Idorsia Ltd (IDIA) Earnings Call Transcript & Summary

Welcome to the Idorsia Nine Months Financial Reporting 2023 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to our first speaker today, Andrew Weiss. Please go ahead.

Thank you, Nadia. Good morning to you all. My name is Andrew Weiss, and I want to welcome everyone to our webcast today to discuss the nine months 2023 financial results. Presenting today, we have our CEO, Jean-Paul Clozel and our Chief Financial Officer, Andre Muller. Then joining for the Q&A session, we will also have our new General Manager and President of Idorsia U.S., Tosh Butt, and our President of Idorsia EUCAN region, Jean-Yves Chatelan. Next slide, please. Before handing over the microphone, I need to remind everybody that we will be making forward-looking statements. You have therefore been appropriately warned about the risks and opportunities of investing in Idorsia shares. With that, I hand over to Jean-Paul for his introductory remarks. Next slide.

Good afternoon, everyone. The third quarter was a very active time for us as we implemented numerous measures to adapt the company. Today, I'd like to run through these measures and then describe the current performance of QUVIVIQ around the globe. Then Andre will take you through our financial results. Next slide. In just the past few months, we sold our Asia Pacific business, not including China for CHF 400 million. We reduced the workforce at headquarters by around 50% and received a number of research projects. We changed the leadership of our U.S. commercial operation with Tausif Butt taking the reins in September. Tosh has set the ground running and is already joining us on the call to answer questions on the performance of QUVIVIQ in the U.S. And very importantly, we reacquired the worldwide rights to aprocitentan. Next slide. I am very happy that we came to the agreement with Janssen for the return of aprocitentan to Idorsia. Recently, the WHO has characterized hypertension as a key public health issue. Aprocitentan is the first anti-patentship drugs, which work via new mechanism of action in 30 years and has been shown to be effective in patients with resistant hypertension. With this deal, Johnson & Johnson, which remains a significant shareholder of Idorsia, continues to have a vested interest in the success of aprocitentan and Idorsia. The review process with the U.S. FDA is progressing well. Following the provision of additional rents materials to support to streamline ramps designed specifically for aprocitentan, the company is working towards the PDUFA date of March 19, 2024. We are laser focused on gaining approval and getting ready to provide aprocitentan to patients as soon as possible. Next slide. Let's move to the performance of QUVIVIQ in the U.S. Since the launch of QUVIVIQ in the U.S., more than 275,000 prescriptions of Kribi has been dispensed. As explained previously, our approach as launch was to drive demand for QUVIVIQ for both early product adoption and payer negotiations. In January, ASI added QUVIVIQ to their national preferred formulary. This was followed by CVS National Corporate in July to begin within Tier 3, but in September, we were added to Tier 2 formulary of CVS [indiscernible] putting us at parity with the other two donors available in the U.S. Additionally, through the quarter, QUVIVIQ has been added to several employer plans. We also expect the first mid part coverage to begin in January 2024, which will open an entire new channel to the team. With the improved access, we decided to move our specialty pharmacy partner from VitaCare to Nipper, which is better positioned to pull through paid prescription as they can dispense both commercial via paid and consign Idorsia paid prescriptions. VitaCare could only dispense consigned prescriptions and rely on partner pharmacies to dispense commercially. Next slide. As you can see here, prescriptions volume were flat quarter-on-quarter. So a temporary product volume volatility was experienced during this transition period, which is to be expected from a major business model adjustment in addition to the seasonality impact. Already QUVIVIQ prescription volume is returning to growth, which is expected to accelerate from this new prescription baseline. I can tell you that in the last couple of weeks, we have seen weekly growth of 8% in total prescriptions. So I'm confident that the impact of the decision to transition to this new model is now behind us. Next slide. Despite the negative impact for a few weeks, we start to see the benefit of this transition from VitaCare to Nipper. In the third quarter, we were at 18% paid prescription. -- an increase of 11 percentage points from the previous quarter. As you see here on this slide a year ago, we were only a 24% payer paid prescription. Actually, in September, we were at 57% paid prescription. So we are clearly seeing the results of the increased coverage and the switch of the specialty partner. And as our access continues to grow, so will our percentage of payer paid prescription. We now have an effective model in place to grow both QUVIVIQ revenue and volume. Next slide. We have seen also some great milestones for QUVIVIQ in Europe this quarter. Remember that QUVIVIQ is the first and only dual orexin receptor antagonist in Europe. We have now made it available in five European countries, Germany and Italy last November, Switzerland at the end of the last quarter and most recently in Spain and the U.K. Pricing and reimbursement processes are progressing well in key European markets. In the U.K., the recently published final guidance from NICE means that patients in England and West will have broad unrestricted access to QUVIVIQ on the NHS. In Germany, the GBA review of the four-week prescription limitation so-called Anlage, resulted in the limitation being lifted, and we anticipate official publication in the coming weeks. This makes QUVIVIQ the only sleep medication in Germany that can be prescribed for long-term treatment. In addition, we can now plan the submission of the [indiscernible] dossier for the treatment of chronic insomnia disorder beyond 4 weeks, reflecting the indication in chronic insomnia disorder granted by the MEA in 2022. We aim to make this submission in February 2024. This great progress enables European patients with chronic insomnia to fully benefit from a treatment that has robust clinical data demonstrating improvements in sleep quality and quantity as well as data and functioning. Next slide. As you would expect, we see a sustained sales growth momentum in this quarter in Europe. Despite the insomnia market seasonality, usually impacting the third quarter, QUVIVIQ absolute volume increased significantly from Q2 to Q3 in every market. QUVIVIQ market share also increased in every country despite entrenched conventional [indiscernible]. In total, already 55,000 months of treatment of QUVIVIQ have been prescribed to patients with chronic insomnia in Europe. Next slide. I'm fully aware that Idorsia needs additional funding in the coming months. As you can see from this slide, we have a rich portfolio, which give us strategic flexibility and multiple avenues to explore potential from raising through partnerships of one or a combination of products. That brings me to the end of my prepared remarks, and I will now hand over to Andre for the financial results. Please, Andre. Next slide.

