Immunovia AB (publ) (IMMNOV) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Immunovia Q2 Interim Report 2023 Conference Call. I'm Alice, Chorus Call operator. I would like to remind you that all participants will be in the listen-only mode and the conference is being recorded. [Operator Instructions] The conference will be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Karin Almqvist, CFO. Please go ahead, madam.

Thank you so much, and good morning and good afternoon to you all. Welcome to this conference call following Immunovia Second Quarter Results. Present here in Lund, in our office is Jeff Borcherding, our CEO; and myself, Karin Almqvist, and I'm the CFO of the company. Before we start, I'd like to cover some practical aspects. And as you've heard already, the presentation will be followed by a Q&A session. Our operator will guide us on how to -- or guide you on how to post your questions. And this time, you will also be able to raise your questions via chat function. And as always, please remember, we do welcome questions. After we have closed today's call, you will find the presentation and recording on our website. And with that, I'd like to hand over to our CEO, Jeff, please.

Thank you, Karin, and thank you all for joining us for Immunovia's second quarter call. Our presentation today will include a discussion of our Q2 financial results. In reality, the real focus will be on the strategic changes that we are making to transform Immunovia and enable us to succeed going forward. We'll talk about our revised strategic priorities for the rest of the year in 2023 as well as for 2024. And as Karin mentioned, as we close with question and answers, we'd really welcome your questions. Given the number of changes, I hope you'll take the opportunity to ask questions and share your thoughts. In July, we announced that we are significantly restructuring Immunovia to focus on our novel next-generation test for the detection of early -- for the detection of pancreatic cancer. These changes are difficult, but they're critical to improve the company's financial position and to strengthen our product offering. We're moving quickly to streamline our operations, develop our next-generation test and optimize our cost structure. Today, we'll share some additional information about the rationale behind this decision, our path forward from here and how these changes while painful, position us for success going forward. With all the changes, I do want to note that our mission has not changed. You see it here. We continue to be focused on ways that we can increase survival rates for patients with pancreatic cancer through early detection. This mission is vitally important to us. And as I shared on previous calls, there are too many people who die from pancreatic cancer because they're diagnosed too late. We feel a tremendous obligation as a company to develop a new standard of care and to help individuals who are at risk for pancreatic cancer and their physicians find that cancer early enough to change the outcome for those patients. It's a worthy mission. It's an important mission, and it's also one that will enable us to build a successful and profitable business when we succeed that will reward shareholders for their investment in the company. As we discussed last quarter, while we have this tremendous opportunity, we certainly faced some significant challenges in the external environment. And I want to highlight 3 that we've talked about previously and provide a little bit more information. The first challenge is the demanding payer requirements for clinical data that we see in the U.S. market. Payers, in our conversations with them, have been pretty demanding in terms of the clinical data that they want to see from us, they want to see both accuracy data, which is the sensitivity and specificity of the test, they also want to see clinical utility, and that refers to the fact that they want us to demonstrate that patient outcomes truly do improve when you use the test. In addition, they're generally going to require 2 tests of each type, 2 clinical studies that look at accuracy, 2 clinical studies to show clinical utility. In our conversations with payers, it was clear that the data package that we had for IMMray PanCan-d was not going to be sufficient. In order to get coverage, in order to get reimbursement and in order to start generating revenue, we were going to have to do additional clinical studies. The reality is that we didn't have the financial resources to do those clinical studies for both IMMray PanCan-d as well as for our next-generation test. And so that was one of the factors that led us to make the strategic decision that we did. Part of the reason that we couldn't fund trials in both -- for both products was the fact that proving clinical utility in pancreas cancer is not easy. To show clinical utility, you generally are going to need a large number of patients followed for a fairly long period of time. As we discussed on our last call, we have some creative ways to achieve that goal and some partners that we plan to collaborate with to execute these studies, but the reality is that proving clinical utility for 2 products, again, would have been very costly. Finally, as I've mentioned, cost and financial considerations have been a challenge. And the reason for that is that we continue to see that the financial markets are risk-averse and that companies like Immunovia that are not yet profitable and not yet generating cash flow have limited access to capital. One of the other developments over the last few months has been the fact that as our share price has decreased, our market capitalization has fallen that further makes it difficult to raise money without tremendous dilution to our shareholders. We were looking for ways to avoid that, and that was one of our key considerations as we thought about the path forward. I also want to talk a little bit about some of the internal challenges that we had around the IMMray PanCan-d product that's sort of magnified or amplified those external challenges that we just talked about. One of them is the fact that the IMMray PanCan-d test was pretty reliant on one of the 9 biomarkers in the test. That biomarker is called CA19-9, it's an especially important biomarker in pancreatic cancer and sometimes is used independently to assess whether a patient has pancreatic cancer. Because of IMMray PanCan-d's reliance on CA19-9, our results were highly correlated with CA19-9 alone in several analyses that we did. This becomes important because as we think about those clinical utility studies that we need to do, generally speaking, one of the ways that we want to do that is to partner with large studies that are being conducted by a consortium across multiple sites. That allows us to do the study