Earnings Call Transcript & Summary

Good evening. Welcome to join Faron offering webcast. My name is Markku Jalkanen, and I'm still involved with the company activities today as a Board member. Happy to see you all. We opened yesterday an offering and that will continue up about the next 2 weeks. And this webcast is really about the progress we have done recently and also then describe what those financials will be used in the future. And for that, I will have 2 speakers today, the current CEO, Juho Jalkanen; and our transient CFO, Yrjö Erik Wichmann. You are able to make questions to us, just contact the link and the webcast link and then send them here. And at the end of the meeting and presentations, we will have -- take a look of those questions. So as you know, we are a company. This is our disclaimer because we will be making forward-looking statements. And Faron, in brief, will be now presented. Juho Jalkanen, and Yrjö will continue with the use of the proceeds. And at the end of look, some of the risks involved with the offering, and then we will go into the Q&A. So with this introduction, I ask our current CEO, Juho Jalkanen to come to the Board podium. Thank you.

Thank you, Markku. Nice to be here.

Great. Just want to say that Juho just flew back from bio convention in U.S. And I would like to really ask first, how was the [indiscernible] in the U.S. side?

Very good, very exciting. Luckily my flights were on time, so I made it.

I'll be happy for that.

Thanks.

Welcome.

We had good meetings. Thank you, Markku. Thank you, everybody. Nice to be here with you. So let's go over us as a business and investment case at the time being and concerning this offering. First of all, we're focusing on blood cancer. What most of you know as leukemia. 1.3 million get it every year, that's basically translating to 25 every second and still 30% are unfortunately dead within 5 years. The deadliest form of leukemia is a relapsed refractory MDS. The word comes from myelodysplastic syndrome. It's a cancer of the macrophage monocyte lineage that takes over in the bone marrow and just expand putting down the production of other important blood cells like red blood cells, white blood cells, which leads to anemia infections. Patients suffer from frequent hospitalizations, they get blood transfusions, IV antibiotics. If you're treatment resistant, so-called r/r MDS relapsed/refractory MDS, your prognosis is extremely poor. The median overall survival in r/r MDS is only around 5.6 months and that remaining time of your life is of poor quality because of the frequent hospitalizations, the IV antibiotics, the transfusions you all need. Before becoming relapsed refractory, the frontline treatment in higher-risk MDS is an HMA, a hypomethylating agent. It's a relatively old drug, form of chemo in layman terms, so a toxic. 50% do not respond off the bat. And those that respond initially, 80% will relapse within a year or 2. And after that, there's really nothing out there for these patients. So in this next slide, this is what the market and the patient flow looks like, let's talk a bit about the market on the left-hand side. This is from [ Evaluate], the leading agency. So currently, the MDS market sales of drugs is around EUR 1.4 billion each year, but it's mainly made of, as mentioned, old toxic drugs. And the market is expected to grow quite significantly to 4.5 in the upcoming years with the incoming of new drugs. As a well-tolerated effective treatment, we believe that we can take a significant piece of this market. Now on the right-hand side is the patient flow of how a patient becomes relapsed refractory and would end up on our treatment. The patient pool of MDS patients is relatively big, and the range is pretty wide here. This is because of the constant turnover of patients in it. As mentioned, for higher risk, especially relapsed/refractory patients, they die quite quickly. So the turnover is rapid and it's hard to estimate at a given time, how many patients are there with the disease. Anyway, basically with the disease half are low risk, half are high risk. If you're high risk, you basically already have poor prognosis. Ultimately, you want to get into a bone marrow transplant, which is the only possibility for cure. That's in the far right-hand side in the gray boxes, but such a small amount ever get there or are available or suitable for a transplant. The far big majority fall on the frontline treatment, again, which is an HMA, also from the low-risk population -- sorry, 30% to 40% progress into high risk and fall on an HMA, and 50% do not respond and those who respond, usually the majority relapse. And after that, what's available. You can try another HMA. There's, for example, free in the market. It's not going to usually work any better than the previous one. You can try chemo, again, toxic, it's not going to extend your survival, doesn't bring quality of life or a very old drug named, hydroxyurea. A recent approval in the field was with an IDH inhibitor. And -- but that's a targeted therapy for a specific mutation, and that's only for around 3% of the MDS population. So a very small player in the field. But these are the market dynamics we're looking at. So not a lot out there, and our answer to this major problem is bexmarilimab, our drug. I'm going to call it BEX from here on. BEX targets CLEVER-1, which is a receptor on macrophages, monocytes and the leukemic blast cell. So the blast here is the cancer cell. The purpose of macrophages and monocytes in the immune system is to eat debris and dying cells and clear out foreign matter and to present to the immune system, hey, here's something foreign, for example, cancer, go and destroy that. The actual destroyers are