Heidelberg Pharma AG (HPHA) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you, for standing by. Welcome, and thank you for joining Heidelberg Pharma's conference call to discuss 2023 half year financial results and provide a business update. [Operator Instructions] Please note that today's call is being recorded. [Operator Instructions] The presentation will be followed by a Q&A session where you may ask written or audio questions. Please note that you can ask questions online only. I would now like to turn the call over to Dr. Jan Schmidt-Brand, CEO of Heidelberg Pharma. Please go ahead, Jan.

Thank you, [ Regina. ] Good afternoon, ladies and gentlemen, and welcome to the Heidelberg Pharma conference call to discuss our results for the first half of 2023 and to provide the business update. My name is Jan Schmidt-Brand, and I am the CEO of the company. Joining me on the call today are my colleagues, Professor Andreas Pahl, Chief Scientific Officer; and Walter Miller, our recently appointed Chief Financial Officer. Please note that this presentation is available for download on the Heidelberg Pharma website. This conference call is being recorded, and the replay will be available on our website after the live event. Before I start, let me remind you that we will be making forward-looking statements on this call as well as during the question and answer session. Please see our safe harbor statement here on Slide 2. For a more detailed discussion of the risks and uncertainties affecting our business, please see the 2022 management report, which is available on our website. This slide provides a quick overview of our company. We are the first company to deploy a completely new mode of action in cancer treatment by using the toxin Amanitin to develop anticancer therapies. Amanitin is a natural toxin found in the death-cap mushroom and has a unique biological mode of action. The inhibition of RNA polymerase II, which could serve as the basis for developing highly effective innovative drugs. We use our proprietary and innovative technology to manufacture antibody-targeted Amanitin conjugates, which belong to the substance class of ADCs. With our novel proprietary technology, we seek to provide cancer patients new treatment options that improve efficacy, overcome resistance mechanisms and kill both proliferating and dormant tumor cells. We plan to stratify patients with a 17p deletion. Our lead program, HDP-101, is in clinical testing, and we have several programs in early stages of development. More on our programs later in the presentation. At the end of May 2023, we had 113 employees. Based on our current planning, we expect to have sufficient cash to fund our operations and activities until mid-2025. Here, you can see our pipeline of proprietary ATAC programs, partner programs as well as our legacy assets. We will provide an update on our proprietary programs and the progress made later in today's presentation. Looking at our legacy assets, it has been gratifying to see the progress our partner Telix has made. Telix is developing TLX250-CDx, a radiolabeled form of the antibody girentuximab, which binds to the tumor-specific antigen CAIX on clear cell renal cell carcinoma. TLX250-CDx is a radioactively labeled with zirconium-89 and was tested in the Phase III ZIRCON study with 300 patients for imaging diagnostics of renal cancer using PET, positron emission tomography. Telix reported positive data from the trial in November 2022 and is preparing for marketing authorization and for an expanded access program to provide patients with pre-approval access to TLX250-CDx prior to marketing approval. Beyond the ZIRCON study, Telix is conducting further clinical trials to expand the indication. Telix announced this June that the first patient in the Phase II STARBURST study had been dosed with TLX250-CDx. STARBURST is a prospective open-label Phase II basket study designed to evaluate CAIX expression in patients across a broad range of solid tumors for potential diagnostic and therapeutic use. Tumor types being studied include breast, cervical, colorectal, gastric and esophageal. Let's start with the important events in the first half of 2023. Regarding our lead ATAC product candidate, HDP-101, we have made good progress in the ongoing clinical trial in multiple myeloma. In the past few months, the study protocol has been amended to include additional safety measures. We are happy to inform you that nearly all the regulatory approvals and ethics committees approvals have been received and that several study sites are now continuing patient enrollment for the fourth cohort. We have further good news regarding one study participant from the third cohort, more on this later. Another highlight from the first half of the fiscal year was the presentation of new preclinical data from our ATAC technology at the AACR 2023 Annual Meeting. Looking at corporate news, we are delighted that Walter Miller joined our team as Chief Financial Officer on May 1. Walter brings more than 20 years of strong expertise in biotech industry and financial management. He has extensive experience managing finance departments including the areas of financing, M&A, risk management and corporate governance at both private and public companies. At the end of the reporting period, we divested our minority stake in Emergence Therapeutics. Emergence is a developer of ADCs in Heidelberg Pharma, has been a shareholder since November 2019. Eli Lilly and Company acquired all outstanding shares of Emergence. The transaction will provide us with approximately USD 7 million in cash in 2023, which will partly be used for loan repayment of EUR 5 million on a shareholder loan extended by dievini. In addition, the sale is fully recognized in profit or loss. We are eligible to receive up to an additional USD 5 million based on the fulfillment of defined guarantees and the achievement of clinical and regulatory milestones. Turning to partnerships. We signed a research and exclusive option agreement with Binghamton University related to a novel and proprietary immunostimulatory technology platform. The platform includes potent novel immunostimulatory compounds and ADC technology for the specific delivery of these compounds to tumor tissue. These immunostimulatory agents are synergistic with cytotoxic agents, including ADCs generated by Heidelberg Pharma's ATAC technology. The cooperation with Magenta was terminated in April due to Magenta's change of strategy also in connection side effects in the clinical trials MGTA-117. Andreas Pahl, our Chief Scientific Officer, will now provide an update on our ATAC programs. Andreas, please take over.