less expensively. One reality of those studies, though is that they will often incorporate more than 1 biomarker and they will incorporate CA19-9, we had to be confident that our test would outperform CA19-9 in a head-to-head study. And we feel much more confident about the ability of our next-generation test to do that versus IMMray PanCan-d. Another issue with the IMMray PanCan-d test is the fact that we were not able to provide results for about 10% to 12% of patients. This is another issue that ties back to the CA19-9 biomarker in the test. CA19-9 is not produced by some people even if they do have pancreatic cancer. So in those people that don't produce CA19-9, we were not able to run the IMMray PanCan-d test. As I said, that's about 10% to 12% of the population overall. What's especially problematic is that there are certain minority groups in the United States. Most importantly, those patients of African ancestry, where their ability to produce CA19-9 is even further compromised. About 1 in 4 patients who are of African ancestry do not produce CA19-9. This is especially problematic that we can't use an early detection test in these patients because those patients, unfortunately, also have a higher incidence of pancreatic cancer and their outcomes are generally worse than the majority of population when they do get the cancer. In addition to that, one of the final challenges that we had with the IMMray product is that it was based on the proprietary IMMray platform that Immunovia had developed a number of years earlier. This proprietary platform was very helpful for discovering proteins that could play a role in pancreatic cancer. Unfortunately, as we transition to being an in-market product, this proprietary platform proved to be a relatively costly way for us to deliver the test. Using this platform required us to have in-house production capabilities, here in Sweden, where we could produce the slides on which the test was run as well as some of the materials that we use to run the test. As a result of that, our cost of goods sold was higher than we ultimately wanted it to be. And in addition, we had high fixed costs in our Lund headquarters in order to support the number of people that were required to support the platform. Because of these external factors and these internal factors, we realized that we needed to make a bold decision to succeed. We chose to focus our resources on our next-generation test and we made the difficult decision to discontinue selling the IMMray PanCan-d test. I've alluded to it earlier, but just to emphasize, the next-generation test that we have in development gives us a better ability to serve a broad range of patients across races and ethnicities. It enables us to provide results for all patients, not just the majority of patients. It allows us to increase our chances of success in clinical studies. And finally, it allows us to reduce our ultimate cost of goods sold for the test down the road as well as reduce our fixed costs. All of that helps us to extend our financial runway over time. Based on this decision, we've taken a number of steps to transform Immunovia and position the company to go forward from here. We very quickly notified customers, key opinion leaders, advocacy groups and patients of the decision to discontinue IMMray PanCan-d. I am pleased to share the fact that we had dozens and dozens, if not hundreds of conversations with different customers. And in general, those customers were very understanding. They were very supportive. They continue to believe in Immunovia. The message that we heard very often was we're excited about your next-generation test and please get there as quickly as you can because we need it. We've also been working to transition away from the proprietary IMMray platform, as we'll talk about with our next-generation test, we are developing that on a commercially available platform that will be much more scalable and will reduce our costs. We've made the difficult steps to initiate and carry out significant staff reductions. We have eliminated our sales team in the U.S., eliminated other support functions like customer service in the U.S. In addition, we've had significant number of employees in Sweden, you have been notified that their positions will be eliminated as we move away from producing the IMMray platform. In addition to the staffing cuts, we're looking at other ways to cut operating expenses and have already executed a number of those steps. And then finally, all of these things are being done against the backdrop of our next-generation test and that continues to be the primary driver and focus for us as we look to the next year and into 2024. And with that, I'll hand it over to Karin. I'd like her to review our Q2 financial results before I come back and speak to you about the path forward from here.

Thank you. And without any doubt, also financially, the quarter has been dominated by the decision to withdraw the test from the market and then in combination with the restructuring that we are carrying out. This has resulted in substantial one-off costs that we have taken in the quarter. But initially, I would like to make some comments on to the underlying performance excluding the impact of the one-off items. And the second quarter has very much followed the trend that we have seen from previous quarters. Revenues are at the modest level and cost, which then reflects or equals the cash burn are at the steady level of approximately SEK 15 million per month or SEK 45 million per quarter, which is very much in line with the guidance that we have given to the market. And as I said, we have a significant one-off charges, which are amounting to SEK 141 million in the quarter. Of the SEK 141 million one-off costs, most of it refers to write-downs of intangible assets such as capitalized R&D expenses, licenses and linked patents, and a smaller portion relates then to termination and severance pay. Write-downs will have no impact on the cash flow whereas the charges for termination and severance pay will impact future cash flow. Looking at our cash position. At the end of June, we had SEK 144 million in cash, estimating our future cash runway, taking the impact of cost reductions into account, we will substantially reduce our cash burn. And I estimate that we will be at the level of SEK 25 million to SEK 30 million per quarter which is a reduction from today's level by approximately SEK 15 million to SEK 20 million per quarter. However, given that we are in the middle of the transition period and restructuring period, we expect to see cash burn come down, not so much during Q3 and Q4 this year, but beginning of Q1 2024. Reducing cash burn will allow us to extend the cash runway through late 2024 or into early 2025. And with that, back to you, Jeff, again.

