Ipsen S.A. (IPN) Earnings Call Transcript & Summary

Welcome to Ipsen's conference call and webcast on Expanding the Scope in Rare Disease. This call is for investors and analysts. Today's presentation is available on ipsen.com. I now have pleasure in handing over to Ipsen's Chief Executive Officer, David Loew. Please go ahead.

Good afternoon and good morning everyone. You've just heard, I'm David Loew, Chief Executive Officer of Ipsen. I'm delighted that you have joined today so that we can take you through today's exciting news on our expanding scope in rare disease. Please turn to Slide 2. This is our safe harbor statement, which outlines the routine risks and uncertainties contained within this presentation. Turning to Slide 3. I'm joined today by our CFO, Aymeric Le Chatelier; as well as Howard Mayer, Ipsen's Head of Research and Development. We'll begin with a brief presentation before using the majority of the time to answer your questions. Please turn to Slide 4. I will begin the presentation by taking you through the strategic rationale for the agreement with GENFIT. I'll then hand over to Howard, who will explain elafibranor in more detail. Following Aymeric's [indiscernible] of the financials, we will be very happy to take your questions. Please turn to Slide 5. So firstly, let's look at the strategic rationale. Please turn to Slide 6. To put today's news in context, we have completed 7 transactions this year in line with our ambitious external innovation strategy. When I first laid out the strategy 1 year ago, I said that building our pipeline was central to our future growth. So I'm delighted that the activity in 2021 was right across our 3 therapeutic areas. Starting with preclinical assets in oncology and neuroscience, we have also added mesdopetam in neuroscience that is in Phase II development and today, we complete the year with elafibranor in rare disease in Phase III. Please turn to Slide 7. We were drawn to elafibranor, not only because of the excellent Phase II data that Howard will go through, but also the way it perfectly aligns with our focus on expanding Ipsen's scope in rare disease. We have another significant opportunity to help patients and address a significant unmet medical need. Today's news means that we now have a worldwide license to develop, manufacture and commercialize elafibranor. The ELATIVE Phase III trial in second-line Primary Biliary Cholangitis is due to read out in 2023. We see this as a significant commercial opportunity and Aymeric will take you through our expectations for peak sales in a moment. Following the positive Phase II data, elafibranor was granted Breakthrough Therapy Designation by FDA as well as Orphan Drug Designation by both the FDA and EMA. Not only are these factors compelling, but the collaboration also includes access to future platforms led by GENFIT. With that, I'll hand over to Howard. Please turn to Slide 8.

Thanks, David, and hello everyone. I plan to spend the next few minutes taking you through the PBC landscape as well as elafibranor's clinical development. Please turn to Slide 9. Primary Biliary Cholangitis or PBC is a rare chronic progressive autoimmune disease of the liver. It results from a slow progressive destruction of the small intrahepatic bile ducts of the liver causing [indiscernible], which is a fluid produced by the liver to help digest fats to build up in the liver a process called cholestasis. Persistent exposure of the liver to bile acid buildup can lead to scarring, fibrosis and eventually cirrhosis of the liver and its complications. Please turn to Slide 10. Common symptoms of PBC are fatigue and itching, which can be debilitating and in more advanced cases, jaundice and progressive liver damage. Untreated, the disease can result in liver failure, the need for liver transplant or death. More than 90% of people with PBC have the serologic hallmark of the disease, which is the presence of anti-mitochondrial antibodies. The disease is more common in women, not dissimilar from many other autoimmune diseases. This is a rare disease, but a relatively common one with a prevalence in the U.S. estimated to be between 23.9 and 39.2 cases per 100,000. Please turn to Slide 11. The current standard of care for PBC is ursodeoxycholic acid, or UDCA. Oral UDCA 13 to 15 milligrams per kilogram per day is recommended for all patients with PBC either as a single daily dose or in divided doses if tolerability is an issue. UDCA is generally safe, characterized by improvement in liver biochemical parameters, may improve clinical symptoms, can slow progression and improve quality of life. However, approximately 40% of patients show suboptimal biochemical response to UDCA and therefore remain at risk for progression and 5% are intolerant. Obeticholic acid or Ocaliva, is an oral agonist for FXR, which is an approved therapy for second-line treatment of PBC, either in combination with UDCA with an inadequate response or as monotherapy in patients unable to tolerate UDCA. However, the 50% of patients do not respond to obeticholic acid. In addition, there is a boxed warning for hepatic decompensation and failure, sometimes fatal or requiring liver transplant in patients with compensated or decompensated cirrhosis. There is also a warning for severe pruritus with a 23% frequency seen in their clinical trials. Again, pruritus or itching is a key symptom of cholestatic disease and can be debilitating in these patients. Please turn to Slide 12. GENFIT conducted a double-blind placebo-controlled Phase II trial with elafibranor, which is a PPAR alpha delta agonist in adults with PBC, who had an incomplete response to UDCA. Patients were randomly assigned to elafibranor 80 milligrams, 120 milligrams or placebo. The primary efficacy endpoint was the percent change of alkaline phosphatase from baseline at 12 weeks. Alkaline phosphatase was reduced by approximately 50% versus placebo in the elafibranor 80-milligram group with statistical significance versus placebo demonstrated in both elafibranor treatment groups. Composite endpoints of bilirubin and alkaline phosphatase were also significantly achieved compared to placebo in both elafibranor treatment groups. Elafibranor was generally safe and well tolerated. The safety profile was completely consistent with previous larger studies conducted in NASH. And as David mentioned, the results of this trial led to FDA granting elafibranor Breakthrough Therapy Designation for the treatment of PBC in adults with an inadequate response to UDCA. Please turn to Slide 13. On the basis of the Phase II data, GENFIT is currently conducting the ELATIVE study, which is an ongoing double-blind 2:1 randomized, placebo-controlled Phase III study in 150 patients followed by an open-label long-term extension. The study is evaluating the efficacy and safety of elafibranor 80 milligrams once daily in patients with PBC and an inadequate response or intolerant to UDCA. The primary analysis for accelerated approval is at 52 weeks based on achieving a composite endpoint of liver biochemical markers and alkaline phosphatase level less than 1.67-fold the upper limit of normal and normal total bilirubin and an alkaline phosphatase decrease of at least 15%. Top line data are anticipated in the first half of 2023. With that, I'll hand over to Aymeric. Please turn to Slide 14.

