Innate Pharma S.A. (IPH) Earnings Call Transcript & Summary

Thank you, and welcome, everyone. This morning, Innate issued a press release announcing it will return the U.S. and EU Lumoxiti commercialization right to AstraZeneca. The press release is available on the IR section of the company's website. Before we start, I would like to remind you that we will make forward-looking statements regarding the financial outlook in addition to regulatory and product development plans. These statements are subject to risks and uncertainties that may cause actual results to differ from those forecasted. On today's call, I will provide a summary of the announcement as well as an update on the company's strategy going forward. Dr. Joyson Karakunnel, Executive VP and Chief Medical Officer; Laure-Hélène Mercier, Executive VP, Chief Financial Officer and Executive Board Member; and Jen Butler, EVP and Global Head of Commercial, will also be available during the Q&A. As I said this morning, we announced we are returning the U.S. and EU Lumoxiti commercialization right to AstraZeneca. And on today's call, we plan to elaborate on this strategic decision. First, we'll share with you why this is the right decision for Innate at this time. And then we'll outline what this means for our commercial organization going forward. But let me first begin with some background. In late 2018, we licensed Lumoxiti from AstraZeneca for the U.S. and EU, not because we anticipated it would be a blockbuster from a commercial viewpoint, but because it would lay the foundation for our long-term strategic objective to become a global commercial stage biotech company. At the time of in-licensing deal, we believe, and still do, that this is a drug with potential to deliver a meaningful impact for patients and that it could provide us with the opportunity to build an infrastructure to support our plans for a commercial rare hem-onc franchise. Over the past 2 years, We've learned a lot, and we have gained a lot from our experience with Lumoxiti. We have expanded our global footprint through the establishment of our U.S. headquarters. And we transformed our organization by attracting top talent that has brought in new thinking and capabilities. We are now well equipped to manage the global development of our product towards commercialization. However, since launch, we have encountered certain challenges. We've always known hairy cell leukemia to be a rare disease with just few hundred patients within our established label indication. And we have shared previously that sales have been lower than anticipated. And as we took on more of the responsibility for Lumoxiti, we got to know the drug and the market much better and have identified several real-world dynamics. And let me outline them one by one. First of all, there have been no new treatment for hairy cell leukemia in over 20 years. And oncologists, during all these years, have used various established medicines and newer combination of this medicine for their patients in third-line plus hairy cell leukemia. It means that it will take a lot of time to increase brand awareness and convert physician behavior. Actually, the current global pandemic further limited the ability of our sales force to target, visit and educate physicians through an effective means given the inertia in this market to adopt to new medicine. Data don't sell themselves. You need to visit the physician, you need to establish a relationship and educate about this new data. Additionally, as you know, hairy cell leukemia is an indolent condition. And physicians have reported in various studies and market research that again, due to the impact of the COVID, they were delaying infusions and/or prescribing existing oral agents in order to avoid putting cancer patients at risk for COVID by sending them to health care facilities. This has also slowed the uptake of Lumoxiti. Lastly, hairy cell leukemia patients were widely spread geographically rather than concentrated in centers of excellence. And although we rapidly adapted our commercial model in 2020, we could see actually that this would require a different infrastructure and a different level of investment. In fact, the commercial model for Lumoxiti, therefore, did not provide the synergistic opportunity that we needed in order to build a rare hem-onc franchise for our future products. In addition to all these challenges that we faced in 2020, we must say that it has not been an easy year either. The COVID global anemic has also caused disruption to our R&D efforts. And TELLOMAK, our Phase II study of lacutamab, experienced a brief clinical hole due to GMP manufacturing concerns, which were quickly resolved, but this had an impact on the overall time line, notably for Sézary syndrome, which is the first indication in which we expect to reach the market. Considering all these factors I have just mentioned, we determined that the best course of action for Innate was to return the U.S. and EU commercialization rights to Lumoxiti to AstraZeneca, so that we can prioritize our investment in our development portfolio and cutting edge research. We felt it was important to make a timely strategic decision that will help us to efficiently manage our resources, focus our investment in areas of the business where we see the most significant growth opportunity for Innate long term and, in turn, drive shareholder value. Together with AstraZeneca, we will now work on a swift transition plan, which will include looking at the cost and the timing of the transfer of Lumoxiti. In terms of next steps following today's news, the 2 companies will develop a transition plan with the goal of returning full commercialization rights for Lumoxiti to AstraZeneca in 2021. As part of this decision, we will also immediately begin to reduce our U.S. commercial operation. We have eliminated our field-facing team and a select number of U.S. roles, while we maintain the appropriate patient and customer support service during this transition period. We will also work with AstraZeneca to ensure Lumoxiti is available for patients. In Europe, as you know, AstraZeneca is currently the market authorization applicant for the EU filing. Therefore, we will no longer be involved in further progressing EU approval. So what does it mean for our commercial operations and overall strategy? First of all, to acknowledge that we have achieved a number of operational milestones and gained greater insight into how we commercialize products for our hem-oncology through this experience. As I said earlier, we are proud that we have established our footprint in the U.S. It's an important milestone. The U.S. is one of the most important health care markets in the world. We have further strengthened our team with the hire of key commercial talents to the business that will provide valuable support to our development activity. Our presence in the U.S. remains a strategic asset in our long-term plan and in fulfilling our goal to become a global commercial stage biotech company. We want to ensure we create the best commercial value for each product. Our approach will provide flexibility, allowing us to consider how best to commercialize each product. This ambition actually remains at the center of our development effort in order to advance our leading science into products with strong commercial potential and benefit to patients. So we will continue to leverage these competencies and learn from our work with Lumoxiti in order to ensure that we maximize the value across our entire R&D portfolio. And on that note, we are working to advance the development program for lacutamab, our lead proprietary asset, and we aim to update you more on our plans with this product next year. So it's a hard decision to make. The return of the U.S. and EU commercialization right to Lumoxiti to AstraZeneca will allow us to focus on further strengthening our R&D portfolio while efficiently managing our resources to accelerate the impact of our leading science. In the long term, we believe this strategic decision will enable us to effectively deliver meaningful medicine to patients. And I would like to thank all of our team members in France and in the U.S. who have worked tirelessly to bring us closer to achieving our mission. So I would like to thank you all for tuning in today, and I will open now the call to questions. Operator, please, we can start with the Q&A.