Thank you, Jean-Paul. Good afternoon or good morning to everyone. Jean-Paul, as you can imagine, my primary focus is on the near-term funding to extend the cash runway beyond mid-February 2023. Next slide, Nadia, please. Here, you can see net sales. Al reported, so including PIVLAZ, Q1, Q2, you've seen 13.5%, 18.9%. And so 1.3 million for Q3 is actually the first 19 days until we closed our transaction with Sosei. And this will be the final number for full year regarding PIVLAZ because as Jean-Paul mentioned, that we have sold the Japanese business to SoC. Now coming to scope, we operate. You see QUVIVIQ growing 4.3%, 7.4%, 8.4% in Q1, Q2 and Q3, leading to a total net sales of 20.2 million. And as Jean-Paul explained, and Tosh will also give you more detail, we had a hiccup with the transitioning between VitaCare and Nipper, which explains the modest increase in Q3. Next slide, Nadia, please. On this one, you see the impact of the Sosei deal, which, of course, has a huge impact on the reported numbers in Q3, so for the 9 months. And of course, it will also be valid for the full year. So we have already received 396 million cash, 10 million in June, 396 million mid-July, and we expect plus or minus 4 million in later October or early November, we see a true-up we see a closing balance sheet at the date of year closing. The impact on the P&L is a total of 363 million. You get an impact of 68 million on the contract revenue. You get a gain on the sale of disposal, which comes as a reduction of the OpEx for CHF 302 million and an impairment of intangible assets. This was relating to clazosentan. Specifically, we see a license with Roche, which has been assigned actually to a fourth bank also 7 million. Next slide, please, Slide 15. So here, you see the non-GAAP operating results as reported in blue and proforma in green. So revenue 131 million, but actually 29 million. The 20 million sales, you saw a few slides ago in net sales and 9 million of contract revenue. Cost of sales is also lower because we no longer account for the royalties paid on clazosentan to Roche. This is now assigned to Sosei. Research is, as you know, a group research efforts, we did not have any research activity in Japan, so 74 million. Some local specific development activities in Japan, which explains the difference between group reported 138 million and proforma 130, excluding Japan. And SG&A, because in order to launch aprocitentan in Japan and also prepare for the registration of clazosentan in South Korea. You see a 22 million difference between group as reported and pro forma, excluding Japan and South Korea. So the main difference, as we sawn is the impact in revenue, which explains that the non-GAAP operating results as reported are CHF 387 million but on a pro forma basis, so the scope of business we currently operate is CHF 456 million. Next slide, Nadia, please. So on Slide 16, you see we start again from the reported and pro forma non-GAAP operating results. You see a little difference between reported and pro forma, except, of course, in the reported deal, the impact of 295 million, which is the addition of the gain on sale of 302 million and the impairment of the intangible asset. Again, this is offered in the OpEx in the U.S. GAAP numbers. So yes, the U.S. GAAP operating results are shown at 145 million nut on a pro forma basis, we are at 507 million. Next slide, please. So here, you have a comparison. We'll not spend too much time on this one. Again, on to your pro forma numbers. But comparing 23 CFS 9 months of '23, CFS 9 months of 2022. As you can see, we have curb on the OpEx. Research is going down, 74 versus 86, development is going down 130 versus 148 million. SG&A, mainly marketing and selling is significantly going down 277 versus 333 million. And revenue are growing mainly through net sales with the launch of QUVIVIQ because now we speak in pro forma numbers only after QUVIVIQ. And as a result, you see that we almost saved compared to the comparative 9 months 2022, almost saved 100 million leading to a pro forma non-GAAP operating results of minus 456 million. Next