Thank you, Jan. Hello, everyone. Let me give you an overview our lead candidate, HDP-101, which is currently being tested in a clinical Phase I/IIa trial in multiple myeloma. Multiple myeloma is a type of bone marrow cancer that claims about 70,000 lives each year and is considered incurable. Expression on the cell surface protein BCMA is strongly associated with multiple myeloma. HDP-101 is an ATAC directed against the BCMA. In preclinical testing, HDP-101 showed the targeted elimination of BCMA present cells as well as a good safety profile. Laboratory research by a team at MD Anderson demonstrated that HDP-101 might be particularly effective at attacking tumor cells for multiple myeloma patients with a 17p deletion. This deletion is associated with a much poorer prognosis and thus represents a high unmet medical need. This information supports the potential to use this chromosomal deletion as a biomarker for patient stratification, and we are planning to evaluate this option on the [indiscernible] a part of our ongoing clinical trial. On this slide, you can see the status of our Phase I/IIa clinical trial with HDP-101 and the list of study sites. The Phase I dose escalation part of the trial was initiated in February 2022 and is evaluating escalating dosage of HDP-101 for the treatment of relapsed or refractory multiple myeloma. The first 3 cohorts have been completed, and so far, HDP-101 has been shown to be safe and well tolerated. Following completion of the third dose level in March 2023, the data review was conducted by the Safety Review Committee, SRC. The SRC recommended to continue dose escalation. The safety review of study data did not indicate that the serious side effects experienced with Magenta's compound, were a class effect of all Amanitin-based ADCs. As patient safety is always the top priority for Heidelberg Pharma, we decided as an extra precaution to implement further safety measures in our trial, especially regarding the identification and exclusion of those patients who might be prone to develop respiratory problems. In the past few months, the study protocol has been managed to include these additional safety measures. As Jan has said, we are pleased that nearly all regulatory approvals and ethics committee approvals have been received and that several study sites are now continuing patient enrollment for the fourth cohort. One U.S. center and one recently opened center in Poland have been enrolling patients since June. The new Polish center is the first of several expected to join our trial. There are more sites in Poland, Hungary and Germany being initiated. We are delighted to inform you about one of the study participants from the third cohort has so far shown no progression of the disease, which is called stable disease. He has now been on one therapy of HDP-101 for over 6 months and is still in good condition. The patient has since been treated with 8 doses of HDP-101. The data are not conclusive but it is still very encouraging that the patient with multiple myeloma and limited treatment option has been able to benefit from our therapy. Here are some details about the clinical trial design. The study is an open-label, multi-center Phase I/IIa trial evaluating HDP-101 in patients with relapsed and refractory multiple myeloma for whom limited treatment options exist. The primary aim of the Phase I dose escalation part is to determine the maximum tolerated dose. Up to 36 patients are planned to be enrolled in the first part of the study. We will evaluate if there are any dose-limiting toxicities and establish the recommended dose for the Phase II part. The study design is shown on the slide, ensures a safe dose escalation to reach therapeutically effective dose in these patients who have limited or no therapeutic options. The primary objective of the Phase IIa part of the trial will be to assess the preliminary antitumor activity of HDP-101. After 30 patients are planned to be enrolled, the patients will be stratified based on our biomarker the 17p deletion status. Heidelberg Pharma presented preliminary safety data from the clinical trial with HDP-101, at the 64th Annual Meeting of the American Society of Hematology, ASH in December 2022. We expected that we will finish the Phase I part in mid-'24 and can then treat the first patients in the Phase IIa part with a recommended dose afterward. Let me now turn to our further ATAC candidates. Looking beyond our lead drug candidate, we are continuing nonclinical development work with our other ATAC candidates. HDP-102 is an ATAC targeting CD37 which we expect to develop for the treatment of B-cell malignancies such as non-Hodgkin's lymphoma. There's a relevant prevalence of 17p deletion in this disease and so it is another indication where it makes sense to use our biomarker to determine the patients most likely to benefit of treatment with HDP-102. Preclinical data have shown that CD37 ATAC's demonstrated strong anti-tumor activity and inhibited the growth of hematological tumors even at low concentrations in addition to good tolerability. Furthermore, the strong efficacy of anti-CD37-ATACs in patient-derived Richter syndrome, xenograft models were published in the peer-reviewed medical journal Blood together with the research group from the University of Torino, Italy. HDP-102 has a promising therapeutic window. These data are supportive for the potential of HDP-102 to treat non-Hodgkin lymphoma. We are planning to submit a clinical trial application for HDP-102 next year. Another ATAC candidate we are bringing forward into development is HDP-103, an anti-PSMA ATAC for the treatment of metastatic castration-resistant prostate cancer. Prostate specific membrane antigen, PSMA, the surface protein specifically appears on prostate [indiscernible] is overexpressed in prostate cancer were expressed in only a limited way in normal tissue. This makes it an attractive target for ADC approach. Advanced prostate cancer is another area where the high prevalence 60% of 17p deletion and saw another good indication to apply our biomarker. In vitro and in vivo efficacy, tolerability, pharmacokinetic studies have shown that HDP-103 has a promising therapeutic window. At the American Association of Cancer Research, AACR 2023 Annual Meeting in April, Heidelberg Pharma presented preclinical data of its ATAC technology. The first poster evaluated subcutaneous versus intravenous administration of ATACs. The data from preclinical models showed that subcutaneous dosing resulted in a longer half-life, lower maximum serum levels compared to intravenous administration. This resulted in improved tolerability. HDP-103 was one of the ATACs evaluated in these tests, and subcutaneous administration resulted in an improved therapeutic window, i.e., improved tolerability plus while retaining efficacy. Based on these results, subcutaneous dosing may represent a promising route of administration for ATACs. Heidelberg Pharma has filed a patent application covering the subcutaneous administration of ATACs. The second poster included preclinical data on ATACs targeting GCC, guanylyl cyclase C. GCC is overexpressed in many gastrointestinal tumors, particularly colorectal cancer as well as esophageal, gastric and pancreatic cancer. In preclinical models, ATACs directed against GCC demonstrated strong antitumor activity inhibiting tumor growth even at low concentrations after single or multiple dose treatment. These ATACs also demonstrated a favorable safety profile and good tolerability and may represent a promising new therapeutic option against colorectal cancer. The ATAC HDP-104 has been chosen as a new early stage proprietary candidate. Let me now hand over the presentation to Walter Miller. Walter?

