Idorsia Ltd (IDIA) Earnings Call Transcript & Summary

Good afternoon or good morning to you all from where you're dialing in. My name is Andrew Weiss, and I want to welcome you all to our full year financial results publication call today. Today, we're going to talk about our financial performance and update you on the progress we've made in 2019 as well as give you an outlook for 2020. With me on the call are our CEO, Jean-Paul Clozel; and our CFO, Andre Muller. They're here to give you additional color on the results published this morning at 7:00 a.m., together with the annual report. Please note that we are experiencing a slight technical trouble, so I ask you all to download the presentations from our website at this point in time, as they will not be able to be scrolled forward. Next slide. Before handing over the mic, I need to remind everyone that we will be making forward-looking statements. You have therefore been adequately warned about the risks and opportunities of investing in Idorsia shares. With that, I hand over to Jean-Paul for his introductory remarks.

Thank you, Andrew. Good morning or good afternoon to everyone. It's a pleasure to present to you the progress we have made at Idorsia during 2019 and highlight a few of the exciting developments we expect in 2020. Let's first look at the achievement of 2019. To begin with, we have added 2 innovative compounds to our pipeline from our drug discovery team. We have advanced each of our clinical programs, and we are expecting the first Phase III results in the next few months. We have been sharing our work through scientific publication and at congresses. We have been able to engage with experts in our different fields. And we began building our commercial capabilities and planning the launch of our first products. Now let's discuss these points in a little more detail. So Slide 5, clinical development pipeline. Here, you can see our clinical development pipeline of 12 assets, from top to bottom, late stage, mid-stage and earlier stage. We are very proud of this pipeline because all of our products are extremely innovative. They address a large medical need. Slide 6. Let's look at our late-stage assets first. We're expecting the results of the first of the 2 pivotal studies with daridorexant starting in insomnia in the next few months and the second pivotal study will follow closely behind. Both studies are fully recruited today. Slide 7. The speed at which we have been able to advance daridorexant is very impressive, particularly when you remember that we created Idorsia right in the middle of this program. What potentially differentiate daridorexant from existing treatment is a delivery of clinically meaningful benefits in sleep onset and maintenance without exceeding a normal night. Patients with insomnia face multiple challenges, including both falling asleep and staying asleep. They are actively seeking new safe and effective treatment options, which can address both these needs, ultimately helping them to function better during the day. By blocking the action of orexin, we hope that daridorexant will allow patients to sleep throughout the night, while avoiding the rebound withdrawal of tolerance problems associated with many sleep medications that act through broad sedation of the brain. We really are only a matter of months from the first set of data, so watch the space. Slide 8. Later in 2020, we also expect to have the results of the Japanese registration study with clazosentan, a selective ETA receptor antagonist, being developed for cerebral vasospasm after subarachnoid hemorrhage. This is a significant problem in Japan where the prevalence of subarachnoid hemorrhage is around twice as high as in the rest of the world. Clazosentan could really make a big difference for these patients, which seem to make a good recovery from the hemorrhage, only for the vasospasm to cause devastating effect. The global Phase III, outside of Japan for prevention of clinical deterioration due to vasospasm, is progressing well with results expected around a year after the Japanese data. Slide 9. We are also making progress with the development of lucerastat, an oral therapy offering a new treatment approach for all patients with Fabry disease, irrespective of mutation type. Lucerastat acts by reducing the damaging buildup of lipids, which is responsible for all the symptom of Fabry disease. It can penetrate tissues in the central and peripheral nervous system. This is the reason we believe that lucerastat can reduce this lipid buildup, and therefore, reduce neuropathic pain, which is the endpoint, which we have chosen in MODIFY. The recruitment has been slower than originally anticipated, and the results