Thanks, Karin. As we think about our strategic priorities for the rest of 2023 and 2024, you can see them here. First is that idea of transforming the company to really make sure that all of our efforts are focused on the next-generation product and that we are as lean as possible. That's essentially all the work that we're doing to enable the focus on that next-generation test. We are doing development work. We're doing clinical testing. I'll walk through some of the details of where we are in the process and what our time line looks like for the next-generation product. I think it's important to highlight is we're doing the R&D work for that product. We're also doing things that are going to save us time to market that are happening on a parallel track. One of the most important is continuing to build out the industry's biggest biobank of blood samples with patients who have pancreatic cancer and controls that we can use. Those blood samples are vital for the R&D work that we're doing. That will also be critical for doing the analytical validity work and clinical validity studies that we need to do in order to get the product to market. For many companies, including Immunovia in the past, getting these samples is often the rate-limiting step that slows down development. Because of the samples that we already have and because of the samples that we continue to collect, we believe that we can move much more quickly than we did historically and that this gives us a competitive advantage versus others. One of the things that we'll be doing in parallel is designing the clinical studies that will allow us to evaluate the accuracy of the new test and its clinical impact on patients. There are studies that we have already largely gotten through the design process for. In some cases, we've even contracted with the centers that will be doing those studies and essentially, we will be ready to go by the time we have a test that's ready for those studies. The idea is that we can seamlessly transition into executing those clinical studies because we've already done the work to partner with the investigators, collaborate with those professors and line up the centers that will be part of those studies. All of those things really tied to our last strategic priority, which is maintaining and building on the relationships that we have with the key opinion leaders in the market, clinicians who would use our test as well as the different advocacy groups that really give us a connection to those clinicians and to patients in this market. We've already seen the benefit of those relationships in our work with IMMray PanCan-d, and we can apply the lessons and the relationships that we have to the next-generation test. I mentioned the fact that we do have assets to accelerate the development and launch of the next-generation test. The first on the list is the really productive R&D partnership that we have with Proteomedix. We announced that partnership probably more than a year ago. And in that time, it has grown to become an incredibly effective partnership. I can't say enough about the quality and the talent of the people at Proteomedix and the work that they are doing with us, that is allowing us to move faster. It is allowing us to move through the R&D process more effectively than we were able to do on our own. And it allows us to also make some of the difficult staffing reductions that we've had to make as part of this transformation. I mentioned the biobank of samples and that will be a tremendous asset to us. And as I said, the relationships that we have with leading clinical researchers and professors in the field are really important. Those relationships provide value to us in a number of ways. They are a source of blood samples that we can use for our studies. They provide guidance to us on study design. And they are also the primary leaders of different clinical studies that are already taking place, many of which are funded by groups other than companies like Immunovia. Having relationships with these people is going to allow us to participate in their clinical studies at a much lower cost than if we were to sponsor the studies on our own as we did with, say, the PanFAM-1 study. Here, I wanted to share with you just a topline look at some of the key milestones for the development of a next-generation product. We will show this slide here as well as in future calls. And you can see that so far, we've defined the target patient populations. We've been researching and identifying biomarker candidates and we've also completed what we believe is the largest biomarker discovery study in pancreatic cancer to identify biomarkers. We've looked at over 3,000 potential markers to identify the most promising biomarkers to take and build into our next-generation test. And that's really what the next steps in this process will be. We'll take those biomarkers and move them to a commercial testing platform. That platform will very likely be ELISA. We'll be developing the algorithm that combines those biomarkers into a single test. And then from there, we'll move into a series of studies to confirm that we really do have a test that can differentiate pancreatic cancer from patients who do not have pancreatic cancer even at Stage 1 and 2 when doing that is very difficult. If you look at the steps that are on this list, we expect to be through each of these steps and into the clinical validity study by the end of 2024. So we can move relatively quickly through the R&D process and the validation process to be showing clinical validity with the new test, assessing its sensitivity and specificity, and we plan to do that in late 2024. And as we close today, before we start the question-and-answer session, I just want to come back to the mission that we talked about earlier of really increasing survival rates for patients with pancreatic cancer through early detection. That mission fuels what we do every day, and it offers the promise of financial rewards to the company and our shareholders when we're successful. We are creating a very different Immunovia. The company going forward is one that is going to be much leaner, more agile, more cost-conscious and more connected to our customers and patients. As I mentioned in our CEO letter, we want to make better use of partnerships in order to accelerate our progress as well as to keep our costs as low as possible. I realize that the journey to this point has been a very difficult one for our investors, for our stakeholders and for our employees. Please know that we're working hard to create the company that will reward you for your investment in Immunovia and will really make an impact for those patients that are looking for better answers to detect pancreatic cancer. And with that, we'll open it up for questions.