the T cells in the blue here. So the thing with the CLEVER positive macrophage is whatever it eats, it doesn't present and that's how the tumor hides from the immune system. But with our drug BEX, it converts the macrophage and monocytes. So the -- instead of hiding the tumor, they start presenting the tumor and the immune system can recognize the cancer and attack it. As mentioned, #3 here, also the leukemic cancer cell is CLEVER-1 positive, in that, we specifically alter to cell viability through cell respiration. So we're going to cripple the energy infrastructure of the cell. We are not a cytotoxic agent. So hence, we're well tolerated, but we're going to significantly alter the cell viability so that the HMA or chemo could actually work on the cancer cell, which is otherwise resistant. So let's look at the clinical results so far in this dreadful condition. As mentioned, new cell don't get these patients into remission. A remission means you get rid of the cancer, in layman terms. On the right-hand side is a classical so-called swimlane plot. Each line is a patient, and on the horizontal axis, time goes by. In the dotted orange line, there you see where patients usually die. So within 5.6 months is the average. But here, we see with our drug, patients are in remission going way beyond the estimated survival. So it really looks that our drug can extend the survival of these patients. So we could possibly make a deadly disease chronic, which is actually a very good business opportunity. But -- to me, as a doctor, actually the most important thing is we get the majority of patients into remission and even offer a possibility for cure. So the second and third patient here moved on to a bone marrow transplant. That's the allo-HSCT there. So in a sense, what our drug has shown in this dreadful population is that it will significantly extend survivable. Actually quality of life also usually improves because cancer goes away and the bone marrow can recover and there's less transfusions needed, less infections and so forth. But ultimately, we can possibly even enable cure for otherwise deadly cancer. This slide highlights this in a more visual way. On the left-hand side is what's currently out there and available for these patients. So all toxic poorly effective treatments, outcome looks dismal and really no possibility for transplantation. But with our drug on the right, as mentioned, again, we're not a cytotoxic agent. We're well tolerated, looking at the extended survival and quality of life of these patients. And number three, enabling a possibility for transplant and hence, even cure of an otherwise deadly cancer. So us as an investment or business case. On the left-hand side is -- it illustrates the value inflection of biotech companies according to development stage. It's the average M&A price because how the system goes is small agile biotechs innovent bring new development of drugs up in the pipeline and when they're far enough and we see that there's a drug here, big pharma commercial pharma comes in. And license it or acquires the asset to take it to market. And usually, this happens in Phase II. So the big pharma takes care of the Phase III. And we're no different from that. So our aim as a company is to get this program Phase III ready, get a partner, which ultimately will then run the Phase III. So the value inflection during this offering would be going from Phase I to the Phase III part here. We took a teaser from the Phase II showing that it's continuing like the Phase I, hence, the results we were just looking at. So just concluding us as an investment opportunity, there's a clear-cut market, where we have limited competition and a good place to play. The current options in that market are relatively poor and inefficient. We got excellent results in Phase I and they're continuing in an initial readout in Phase II. In our clinical trials, we have already treated over 250 patients. And again, the safety profile of the drug has been good. So it's very unlikely that something totally disturbing would come up on the safety part because where drug development projects usually fail is on efficacy or safety. And it looks like we have both those tools well in the back. So in the upcoming months, as mentioned, we -- and with the offering, we aim to achieve Phase III readiness. The key components for our partnering deal at the time being is completing the Phase II and getting FDA feedback on the requirements for approval, hence the Phase III study design and plan. Those are what pharma companies ultimately will be looking at that the data is further validated and the investment need for actual approval would be [ known ]. The better we position us as a Phase III-ready company, hence, get the drug product manufactured for it, the better we are in the driver's seat to drive the deal value. So with the offering, everything on the right-hand side will be achieved. If the offering isn't at its maximum, we can go with less altering our burn and what we do with the gathered funds. For example, the key, as I mentioned, is 1 and 2, the clinical Phase II and the FDA feedback on the requirements for approval. If we are limited on cash, we will not prepare the drug product for the Phase III. Hence, we will not be Phase III ready. And the readier we are or the better the package, the better we are in the driver's seat to drive the deal value. So concluding slide, again, strong Phase I data and continuing in Phase II as seen, clear market opportunity, which also attracts pharma and significant value inflection milestones ahead with the resources we get from this offering. Also, we have an exceptional IP coverage until 2037 for the commercial pharma company to play in this area.