now are expecting in 2021. Slide 10. Our fourth Phase III program involves aprocitentan, an overreactive dual endothelin receptor antagonist, investigated in the PRECISION trial for patients whose blood pressure is uncontrolled despite the use of at least 3 antihypertensive drugs. Because some of the patients which had to be included in this study were planned to be in China, we are compensating for the problem of China, of course, related to the coronavirus by increasing the number of sites to compensate and to be able to have the results of aprocitentan studies at the end of next year or beginning of 2022. Slide 11. As our late-stage assets progress, the mid-stage assets come more into focus. Slide 12. Cenerimod, our selective S1P1 receptor modulator is being investigated for the treatment of lupus in a multiple dose efficacy and safety study, which could become a pivotal trial depending on the results. The study was initiated in early 2019. And so far, we are making good progress with the recruitment. We may get the results of this study by the end of 2020 or early 2022. We have been very encouraged by the result of the first study in patients, and therefore, we are getting ready to initiate the second pivotal study as soon as the current study is concluded. Slide 13. This year, we also shared the result from Phase II study. And the result, in particular, the result of selatogrel, our highly selective P2Y12 receptor antagonist. We have shown that selatogrel demonstrates a very rapid onset of action with the effects lasting between 4 to 8 hours after subcutaneous administration in patients suffering a heart attack. With this efficacy, together with the observed safety and tolerability profile, we believe that selatogrel should be self-administered at the onset of symptom to stop a suspected heart attack and preserve cardiac muscles and heart function, an incredibly innovative approach to a very serious problem. The key aspect of this approach was to find a safe and reliable device, easy to use under stressful conditions. Last November, we were very pleased to sign a deal with Antares Pharma to develop another drug/device product, combining selatogrel with subcutaneous QuickShot auto-injector. We are now running usability and reliability studies. And in parallel, we are negotiating an SBA for last Phase III study with the FDA. We plan to initiate Phase III in the first half of 2021. Finally, Slide 14, early-stage assets. As I said, we have added 2 very innovative new compounds to the clinical pipeline, and this shows the productivity of our drug discovery engine. Furthermore, we have negotiated with Neurocrine, an option deal for T-type calcium channel blocker. As soon as the FDA will give the feedback for this -- for the IND of this product by mid this year, Neurocrine will have to decide to exercise this option. Our strategy remains in drug discovery to balance novel projects, testing new mechanism of action, with projects which are aiming to optimize drugs with an established mechanism of action. Basically, we aim to be the first-in-class or best-in-class. Slide 15. In 2019, we put considerable efforts into sharing our data with experts in the different fields that we are active in. We have been able to share the results of several of our programs, daridorexant in insomnia, aprocitentan in uncontrolled hypertension, selatogrel in heart attack, cenerimod in lupus. We have experts at the most prestigious medical conferences reaching more than 60,000 key experts. We are also very excited to see our partner, Johnson & Johnson, reporting data from a successful Phase III trial on ponesimod for the treatment of relapsing multiple sclerosis at ECTRIMS 2019. This was particularly rewarding because not only as a scientist we discovered ponesimod now with Idorsia but also our revenue-sharing agreement with J&J means that the quarterly payments of 8% of the net sales of ponesimod are likely to be our first source of regular income. J&J has announced in their annual call 2 weeks ago that they intend to file ponesimod this year. The last point, Slide 16, that I want to highlight is the effort that our Chief Commercial Officer, Simon Jose, is putting into preparing for success. This year, he has been establishing his core commercial team and defining detailed commercial strategy for key late-stage compounds. He has been able to fill several critical roles, most recently appointing Patricia Torr as President of our U.S. Commercial Organization. As CEO of Idorsia, I'm very proud that we have been able to attract some top tenants and seasoned industry leaders. With that, I would now like to hand over to Andre, who will take you through the financial results of 2019.