[Operator Instructions] And your first question comes from the line of Yigal Nochomovitz from Citigroup.

So as I understand it, your -- the strategy commercially was to build a commercial sales force in the U.S. and EU for Lumoxiti, which would also be used to commercialize lacutamab in Sézary syndrome, if approved. So given that you're returning the rights to Lumoxiti, how does that impact the commercialization strategy for lacutamab? And what is the plan to develop a commercialization strategy for lacutamab?

Thank you, Yigal, for your question. It gives me the opportunity to reiterate that we have gained, first of all, a great deal of insight and many learnings from the experience we had with Lumoxiti. As I said, we have built the infrastructure, and we have acquired the competencies that, of course, will help us maximize the commercial value for lacutamab. I would say we need to separate the challenges to commercialize Lumoxiti from the future plan for lacutamab. As I said, Lumoxiti patients were widely spread geographically across community oncologists, rather than concentrated in centers of excellence, like we could find with lacutamab, especially in cutaneous T-cell lymphoma. When we took over from AZ, we adapted our commercial model as well as made further adjustments during COVID-19, but the approach required for Lumoxiti impacted our further strategic rationale of building out an infrastructure to serve future Innate product. In other words, we could have expanded the sales force, but this would not have been really wise from a financial viewpoint, and it would not fit the strategic purpose of building a dedicated sales force for [ a cancer ]. And as I said, hairy cell leukemia is indolent condition, and physicians reported in market research that they were delaying infusion or eventually using oral agent in order to avoid sending patients to hospital. Lacutamab is different. It's a homegrown product. We will prepare and execute the launch of this product. We know well the investigator community, we have established relationship with physicians and [ care giving ]. Of course, Sézary syndrome is an acute disease, the leukemic form of cutaneous T-cell lymphoma. And of course, the landscape here is completely different from lacutamab -- from Lumoxiti. So in summary, I think the experience that we've gained from Lumoxiti will serve us to better launch and successfully commercialize lacutamab, but these are 2 different products in 2 different diseases that have a different target audience. And the evolution of hairy cell leukemia is different from the evolution of Sézary syndrome. And of course, we remain committed to successfully launch lacutamab and establish lacutamab as a standard of care in Sézary syndrome and other form of T-cell lymphoma.