Thank you very much, Juho. I wanted to ask right away, having this very good safety profile and being a cancer drug. And then having these efficacy results like you showed us, what is clinical network thinking about this?

Physicians are very excited about the data and especially the safety profile because usually, they're used to working with a lot of toxic drugs. And this the -- how they said this could be added and combo-ed up with so many alternatives in the field because it doesn't look like it adds on toxicity. So they're very excited about the possibilities with this drug, thanks to the safety profile.

Well, now the trial is a combination with azacitidine, would you think that there's a possibility really even to combine with other compounds, even the trial is now running with azacitidine?

Of course, and that's ultimately why we also want to partner because as mentioned, the possibilities with this drug are wide, but we, as a small biotech cannot be doing all of them. We need to focus our resources. But getting a bigger partner on board would allow parallel development in multiple indications and settings. Building up significant block buster to the market.

I'm pretty sure that you had some discussions already in San Diego, just a few days back, how it's looking?

Of course, we did, but cannot mention names.

Okay. Thank you very much for that. All right. Thank you. We come back to the questions from the listeners. And now we move on and let Yrjö Wichmann to come in and explain what the offering really is. Thank you again.

Hello also on my behalf. So I would like to get to the very exciting part of -- after the dry science. So I give you the metrics and the facts on the offering. So we are conducting a public offering, both in Finland and also in U.K., slightly different structures due to the legislation. And that's for the general public. In addition, we have an international offering to European economic area and also to other jurisdictions if and when the legislation that allows and that we call the institutional offering. So we are conducting several structures at the same time. The offering size is basically so that we will, at maximum collect EUR 27 million or raise EUR 27 million gross. In addition to that, we will issue the shares for the conversion of the March capital loan, convertible notes that was -- that we raised where we have already received the funds and now we only issued the shares for the conversion. In addition to this EUR 27 million of new money, we also have -- or the Board has a right to -- in an oversubscription situation issue 8 million additional shares. So the total issue size could be EUR 35 million with EUR 1 share price. What we have already gathered is both subscription commitments and subscription guarantee undertakings a total of EUR 50 million, which was the threshold for launching the offering. So the offering is secured at EUR 50 million level, which is kind of the base level. And everything about that, of course, increases the funds available for the company. The company will, as Juho explained, used the proceeds mainly to advance the clinical trials, BEXMAB Phase II and to get that into Phase III readiness and also general corporate uses. We also have an investigator-initiated study that we might be funding where bexmarilimab would be combined with PD-1 inhibitors. So let's see what comes out of that. The price, as mentioned, will be EUR 1 a share, and this price was agreed with discussions of institutional investors where we saw a clear demand exceeding the EUR 50 million on this price level. In the public offering limit of EUR 750 is the minimum investment and slightly below EUR 100,000 is the maximum. But of course, in the institutional offering, no such lower limit proceeds. What we will have as this is a public -- an offering to the public is that we will have certain allocation principles. First, we, of course, issue the shares to the convertible note lenders, so EUR 3.7 million to them. Thereafter, we have the second allocation is a pro rata allocation for existing shareholders of the company. And the matching date is today, 6th of June. Thereafter, the third allocation is the investors who have given -- who are not existing shareholders but have given a commitment to subscribe shares prior to the launch, i.e., have participated in guaranteeing the EUR 50 million. And thereafter, we have the freedom to allocate the remaining shares as the Board teams -- relevant. The subscriptions are for the public offering. They are done in Finland through NOODnet. In U.K., it's an open offer conducted by mainly Computershare and then a REX platform offering also to the public. In the institutional side, it's Carnegie and Peel Hunt as investment banks who are conducting the offering. The next one is the dates. We launched the offering yesterday. Today, as mentioned, is the date when we have the record date of determining the preemptive allocation right. And the subscription period ends on the 18th of June. We will announce the results of the offering on 20th, and that is also the date when the shares are registered in the trade register. And the trading of the offer shares is expected to commence on the 24th of June. So that's basically the metrics of the offering. I would urge you to go to the company's web page. It's www.faron.com./publicoffer, where we have very clear and updated information on all the activities related and also all the documentation that is available for the investors. And of course, there is a prospectus which is approved by the Finnish Financial Supervision Authority, which is in Finnish, but there is also a English translation of the same document. In the U.K. and -- circular is prepared for the open offer. So that's about the offer and the metrics.