Thank you, Jean-Paul. Good afternoon or good morning to everyone. So let's go to Slide 17. As you see here, we see CHF 470 million non-GAAP OpEx, we spent less in 2019 than originally expected. Just to recall, we guided with the Q3 results that we would spend slightly less than CHF 500 million. Going to next Slide 18. Let's have a look of how the U.S. GAAP net results came about. On the left side, you see here revenues, CHF 24 million. This includes CHF 5 million from the R&D collaboration with Roche and the revenue recognition of CHF 19 million regarding aprocitentan for the development collaboration with Janssen. As said, I will come later on this. Non-GAAP operating expenses amounted to CHF 470 million. So we have a non-GAAP operating results of CHF 446 million, including CHF 20 million G&A, CHF 17 million stock-based compensation. We have U.S. GAAP operating results of CHF 482 million. Below EBIT, you have little non-GAAP or cash expenses, roughly CHF 2 million, mainly interest expense in the negative interest rate environment and smaller capital tax. [ After that, ] roughly CHF 10 million is really noncash expenses, mainly CHF 8 million with the accretion expense, CHF 8 million with deferred tax, CHF 4 million relating to Swiss tax reform, CHF 4 million relating to the stock-based compensation. And we had a gain of CHF 6 million, which is actually the mark-to-market on the Santhera shares that we received in connection with the DMD compound, vamorolone. Let's go now to Slide 19. The non-GAAP operating expenses. Here, you have the comparison between 2018, CHF 399 million, and 2019, CHF 470 million. As you can see, drug discovery is stable at CHF 115 million. These are for 90% functional OpEx, i.e., fixed cost. You see the increase mainly coming from the development, going from CHF 215 million to CHF 297 million. If you break down this CHF 297 million, you see roughly that we have functional OpEx around CHF 70 million, i.e., fixed cost base for clinical and pharmaceutical developments. And also, rest is really variable costs, including CHF 160 million study costs. These increased by almost CHF 50 million compared to 2018. And a significant portion, CHF 61 million, relating to drug substance and drug product that we actually need in order to be able to investigate our various compounds in the clinical stage, and this one also increased by roughly CHF 10 million. SG&A was more or less stable, CHF 58 million versus CHF 54 million. Actually, the CHF 58 million includes CHF 10 million relating to commercial, where it was close to 0 in 2018, meaning also that the real G&A part was going down as we manage also to get out of all the transitional service agreements that we had from the merger with Actelion. And last year, just to recall, that we paid a milestone in connection with vamorolone, the DMD compound, of CHF 15 million. So if we switch to the next Slide 20, regarding cash flow. Left slide, you see the milestone received this year is the CHF 5 million upfront paid by Neurocrine with respect to the calcium T-channel blockers, that Jean-Paul just mentioned, compared to last year where we got the CHF 15 million -- the CHF 35 million is Roche with the R&D collaboration CHF 15 million and CHF 20 million in connection with the sublicense of the DMD compound to Santhera. The operation -- the funds from operation, CHF 473 million or CHF 402 million from last year are directly in line with the non-GAAP operating expenses that I just mentioned. Difference is really minor, around CHF 3 million, relating, as I said previously, to financial expenses and some minor capital tax. Last year, you may recall that in July 2018, we raised CHF 505 million, CHF 305 million in equity, straight equity, and CHF 200 million in convertible bonds. This year, we did not tap equity or equity-linked capital markets. The CapEx is around CHF 19 million compared to CHF 17 million last year. It's mainly maintenance CapEx, except CHF 5 million this year for small manufacturing units that we invested in, in order to be able to supply in a timely manner the clinical batches that we would need for some of the late-stage assets, and the other is mainly relating to working capital requirements. Let's go to Slide 21, liquidity. I just wanted to go back from the demerger on 16th of June 2017. As you know, we demerged from Actelion with CHF 1 billion cash; CHF 420 million, which was cash spun out of Actelion; and CHF 580 million, we see a convertible bond held by Johnson & Johnson. The 6.5 months of 2017, we had CHF 91 million inflow, which was mainly relating to the approved deal with Janssen and the upfront of $230 million milestone. You -- we discussed already the CHF 129 million in 2018 and the minus CHF 481 million in 2019. So we end up the year '19 with CHF 739 million cash or liquidity. So it means that we are well funded, but to be very clear, we are not funded to breakeven. So I would conclude with the next slide, we see a guidance, which will be around CHF 500 million non-GAAP OpEx or CHF 540 million U.S. GAAP, including stock-based compensation and D&A. So as I often said, we -- again, we see CHF 740 million. We are well funded with more than 1 year cash versus the next 12-month cash burn that we anticipate for 2020. With this, I hand over to Jean-Paul for his concluding remarks.