Okay. That's very helpful. Just 2 other questions. Could you provide any updates on the enrollment for the Sézary and MF cohorts for lacutamab? And then also, you have a number of preclinical programs. Are you expecting to file any INDs for any of those in 2021?

Thank you, Yigal. It gives me the opportunity to ask Joyson to provide you an update on the lacutamab clinical program. The second part of your question, you're referring to specific product in the portfolio? Or it's in general?

Just in general.

Okay. Yes. So Joyson, would you take the 2 questions, please?

Yes, sure. So we -- currently for lacutamab, we continue on track with being able to -- with the enrollment, being able to provide data for the Sézary cohort in 2022 and the mycosis fungoides cohort in 2021. And then in regards to the second question, we are bringing forward our NK cell engager asset at this point as well as also have assets available with AstraZeneca. So we're progressing those forward. And we'd probably be able to give you an update a little bit more into early next year.

Your next question comes from the line of Graig Suvannavejh from Goldman Sachs.

My first question just has to do with, can you provide any sort of guidance or any comments around how you expect this might impact the P&L on a go-forward basis? And I'm also wondering, while you are reducing your U.S. commercial operations, what is left that you are keeping that you consider core to be able to have in the U.S.? And then maybe my third and maybe last question just has to do with just -- Mondher, maybe looking back and obviously, the pandemic was a pandemic, and it certainly had an impact on many things, obviously. But strategically, would you do it all over again? I think we had heard from clients that perhaps this was an ambitious plan, perhaps it's a bit biting a little bit more than what you could chew. So I'm just wondering if, with the benefit of hindsight, just want to get your thoughts on where we are today versus 2 years ago.

Thank you, Graig. I'll start with the third question and then ask Jen to provide you an overview on the U.S. plan and what it's like for the U.S. organization and the global organization and finally, Laure-Hélène will take the P&L question. Would I do it again? I think the opportunity that we had in 2018 was quite unique. Remember, this is a drug that was approved by the FDA under Fast Track Designation within basically 5 months from the filing. It has addressed a significant unmet need. Nothing was approved in this field, as I said, for 2 decades. And again, we had the chance to have AstraZeneca basically doing the job for us while we are building up our infrastructure. The strategic purpose and the strategic objective to have a commercial infrastructure to expand our geographical footprint in the U.S., to establish ourselves in the U.S. and to be able to acquire the competency and attract talented people who really have with us, not just learn and grow and how to develop and commercialize Lumoxiti, but beyond that, actually, who embedded into the organization the commercial mindset on how to maximize the value of an asset that we have in our portfolio and how to drive life cycle management. So that's, I think, the main, I should say, gain that we have. Of course, no one would have predicted what happened with the COVID-19. Actually, last year at ASH, it was the launch of our sales force. We were all excited. And actually, our team didn't have a chance even to start visiting physicians. They will set an appointment and then the COVID hit and they were basically stopped and then could not visit the physician for almost 9 months. So clearly, the COVID has impacted our ability to operate. It could have been a very different story if COVID wasn't there. Maybe also the fact that physicians were trying to avoid to expose patients by sending them to the center of excellence has limited the pool of patients who could be eligible to be treated. And all said, and of course, the pool was much smaller than what we could achieve. I think the overall goal was to be ready for lacutamab. And for that purpose, I think we have met that milestone. Now it's our duty to work hard with the team to execute on the lacutamab plan. As you've heard from Joyson, we will update you on the TELLOMAK program next year with the preliminary results from MF, which is, of course, an important milestone for us because it's the first time we will share data outside Sézary syndrome. And necessary to know we are progressing despite the challenges that we had with this manufacturing issue and the COVID pandemic, and we still aim to present the results in 2022. So we are on track, and we are really excited with the prospect that we can now, like we have done in France, successfully launched lacutamab, which is again addressing an unmet medical need. And I remind you that the position of lacutamab is really in those patients who have progressed one of the most efficient drug in this field, which is mogamulizumab. Now what's left and what's the U.S. plan? Maybe Jen, you can talk about the immediate reduction in the field facing but also what are the functions that are preserved in this situation.