How about the risks?

Yes. Nothing is without risks. And here are some slides relating to the key risks. The risks are very well described in the public offer pages and in the prospectus. So I urge you to really look through the risks and get acquainted with them. That's pretty much what I had to say in this.

Thank you. I would like to ask you, is this pretty much the planned company announced already in late February. You have a bridging financing and then come to the market and look for the bigger one?

Yes, we announced in end of February a EUR 35 million program, which consists of EUR 8 million. Bridge funding, which was done in 2 stages, 3.2, 4.8, and now this offering is then the remaining EUR 27 million. So yes, this is pretty much. And just as a -- maybe curiosity, but I think that this is actually the first time Faron is making a public offering in Finland and offering to the public. We have so far been conducting mainly or only private placements. So this is the first time when public is able, and I would like to emphasize that this offering is open to everybody, not only to existing shareholders, even though there is an allocation preference for the existing shareholders, but anybody can participate and invest in this offering.

And this is a company response to some of those critical discussions...

Yes, and basically, we have a huge and very active investor base and this is high time to serve also them with this structure.

Then we move on to the Q&A and ask Juho to join as well.

Before we go to the first question, I just want to mention on the last thing you discussed to me, personally, it's very important that everybody gets a chance in this offering.

So we have quite a number of questions. And the very first one I like a lot. Why are we still talking about promising results? Haven't the results been better than promising? What else is needed to be able to talk about good excellent results?

Well, I would actually already start doing that, but lawyers always want that. I totally agree that it's starting to stand out and it's been continuing like this constantly. It's still a bit early, but hopefully, we can...

What do you mean bit early -- few patients...

A little bit to -- okay, it's standing out. It's holding up a bit more. We can lose that word promising.

Well, I think often that we have patients from 3 different kind of phases. We have early Phase I, then you have extended Phase I groups. And now we are Phase II. So they even come -- and then they come from different locations. And one of the questions is how are the patients distributed between U.S. and Finland at the moment?

It's pretty 50-50. 50 U.S., 50 Finland. And that's the thing. Usually, when I go out and talk to data, the first question, is this a single site data set because that may [indiscernible]. But this is broadly from many sides to continents, which gives us more comfort on the data.

Then there are 2 very similar ones asking is the protection will be focusing on MDS? Or is it also covering other indications? And why we now focus only on these MDS at the moment?