slide, please. Same here, we see U.S. GAAP operating results the impact we saw it on a non-GAAP creating results, almost no difference with the D&A and stock-based compensation. We booked restructuring costs at the headquarter following the cost reduction initiative launched in July, which is almost complete of 11 million, leading to a pro forma 507 million. Next slide. So now we see our cash flow. And here, the cash flow, again, trying to give you a view of how the liquidity beginning of the year 466 million, how we went to 255 million by the end of September. You've seen the pro forma revenue, 29 million, again, excluding the impact of 68 million of the license of Q2 as we said. Non-GAAP OpEx, we discussed it at length 486 million. The cash so far from the Sosei deal 396 million, 3-4 million more expected in the coming weeks, working capital changes of 85 and 65 which I put us other in order to reconcile numbers, with this waterfall with the pro forma revenue. So EUR million cash by the end of September. Next slide, please. I was on the road with Andrew over the last few weeks and months and I wanted to add this slide of the effect of all investors in Idorsia. The indebtedness, as reported is 1.293 billion. It's mainly with two bonds, the bond that will mature in July 2024, 200 million convertible bond, which is true for 199. You have 597 of the 2028 convertible bond, nominal value 600 million. And that's really because the strike now both bonds are really out of the money with a strike price of north of CHF 30. So this is, I would say, not a U.S. GAAP, as you can see, but these are really the convertible bond that we would have to pay, should we not be able to reach the strike price. The J&J convertible loan of 335 million will mature at the latest in June 2027. And J&J can convert this loan at any time into new shares up to 29.1 million shares. The only reason why it's a debt according to U.S. GAAP is that there is one single reimbursement of this convertible loan, one single feature, which would be a change of control of Idorsia. If not, this alone will eventually at the latest in June 2027, be reimbursed in additional shares, 21.1 million, as said. And the other one is the sale and leaseback because of some features where we have an option that we're buying back the buildings sold last year for 162 million. So the roughly CHF 1.3 billion debt as you can see, has a different nature with fundamentally 800 million in nominal value of convertible bonds, 74 and 600 million, respectively. This does not include the conditional consideration for the reacquisition of the position. Let's go to see our next slide. As you have seen in the press release published early September, we reacquired the worldwide rights to aprocitentan from Janssen, Jean-Paul mentioned it, and change is entitled to up to CHF 306 million. Only if the drug is approved in the U.S. for 90%, so we're more or less CHF 275 million and 10% to roughly CHF 31 million if it's approved by EMA in Europe. Idorsia will pay to J&J, 30% on any out-licensing deal of aprocitentan, 10% on any other out-licensing deals, and low to mid-single royalties on the annual net sales. So just to give you also because we got the question why 306 million, quite odd number. This was the conversion of USD 350 million. And this number of USD 350 million. That's more or less the amount which was invested by Janssen in the collaboration on aprocitentan with USD 230 million optimacy back in December 2017 and 50% sharing of the development, firing and CMC costs since the opt-in until September 2023. Next slide, please. As Jean-Paul mentioned, we had a busy third quarter, reacquiring the aprocitentan rights going through the cost reduction initiatives at the headquarter, closing at the Sosei deal. And what is reflected in this new guidance, 600 operating loss and 670 U.S. GAAP operating loss is reflecting the efforts made by the company in order to also prioritize the pipeline portfolio and reduce the spend. Next slide, please. So as you can see, we are adapting the company to create a sustainable value. And with this, I hand over to Andrew.