Sure. So in the U.S., for the U.S. operations, we are going to immediately take a reduction with our sales team. Then in the first half of 2021, we'll maintain a small transition team in order to ensure we're efficiently and properly ensuring that the products available through, I think, a swift transition with AstraZeneca. I think post the transition, what is really critically important for lacutamab will be us really kind of maintaining a small core group mostly out of our U.S. offices here to ensure the success of lacutamab. And that really falls into a really critical area, which obviously is that globally, we do need to prepare for our market access, HTA pricing considerations. Those happen, obviously, prior to launch, as well as all kind of that analytics work that we'll also be doing out of here, obviously, again, to ensure our successful commercial launch globally. And I think finally, all of those kind of appropriate prelaunch planning work that we'll do out of here. So the team that will kind of remain really here will be to in service of kind of that global commercialization strategy, global kind of commercial prep, again, with lacutamab being our next kind of lead proprietary asset in which we retain, right now, all the worldwide commercialization rights.

Thank you, Jen. Laure-Hélène, would you like to address the first question about the guidance and the impact on the P&L.?

Yes, sure. So first, I will first discuss about the financial and our cash perspective just to give you a sense with regard to our capability of investing. So really on the decision to downsize the U.S., we foresee a magnitude of several million dollar saving. And on a mid-term basis, we have said that we have foreseen a mid-teens million-dollar commercial endeavor for Lumoxiti. So most of it will not be needed any longer. So that's really for the financial part. Now when it comes to the P&L, obviously, we will still have some costs in 2021. [indiscernible] vision, and also, we are going to enter a discussion with AZ with regard to the cost. But what is going to be least apparent in the 2020 figures in the P&L is the impairment of the net value of Lumoxiti, which we put for reference in the press release and that we expect to fully depreciate.

Okay. And just only because I had a bad reception line. Could you just quantify the numbers that you mentioned in the beginning of your response?

Yes, sure. So I said that the savings on the downsizing of the U.S. organization is in the magnitude of several million dollars, so mid-single digits. And as you may remember, when we bought Lumoxiti, we said that we were foreseeing mid-teen million dollar commercial endeavor to support it. And so this will essentially be gone on the midterm basis, but again, in 2021, we are going to still have some costs because we are transitioning with AZ. So we will still support some cost. And in addition to that, we are going to enter, as stated in the press release, a discussion in regard to AZ on how to split those costs. And this is not yet fully done. So you should see some cost in 2021. But in general, there is a lighter cost basis, so to say, since we won't have that commercial infrastructure in place for Lumoxiti.

Your next question comes from the line of Liisa Bayko from Evercore.

Just a follow-up on that. Will you be recording any sales for Lumoxiti going forward? Or is it -- will it now just be all back to AstraZeneca and you'll just be having some kind of dwindling expenses for the rest of the year?