Thank you, Andre. So as you have heard, Idorsia has achieved a lot in 2019. Our pipeline has dramatically progressed and soon, we are going to obtain our first Phase III results. For a company, which is only 2.5-year-old, this is unique. The success of the launch of daridorexant will be key for the future of Idorsia. So in 2020, we will all do our utmost to be ready for this challenge. And now I hand over to Andrew to open the floor for questions.

Thank you, Jean-Paul. So we have come to the end of our prepared remarks. And now I'm now ready to take your questions. Operator, please populate the roster.

[Operator Instructions] We've received the first question. It is from Richard Parkes of Deutsche Bank.

Just start with a couple. Firstly, I just wondered if you could talk about your optimism over potential labeling of daridorexant? And how that's impacted by the approval of lemborexant? It felt like your competition seem very confident about getting an attractive label, but it doesn't seem to have worked out that way. So I'm just wondering to what degree you think the FDA will treat some of the side effects like sleep paralysis, cataplexy and impact on next day function as class effects versus allowing you a cleaner label? So that's the first one. Second one, just wondered if you could talk a little bit about your current thoughts on commercialization strategy for daridorexant. Just wondering to what degree the Mochida deal in Japan is a guide of what we should expect for global collaborations?

Okay. So let me answer about your labeling questions. First of all, in the label, I think that even as a company, they are -- I think that they are mentioned in the labels. And I don't think that driving, you can say, drive, take your drug and drive afterwards, rightly just afterwards. I think there is also a question of liability. And I would not like not to mention any issue or any potential issue with driving. So there are things where I think that the FDA, whatever we will see in our studies, will have tendency to be very cautious. But we have also made a lot of effort in collaboration with the FDA. And I tell you that the FDA is very, very eager to see our results. For example, to test our drug in patients and very high dose of our drug in patients with respiratory problems, in elderly, we have tried to look at all potential drug interactions. And you have seen that a lot of the studies have not been included with lemborexant. They are still in the postcommercial commitment. So I think that -- and the -- also, the last thing to mention is the fact that we have tested in Phase III doses. Therefore, we are going to be really able to take the dose, which gives the best compromise in efficacy and safety. For all the other products, basically, 1 dose versus 2 doses, maximum, but were tested into Phase III, and there was not any of this flexibility. So I think that we are going to -- we have done a very, very large program. And I think that the FDA is going to reward us. I'm quite convinced by helping us to find the best dose and have the most adequate level. Now for the commercial strategy, Mochida was very clear. It was very clear in Japan that we needed a partner. Japan is a country, which requires a lot of medical representatives to see the doctors. Therefore, there was no way that we could sell a drug on our own in Japan. In the other countries, we have -- the only thing I can tell you and I will not go into the detail of the strategy, is that we want to keep the control, meaning, to have the regulatory responsibility, to drug safety, pharmacovigilance, the production responsibility and also the medical marketing role to choose the next studies that we should do and how we should provide this drug. The rest is quite open. There are many possibilities. We can have our medical representatives from clinical sales organization. We can run this contract -- sorry, contract sales organization. And we will -- as soon as we get the results, we will go in more detail with you on our strategy to successfully launch this drug.

The next question is from Ram Selvaraju of H.C. Wainwright.

This is Edward Marks on for Ram. We noticed recently that the INSPIRE-CKD study was withdrawn from clinicaltrials.gov. And I know you mentioned it in your shareholder letter as well. Just wondering if that study is still on track to start this quarter? And if not, are you -- do you have any updated timelines for ever starting that study?

Yes. Hi, Edward. So we are not going to be pursuing forward with the INSPIRE study. What we're going to be doing is that the efforts that have been put in, in starting off that trial are going to be basically merged into the PRECISION trial, such that all the sites that have been put up to run are going to be put into the PRECISION. We've been seeing a number of patients suffering of kidney disorders in the PRECISION trial, and therefore, we think that, that's is the appropriate way to address it.

Okay. That makes sense. Just a quick one on cenerimod. I'm wondering when completion of enrollment in the ongoing trial in active SLE is anticipated.

Could you repeat the question, please?

Yes. Sorry. When is completion of enrollment in the ongoing cenerimod active SLE trial anticipated?

I think it should be finished end of this year. We are planning to finish the enrollment end of this year. And then it's a 6-month -- it's a 6-month trial. So results will be available next year.

Got it. And then finally, you had the recent amendment to the ACT-478 licensing agreement. Just wondering if considering all of the early-stage assets that you have, are you in further licensing discussions for any of the additional Phase I assets? And are any of them garnering particular interest among licensees? Or do you anticipate just self-commercializing most of them?

I think there is a big gap between the Phase I and commercialization. I think that what we have observed is that -- and you can see with the last deals of Novartis and company is ready to pay CHF 9 billion, while they know the same asset was CHF 1 billion or CHF 2 billion a few months ago, that more and more big companies don't like to take risk. And therefore, the value is exponential with time because people are eager to really have late-stage assets. And therefore, most of the time, I think we are going to at least initiate the early stage development, which is not the most expensive, but Phase I, Phase II. And when you have proof of efficacy, when you have an idea of the dose and the safety, I think that these assets are a much higher value, and that is going to be our strategy. But certainly, we are not going to really want to develop and commercialize all these products on our own.

The next question is from Graig Suvannavejh of Goldman Sachs.