Yes. Thank you, Andreas. Good afternoon, and also a warm welcome from my side. I'm very pleased to be part of Heidelberg Pharma to now -- and to present our financial results for the first half of 2023. As a reminder, our fiscal year ends on November 30. Therefore, the first half year ends on May 31. In the first 6 months of the 2023 fiscal year, Heidelberg Pharma Group generated sales revenues and other income totaling to EUR 4.7 million, this was a significant decrease from the previous year period of EUR 12.2 million, which was exceptionally high due to the license agreement with our partner, Huadong in 2022. Sales revenues totaling EUR 4.4 million comprised the group-wide collaboration agreements for ATAC technology in the amount of EUR 4.3 million and the service business of Heidelberg Pharma Research in the amount of EUR 0.1 million. Other income of EUR 0.3 million included primarily income from the reversal of unused accrued liabilities in the amount of EUR 1.2 million (sic) [ 0.2 million ] and other items in the amount of EUR 1.1 million (sic) [ 0.1 million. ] Other operating expenses, including depreciation, amortization and impairment amounted to EUR 20.7 million in an important period versus EUR 18.5 million for the period -- for the prior period. Let's have a brief look at expenses. Cost of sales includes costs directly related to sales revenues. These costs are mainly related to expenses for customer-specific research and for the supply of Amanitin linkers to licensing partners. This line item was EUR 2.9 million compared to EUR 3.5 million for the prior year period and represented 14% of operating expenses. Research and development costs rose year-over-year to EUR 14.8 million, in the previous year it was EUR 11.8 million, due to the expansion of cost-intensive external manufacturing for ATAC product candidates and for the ongoing clinical trial with HDP-101. At 72% of operating expenses, R&D remained the biggest expense item. Administrative costs which include costs related to holding company activities and the stock exchange listing were EUR 2.3 million compared to EUR 2.8 million for the previous year period. This decrease was due to increased legal and consulting costs in 2022 related to the Huadong transaction. Administrative costs amounted to 11% of operating expenses. Other expenses for business development, marketing and commercial market supply activities which mainly comprise staff and travel costs were EUR 0.7 million and in the previous year EUR 0.4 million and continue to represent 3% of operating expenses. Net loss was EUR 16 million compared to EUR 0.6 million (sic) [ 8.6 million ] for the previous year period. The significant increase is due to substantially lower revenues and higher expenses. Loss per share amounted to EUR 0.34 compared to EUR 0.42 in the previous year. This improvement was due to a higher number of shares outstanding. At the end of the reporting period 2023, Heidelberg Pharma had cash of EUR 57.4 million and by end of the last fiscal year, end of November 2022, EUR 81.3 million. Cash outflow in the first half of the year included repayment of EUR 5 million plus the annual interest payment of EUR 0.9 million on a shareholder loan. The outstanding loan amounts to EUR 10 million, which bears an interest rate of 8% per annum. As a result of the Emergence transaction, Heidelberg Pharma will use the majority of cash inflow to repay another EUR 5 million tranche of the loan. Excluding the repayment of debt, the average cash requirement was EUR 3.2 million per month in the first 6 months of 2023 compared to average cash inflow of EUR 1.2 million per month in the first half year 2022. Equity as of the end of the reporting period was EUR 50.9 million. This corresponded to an equity ratio of 65.3%. Cash reach is unchanged, expected to be until mid-2025, based on our current planning. Turning now to our guidance for fiscal year 2023. As of end of May '23, we confirm our full year financial guidance issued on March 24 this year. Sales revenue and other income are in line with our planning as of the first 6 months of the fiscal year '23. We will generate the majority of income in the second half of the year plus other income. It will increase significantly due to the Emergence transaction. Given that expenses might rise higher than the forecast, we expect the operating result to be unchanged as the higher income may be offset by higher expenses for new study centers in the trial with HDP-101. Let me now turn the call back to Jan to wrap up. Jan, please?