So we will be recording the sales for the first quarter of 2021. And well, as you know, there is this whole analysis of who is the principal and the transfer will do the sales. So we will have that discussion. Depending on the pace of the transition with AZ, I suspect that Innate will probably move the sales at least for the first quarter of 2021 since we are just entering that discussion.

Do you have any other milestones or anything else you owe to AstraZeneca other than just kind of transitioning over?

So no, there is no milestone attached to Lumoxiti. So really here, the question is organizing the conditions and in terms of time and cost.

Okay. And then just to lacutamab, can you maybe speak to kind of your commitment to commercialize that for just Sézary? How important is getting the MF indication in there as well because Sézary is also a very small market opportunity in and of itself, and I just wanted to understand how important, how you're thinking about MF, how important that is to the kind of value of the lacutamab franchise?

Thank you, Liisa. This is Mondher. First of all, I think you're asking a very, very important question that gives me the opportunity to point to another major difference between Lumoxiti and lacutamab, which is the life cycle plan. Lumoxiti has just [ one ] and actually don't have that many levers to move the top line, but just to keep investing for just 1 indication. For lacutamab, we have this life cycle plan. We start with Sézary as the proof of principle, but also a rare indication where you can have a premium pricing, and then we expand to other form of cutaneous T-cell lymphoma and that is one of them, but there are other form of cutaneous T-cell lymphoma. And as we know, the big market opportunity resides in peripheral T-cell lymphoma, which is the most prevalent, about 15,000 new patients everywhere. About half of them, 50%, expressed the KIR3DL2. So showing data in MF, it's a major milestone. I think the Sézary data that we published are extremely powerful because it shows you that even in Phase I, even when you have a heavily pretreated patient, I think the median number of cycle was 4. So on an average, people receive 4 prior systemic therapy before they were included in the Phase I. And yet, we have about 45% response, about 90%, 9-0, disease control. This is a powerful demonstration that when the target is there, the drug works. So we know that the target, when it comes to MF, is less frequent. We have about half -- 50% to 60% of the MF patients who expressed the target. And the term [ I'd use actually ] is designed to detect the activity in both KIR3DL2 positive and KIR3DL2 negative. And our aim, of course, is to be able to share the preliminary data from those 2 cohorts in 2021, which will be a very important indicator to the potential of lacutamab in cutaneous T-cell lymphoma. I think for peripheral T-cell lymphoma, I'm sure we could certainly cooperate, but it's a different disease. It's a different approach where combination therapy is also more used than in cutaneous T-cell lymphoma. And I think we will have to wait for clinical data in peripheral T-cell lymphoma. But the same story apply. When the target is there, there is a potential for that to work, except the strategy could be slightly different in frontline and in second line and also in maintenance versus induction.

Okay. So can you just remind us that the target -- what's the -- how prevalent is the target in Sézary, MF and PTCL?

Yes. So Joyson, do you want to provide an overview on the PTCL 2 expression across the various indication for lacutamab?

Sure. So when we look at it with Sézary syndrome, we see about a -- anywhere from 70% to 80% prevalence of KIR3DL2 positives. In MF, it's roughly 50% to 60%, as Mondher had just mentioned. And then in PTCL, it's anywhere between 40% to 50%.

And your next question comes from the line of Damien Choplain from Kepler Cheuvreux.

I'm just wondering why you didn't negotiate a kind of compensation with AstraZeneca because you'll give back the rights and you paid EUR 60 billion in 2018. So yes, can you just comment on this, please.

I think this is, of course, an important question. But let me start by reminding that the decision to terminate this agreement is our decision. It's Innate's decision. It's part of the contract we can, of course, terminate for, as you say, convenience, but it's not AstraZeneca's decision. We are now entering a discussion with our partner and shareholder to evaluate the cost and time during this transition. Of course, our goal is to negotiate and of course, establish a fair, I'd say, distribution of the cost. not only the cost for the development, but also the cost for the supply. So it's too early to speculate. But clearly, we would like to get into that direction. And again, there are several options whether AstraZeneca will keep the drug for themselves, or we'll find a third party to partner with. In both cases, of course, we will make sure that we will get part of the profit and negotiate that very seriously with them.