The excellent IP we have on the drug until 2037, that covers us for multiple indications. But us as a small biotech, we really need to focus our resources. The availability of capital in biotech has gone down in the recent years. So we can be -- if we would do multiple indications, we may end up in a situation that we have a lot of stuff all over the place, but nothing really tangible or really where we can get on. But here we can with even limited sources to get very far in development into significant value inflections this indication since there's nothing really out there for these patients can allow us for accelerated approvals, breakthrough designations and all that. There's a lot of short cuts from the regulatory side in this indication as well.

And maybe this one is for Yrjö. The company has been done quite a number of smaller rounds over the years. Is this the last one?

May I answer this, sorry.

You can answer, yes.

Because this is small. So we don't plan after another run after this in the near future.

Okay. No plans. All right. The -- obviously, very critical feedback will come from the regulators, and we have been indicating that we have been actually been active at that front and probably one reason coming in to talk to FDA are really the results, it's also remarkable. Would you have any idea when we have further feedback from regulators like FDA?

Towards the end of the summer you have -- and that's actually a great thing for these partners because there is kind of the missing piece and this is what's the remaining investment need for approval. And getting that answer will be essential for this ongoing discussions. That's going to come later in the summer.

Okay. There are question why we pick up the MDS, but that's probably really based on the excellent results, and then there is no options over there. One of the question is related to CD47 and some other ones that have failed during this first half of this year. Could you comment anything about that?

Yes, that's a question we get a lot. And it cast as a shadow on the field, yes. but our mode of action is completely different than from 47. Our safety profile is, I would say, a lot better compared to 47, again, which, as a doctor, I'm going to elaborate a bit. You have a condition like MDS, where you're already anemic, you're going to give a drug like AZA that's going to make you more anemic and you're going to throw enough CD47, which is going to kill your red blood cells, come on people. Free in a row, you're bound to have tox issues.

Thank you. So what are the side effects of BEX?

The most common side effect we see with the drug is actually fever. But again, we're an immune activating agent. So that's something that's really like attributable to the drug. We do see a degree of also autoimmune side effects or adverse events as there some, but it's around 5% to 6% again, in over 250 patients, so not much. And usually, they've been well managed, taking the patient off the drug and giving steroids if needed.

Okay. There are quite a number of questions related to advanced solid tumors. Is the kind of a thought here really to go after the refractory patients in that population or something else?

Yes, definitely. So now here in MDS, we've shown that we can overcome resistance to HMA and make an HMA work again. And that's going to be the tactic also in solid tumors. So the first-in-human mapping study, which a lot of you may be familiar with, it really showed that we can turn a cold tumor hot and hence possibly overcome resistance to PD-1. So let's go show that in the future, which would be actually huge in a market-wise or business opportunity wise.

Any prediction what type of cancer would be your favorite ones?

Well, my personal favorite is actually sarcoma.

Okay, but there's no PD-1 there yet.

Non-approved, because they don't work there. But maybe we can make them work.

Okay. how about glioma?

Also that are very difficult disease to treat. And we know it's...

A lot of [indiscernible] need a rich husband really for...

Yes, that's the thing also that we -- why, again, we're focused the liver Phase II get partnered with a partner, we can have -- we can develop this drug 10 in parallel in multiple indication. Us as a small company, we don't have the resources to do that. But with a partner, we can do multiple indications that simultaneously and actually make this a blockbuster drug.

Maybe one of the very last ones. How confident are you that bexmarilimab will get the market approval?

Well in MDS, I'm very confident.

Okay. Thank you. It looks like there are not that many questions there, and we have passed already 30 minutes. So I guess, with this, I want to close. Thanks both Juho and Yrjö for the excellent explanation, why we are doing this offering. Cancer is something that is very serious, and we need to do something really to help. There are a lot of drugs over there. So many of them are toxic. If we now have a choice to move on into a less toxic treatments that will be a significant benefit for those cancer patients. So we this, I want to stop this webcast, and thank you for joining us and looking forward really for the future activities. Thank you very much.

Thank you.

Thank you, everybody. We'll continue the hard work here.