[Operator Instructions] There are no questions at the telephone at the moment. Mr. Borcherding -- sorry. We have the registration from Stig Lystedt from LysCapital.

I appreciate your very positive tone from your presentations. But looking at the stock price, I mean, how can you avoid the bankruptcy? What is your detail plan because you cannot issue new capital. You cannot issue new shares. What is your detailed plan to get in money to survive for whatever period that it takes to launch these new product?

Yes. Thank you for the question. I think it's a very fair question. We are doing a couple of things. As we -- as I mentioned earlier, a lot of what we are doing is taking steps to extend our runway and reduce our need for cash in the short term, that does a couple of things for us. It allows us to get further into the development cycle before we need money. Our hope is that it will also enable us to get to the point where the market has improved and our stock price has increased, so that we can raise capital without diluting shareholders further or at least to reduce that. The other thing that I would say is that we are looking at creative sources of financing. One of the things that we have talked about is looking at, for example, venture debt capital that would allow us to secure funds as we need them. That can ultimately have a dilutive effect as that capital is converted but in the short term, that allows us to raise money in a way that would enable us to get to the point where we can get through the R&D steps that we talked about, get through the validation of the test, get the test on market and start generating revenue.

No, I have some -- I have more. I've been following this company for -- can you hear me on?

Yes, please go ahead.

I've been following this company for maybe 4, 5 years. And you have these -- and the basic idea was the original test for pancreas cancer. And it's been dragging out. But -- you have now given up the old, [ it's wrapped ]. But do you have a firm timetable for what you try to develop now? When is it going to come to market? What is -- because the original test -- $10,000, it's still expensive. How doctors look now? When will this new test come to market? What is the price? And will the American insurance companies pay for it?

Yes. So a few things there. So I think in terms of the timeline, as I mentioned, our plan is to run the clinical validity studies for the next-generation test at the end of 2024, which should enable us to get into market in 2025. The reimbursement for the test would not happen right away, but as I mentioned, we do have plans to do clinical utility studies earlier in the development cycle than what was done previously, so that we can get the reimbursement that we need. I hear your frustration. I understand your frustration. The reality is...

No. Can I -- I'll put in some more questions.

Can I just finish, Sir?

Yes? No, I'm just saying you don't have money to do this. You need to get in your money in some way or another -- and right now it's just no shares, it's no option.

Yes. I think as we talked -- as I mentioned, we're looking at additional options to raise money when we need to. But importantly, we are trying to put that off as long as possible. And we believe that we can get to the point of having a clinically validated test before we need additional funds. And I think that's really critical.

But if I put another issue up, don't you think that the only value in Immunovia now is -- of course, no, this will not work. But the only value in Immunovia is tax because you have lost by how much -- SEK 1 billion over the last 4 years. So the only value in the company is another company buying it for tax purposes.

Yes. So I think there are several sources of value in the company is a going concern. For example, the sample database that we have is one of the largest, if not the largest in the industry. There's tremendous value in that competitively, it allows us to bring the next test to market and I'm optimistic about the assets that we have. I think the combination of the R&D collaboration we have with Proteomedix, the relationships that we have with key opinion leaders, the sample database, there's a lot to build on here and a lot that's going to allow us to get back to market with the next-generation test in much less time than it took the first time around.

There are no other questions on telephone at the moment. I'll hand it back to Mr. Borcherding to read out questions from the webcast.

Yes. I don't see any questions on the chat. We do have the chat feature open if you would like to submit questions. If you are listening through the webcast, will wait just a moment to see if we get any questions through there.

[Operator Instructions]

Well, I really appreciate your participation in today's call. I know this is a difficult time. I realize that for many of you, you have been with Immunovia and part of this journey for quite a long time, and that journey has certainly not led to the destination that we hoped that it would at this point. We are working hard to get to a place where we can achieve our mission, where we can reward our shareholders, and we can be the company that we have all hoped that Immunovia will become. Thanks for everything, and we will continue to communicate as we develop our next-generation test and as we work to bring that to market to help people with pancreatic cancer get diagnosed early and survive that cancer. Thanks very much.