Thank you, Andre. Thank you all for your prepared remarks, and we now have time to address questions. As mentioned at the beginning, we are now joined by our President of Idorsia EUCAN region, Jean-Yves Chatelan, who joined us already at the last call. We also have our new General Manager and President of Idorsia U.S. Tosh Butt. Prior to joining Idorsia, Tosh served as Executive Vice President and Chief Operating Officer of ChemoCentryx. Tosh has a rich expertise spanning complex operations and the commercialization of products across different disease areas and medical settings. Thank you for joining us today, Tosh. In terms of logistics, I will ask the analysts to ask one question and jump back into the queue. Operator, please open the lines.

And now we're going to take the first question, and it comes from Peter Verdult from Citigroup.

One question for Andre on financing just in light of the liquidity position, can you give any comfort or color on the QUVIVIQ Pro and/or pipeline deals that you have publicly stated you're seeking to provide a cash runway to breakeven. I realize you can't go into big details but anything you can say on level of interest confidence in getting something done in Q4 would be appreciated. And just a tack on Andre, This is a second part of the first question on financing. Just in light of the current share price, is it fair to assume that the backstop rights issue that you potently talked about is now off the table or is that one cards?

Thanks, Peter, for your question. As you said, it's premature to give you too many details. We have a few balls in there with different scopes. Nothing is excluded today regarding the scope of business assets that we could partner. Of course, we aim to find right terms for such out-licensing deals. I would say nothing is also excluded even if an equity raise or an equity-linked deal based on the current stock price is not our favorite option. But as a factor, it could be really a backstop option if needed be, i.e., we would not be able to close on a sizable deal with one of the asset sector could be a partner.

Now we're going to take next question and it comes from Brian Balchin from Jefferies.

Can you just help us understand what gives you confidence in seeing inflection in 4Q, just as we're not really seeing that pickup in QUVIVIQ based on October data? And then I see that you said you've got 57% paid scripts in September, so that's 11% up from 3Q, but we saw an 11% increase in paid scripts from Q2 to 3Q, which shouldn't translate into a meaningful jump in sales. So what gives you confidence that 4Q is going to be different?

First of all, thank you for the question. It's a pleasure to be here. Yes, look, first of all, we are given our new reduced TRx prescription volume baseline following a flat third quarter. We've had to have a reduction in promotional efforts. And with continued market access improvement, we expect to see some consistent volume growth now from our new baseline. In terms of inflection point, you're aware that on September 1, we got CVS commercial active provided, and we're focused on putting that through. We've also got a couple of regional plans that have given some additional access in the commercial space and our account director team are working hard to pull that through. For example, Blue Cross Blue Shield in Florida, which is the largest Blues plan has added QUVIVIQ, Blue Cross Blue Shield in North Carolina, which is also a top five Blues plan have added QUVIVIQ too. Our team continues to work on those every day. And then looking forward, that examiner inflection point we would expect will be in January when we win our first Part D access with the Optum United Group.