Thank you, Walter. And let me again say how we are pleased that we have you on board now. Looking ahead, we will be highly focused on advancing our lead product candidate, HDP-101, with the goal of completing the Phase I part of the ongoing clinical trial early next year and initiating the Phase IIa after that during 2024. Our partnership with Huadong is progressing nicely, and they are already preparing for the first clinical trial in China with HDP-101. We will also continue the necessary preclinical and toxicology testing required to advance our early-stage programs and look forward to continued progress by our partners, Takeda and [ Huadong ]. We are particularly excited that Telix could launch TLX250-CDx next year. We are excited about what lies ahead for Heidelberg Pharma as we work to develop novel cancer therapies to patients who have today limited treatment options. We thank you for your time, and we're happy to now take your questions.

[Operator Instructions] The first question is a written question from Ingrid Gafanhão with Bryan Garnier. She is asking, can you elaborate on the expected enrollment of BCMA naive patients considering the amount of BCMA-targeted therapies in development?

Yes. Thanks, Ingrid, for the question. It's a very good one. And this is also one reason why we extended our study size to Eastern Europe. So we're expecting and this is already what we're starting to see in the enrollment. In Eastern Europe, there is a much higher probability to get BCMA naive patients because there are by far less competing trials and no, let's say [indiscernible] so that's again much higher probability to get treatment i.e. BCMA patients for Eastern Europe centers in Poland and Hungary.

Thank you, Andreas. The next question comes from the line of Marietta Miemietz with Pareto.

I have a couple of sort of detailed question on Emergence Therapeutics and then one question on HDP-101. So just to make sure that my understanding is correct that for the $7 million, substantially, the entire amount will be booked as OOI this year, and it will be tax neutral because it will be netted with your operating losses and it will be broadly neutral to both the year-end cash position and the operating loss you had anticipated prior to the transaction because you will repay the EUR 5 million tranche of the shareholder loan and you incur some additional cash and noncash expenses in connection with the HDP-101 safety study, which is now picking up pace now that the Magenta related safety worries are out of the way. And then also quickly on the $5 million that you are yet to receive. How much of that is really just the deferred payment that you would definitely be eligible to receive? And how much is linked to successful milestones and over what time horizon should we expect the remaining $5 million? And then just a couple of clinical questions on HDP-101, please and then I'm done I promise. What data should we expect at ASH and it also looks like you're seeing encouraging biologic activity in a patient from the third dose cohort to a stable disease, as you said. Can you just remind us what sort of disease progression you would expect in such a patient if he were left untreated or if the drug wasn't effective? Would he have received just one dose and progressed within a couple of months based on natural history or just a little bit of context to try to understand what that stable disease -- that relatively low dose really means.