I've got 3 questions, if I could. My first question has to do with total OpEx for 2020. And I'm wondering if you could give us a little bit more color around the ramp of R&D and SG&A? And how we should think about that relative to what you reported for fiscal year 2019? That would be helpful. That would be my first question. My second question has to do with -- if you could provide just a little bit more granularity around what you're hoping to see in the Phase III studies for daridorexant? Any particular outcome measure in terms of sleep latency or onsets in terms of specific numbers of the magnitude of effect you're hoping to see and how that might differentiate versus the existing dual orexin receptor antagonist? That would be great. And then lastly, if we could just talk about how you're looking at 2020 and your capital needs. Clearly, you're well-funded right now. But as we look to 2021, which I assume will be another relatively intense year in terms of capital needed, just how you're thinking about your different options for 2020? Congrats on the progress.

Andre, you want to take the first question?

Yes, sure. Just to give you a little more color regarding the CHF 500 million that we indicated for 2020. This, of course, include positive readouts in -- for daridorexant and for clazosentan in Japan. So we would need to gear up in both countries because we do not have any commercial organization, except the very small team that Simon managed to set up here at headquarter. You've seen the appointment of Patty Torr, who will join us at the beginning of March. So there's a lot in both countries to prepare for, hopefully, launches of daridorexant and clazosentan. So this will be a contingent to positive readout, mainly for the daridorexant, but also for clazosentan. So there is a slight increase, CHF 470 million to CHF 500 million. That's mainly driven by the additional commercial expenses. We need also some slightly more G&A because we need also to set up an affiliate in the U.S. And for the rest, I would say, globally, R&D would be in the same range as the numbers that you've seen for the actuals in 2019.

And therefore, daridorexant, it's a very -- I think you are asking very good questions because expectations are very important. And I think that what we have struggled, and we made more than 30,000 products really to select this compound. And why was it so difficult? It was so difficult because we wanted the ideal pharmacokinetic. You might have seen, if you look at -- a little bit at the label of lemborexant and suvorexant, you see a lot of effects during the day. The following day after administration of the drug, you see somnolence, you see side effects, which are due to the very long half-life. And in case of lemborexant, the presence of an active metabolite. An active metabolite is about the worst that you can expect from such a drug because you don't know how long it's going to work and how different from one patient with another it's going to be. So you have this continuation of the effect. And therefore, in order to avoid this side effect, the companies which have developed these drugs needed to reduce the dose, and I think, reduce the potential efficacy of the drug in order to avoid the side effects. So the first thing we should look at our drug is simply efficacy. How fast can it work? How long can it work? What is the effect on the pure sleep parameters? That's going to be efficacy. For me it's going to be number one. Let's look at it, let's compare to the other orexin compounds, let's compare to the other drugs in the market, number one. Number two is safety, side effects, how many patients. And we are testing 3 doses. So we choose 1 dose or 1 or 2 doses. Let's look at what are the side effects. Can the 3 doses be given without too much side effects on these 2 doses, we will see with the result. But somnolence the next day, next day performance. All these drug interactions, all these effects, which are related to the pharmacokinetic of the drug, you have to look at. And finally, and I would not really -- I would not believe that we can look at efficacy, but maybe we have no negative effect in the next day performance. Because we have agreed on the PRO with the FDA to evaluate at the end of the next day after taking our drug, to ask the patients how did they function during the day. And this has been a 2 or 3 years effort to develop a PRO specific for sleep, agreed with the FDA. And of course, we are going to see what are the effects of improving sleep on the next day performance. This would be the first. I can tell you, the FDA is looking forward because nobody has ever been able to evaluate this type of effect. So in other words, we have 3 doses. And we are going to have to choose the best compromise between the efficacy, not only on sleep, but on the next day performance. And that's going to help us really to choose the best dose of the drug in these patients.

And just a follow-up on the financing or liquidity for 2020?

Please, Andre.

Yes. Well, you're right. And as I just said, we're not funded to breakeven, and we -- I also said that we have different avenues to fund -- to bridge this funding gap. Of course, the most classical one is the equity capital markets. And here, we will remain opportunistic. We have -- see a possibility to draw down the J&J credit facility for another CHF 243 million. And as you've seen Jean-Paul went through the pipeline, we have a lot of fully unencumbered clinical assets that could be also -- could be partnered. It takes time. We need also to find the right partner. But also, as Jean-Paul said, we need also to get the right value for such assets in such collaborations. So these are the different ways to finance. And at one stage, yes, we'll have -- we'll need to actually know one or the other or several of these avenues.