There are no further questions at this time. Please go ahead. And your next question comes from the line of Eric Le Berrigaud from Bryan Garnier.

Yes. Maybe just to understand the magnitude of the U.S. organization post the transition phase. How many people are we basically talking about? And if the cost would have been in the mid-teens million dollars for the full organization, how much could that be with the resized organization for the next, let's say, 2 to 3 years until lacutamab comes? And should we think about Innate still being interested in acquiring another type of asset to prepare for lacutamab and leverage this organization? Or should we now think about fully focusing on lacutamab being the next opportunity? And maybe the second, and I assume it's probably a little bit early. But in rough terms, comparing the operating expense base for 2021, could you provide maybe a range or a sense '21 versus '20, whether all included push and pulls, it's more or less the same, slightly higher or below?

Thanks, Eric, for this very important and interesting questions. Let me start, first of all, with the idea of acquiring another asset to prepare the launch of lacutamab. I think -- I'm sorry to repeat myself, and it was in the press release. The primary decision was to manage efficiently our resource and reprioritize investments into our R&D pipeline. So we are not going to use that money elsewhere, but into our pipeline, into our research and development organization to maximize and speed up the existing program and especially bring the innovative science that Joyson just talked about. I think that's, I think, an important message to have. The second message, I think, is around the learnings that we've got from experience with Lumoxiti. As I said, I mean, managing Lumoxiti and having the team in place was an extremely important experience. And if we decide to prelaunch lacutamab, we know how to do it, and I think it's important to keep that in mind. We will have -- and Jen will answer in a moment actually about your first question. We have people who have the know-how in order to prepare the launch of lacutamab. As I said, data are coming in '21 for MF and '22 for Sézary. And I think the best way to ensure a successful launch of lacutamab is to work hard to get the data and to get the data in front of the regulatory agencies in order to have the drug approved. Laure-Hélène will answer the question about the OpEx. But maybe Jen can provide you a sense of how many people are being terminated, how many people are staying within the organization, the type of functions that we decided to keep in house in order to maintain this know-how that we have built over the last 18 months. Jen?

Sure. Thank you, Mondher. I'll answer the question actually in 2 parts. I think that the U.S. operations really serves kind of 2 functions. I would say we have U.S.-based employees. And we have some U.S.-based employees that I would say, serve other functions outside of commercial. And obviously, today, we have Joyson here in the States as our Chief Medical Officer. But if I focus just on those folks that will support, I'll say, commercial type of efforts, we'll maintain a small group, probably about 4 of us, that would help really maintain and focus on the global efforts. As I mentioned before, costs a little bit of medical affairs, a little bit of, obviously, commercial planning and obviously, a keen focus on the analytics as well, getting ready for pricing and market access type of work. So that team, I think, will be rightsized for what's needed kind of in getting ready lacutamab for launch. So we absolutely need to maintain, I think, those commercial capabilities. I think, again, we're fortunate to leverage the experience of this team who does have launch experiences, oncology experience. And obviously, we have learned a lot from the Lumoxiti experience from kind of a rare heme-oncology standpoint. So that will really be the team. Again, I think the U.S. operations, the U.S. team here serves both the ability for us to attract the right global commercial talent, but also the ability to attract talent for other functions outside of commercial.

Yes. For the last question maybe around the level of expenses. So again, it's difficult for me to give you a preview and granular view because for '21, it's going to depend on the discussions with our partners and of the length of the transition. But the design, in general, you should expect that our underlying expenses are going to go down.

Operator, any further questions, please?

There are no further questions so far. Please go ahead.

Okay. So with that, we'll come to the end of this call. Of course, my team is available for additional follow-up questions whenever it's possible. Thank you all for your participation, and have a good day.