Walter, do you want to start with Emergence?

Yes. [indiscernible] use of the inflow. And Jan, you can comment also on the contractual background and this is also something before my time with Heidelberg Pharma. So you're right, we expect, first of all, USD 7 million inflow still this year, so this is U.S. dollar, on a current FX rate, it's probably EUR 6.3 million. That will come in within the next 90 days. And this will be used, at least the bigger part of that to repay another tranche of the existing shareholder loan in the amount of EUR 5 million is already commented when we went through the slides. The cash inflow is also fully P&L effective. So we generate here income -- positive income -- the question, whether it's tax neutral or not. Yes, it is cash neutral because as a development and research company, we generate significant losses, ongoing losses. Therefore, we can set them off. And so there is no tax payment driven by this casualty. When it comes to the additional up to USD 5 million inflow in the future. USD 1 million is linked to guarantees as typical in such M&A and sales contracts. And this USD 1 million is expected to come within the next 18 months. So end of '24, early '25 and the remaining USD 4 million are linked to typical development milestones from Emergence.

Right, I guess this answers the bulk of your question. But Andreas, can you please comment on the clinical questions?

Yes. The first one, a quick comment for the ASH. Of course, we are already preparing [indiscernible] for ASH, the deadline is coming. So we will give an update for sure, for cohort 3. We also anticipate that cohort 4 is finished and closed by the release of the [ external ] presentation of the poster. So altogether, we will give an update in the [indiscernible] of that patient from cohort 3, cohort 3 in general, cohort 4, whatever data is available by the -- let's say, publication of the poster. To give a little bit more color on the patient, this patient received prior lines, I believe 6 prior lines and progression means that for multiple myeloma that we have defined parameters like in clinical chemistry, yes, that's like free light chains and protein to -- they have defined parameters, which are associated with disease and if these parameters are growing to increase means that you have a progression and you stop the ongoing treatment. So that patient was off treatment after 6 lines, then went on by the beginning of the year on our treatment. And since it's a monotherapy, he does not receive any other therapy. Let's say, concluding and this is an agreement with all investigators on the trial that there is no other explanation this patient is stable so -- that this is caused by our HDP-101. and stable means that the M-light, the M-protein, free light chains are more or less stable, in this case slightly decreasing, but it's not sufficient to call it a remission. For a remission, you need a more substantial down regulation of these parameters, which we are not observing. So this patient is in between progression and remission and this is called a stable disease, but he is doing fine, he is completely fine with the monotherapy of HDP-101. His conditions improved slightly. So he is doing well with the treatment. And again, it's considered, let's say, to be related to the treatment of 101. And as long as it's not, let's say, progressing, so rising stage on treatment, as mentioned, he receives the eighth dose and as long as he's stable, he will continue to be on dosing with HDP-101.

[Operator Instructions] The next question is a written question from [ Thomas Schießle with EQUI.TS. ] He would like to know, will cohort 4 reach the maximal tolerated dosage? Or will we see a cohort 5?

Good question, but I don't have a magic glass ball in front of me to predict this. And so the idea, of course, if we already see biological activity in cohort 3, there's confidence that we see more biological activity in cohort 4. We don't believe that we already see the maximum tolerated dose. So we are, let's say, currently still believe that we need to cohort 5, maybe one comment to cohort 3, also for that patient. He does not show any signs of toxicity and -- liver toxicity. So since we do not have any signs of side effects, we don't believe that we reached with cohort 4, so we believe we go to cohort 5 as well. But in the very end, the patient data will tell us, the Safety Review Committee and other PIs are on, will review the data and then decide whether we go to the next dose or not. But recruitment, what we also observed is accelerating due to the higher number of centers. So we believe that we can progress very fast on the trial.

There are no further questions at this time. This concludes the Q&A session. I will now hand the call back to Jan for closing remarks.

Yes. Thank you, [ Regina. ] Thank you, colleagues. So as you see, we continue our clinical trial and given on what we have seen so far, we also see a lot of enthusiasm and dynamic in the clinical centers. So we hope that this also helps to accelerate the future dosing groups, and we see clear signals towards that. We are, therefore, optimistic, what we have seen and what's ahead of us. And well, we thank you for attending and looking forward to a bright future of Heidelberg Pharma. Thanks a lot.