Thank you, Howard. So I want to -- please turn to Slide 15. I want to put to the agreement in the context of our midterm financial outlook. As you know, we continually reaffirm our commitment to invest in our pipeline. Our efficiency program is designed to support this. And over time, we anticipate a reduction in the ratio of SG&A costs to total sales. We do, however continue to expect an increase in R&D cost as a proportion of total sales driven by our external innovation strategy. We continue to generate significant level of cash flow, and we are on track to deliver on our target of EUR 3 billion of firepower for pipeline expansion by 2024 based on the maximum leverage of 2x EBITDA. So please turn to Slide 16. So as you know, the terms of today agreement with GENFIT include: first, an upfront payment of EUR 120 million as well as regulatory, commercial and sales-based milestone payments of up to around EUR 360 million. In addition, the licensing agreement includes double-digit royalty payment of up to 20% of elafibranor global sales. As part of this transaction as David mentioned, we are also making an equity investment in GENFIT, representing an 8% shareholding for EUR 28 million, in line with the long-term partnership between our 2 companies. We do anticipate a significant commercial opportunity for elafibranor with peak sales estimated at around EUR 500 million for the current indication of PBC. Over the near term and starting next year in 2022, we expect some dilution to our profitability coming mainly from R&D and some prelaunch costs. This transaction, however, has a marginal impact on the funding available for further transaction given our increasing firepower to build our pipeline through external innovation deals. With all of that, I will hand back to David. Please turn to Slide 17.

Sorry, I was on mute. Thank you, Aymeric. To conclude, we are delighted by today's extension of our pipeline and the potential of the collaboration with GENFIT. As 1 of the 3 therapeutic areas, rare disease is strategically important for us and we have a sharp focus on building this franchise with more opportunities over time. This transaction is exactly in line with our clear business development criteria and I look forward to more external innovation activity in 2022. Please turn to Slide 18. I will now hand it over to the operator for questions. So operator, please go ahead with questions.

[Operator Instructions] The first question comes from the line of Richard Vosser from JPMorgan.

Richard Vosser from JPMorgan. So looking at the PBC market, there appears to be another [ PPAR ] product from [indiscernible] in development that seems to have similar time lines, similar mechanism of action. Perhaps you could contrast how you see the competitive profile of the 2 drugs and how you see elafibranor, I'm not going to say it right yet, being better? Second question, given that potential competition and the similar mechanism of action, perhaps you could talk about how you see the orphan drug regulations in that context and whether you think both drugs can be approved at once? And then final question, I suppose, is just a question on given maybe what I can see of GENFIT's market cap prior to this deal, just your thoughts on why an in-licensing opportunity was the way to go rather than buying the whole of GENFIT?

Yes. Thank you, Richard. Very good question. On seladelpar, obviously, we were debating internally. Should we go to try to get a deal done with seladelpar or with elafibranor? Our take is that they are 6 months behind. So that's one important point, but there are other important differences, which made us go for elafibranor and I have Howard elaborate a bit more on this. I will just go to Howard after your question 2 and 3. I will quickly answer them. Your second question was on the competition on orphan drugs for both. Our analysis of the situation is that in any case we believe elafibranor is going to be first in class. So it's not going to be a problem for elafibranor. But even if for whatever reason, we will be slower and suddenly seladelpar would be faster, our current read of the situation is, is because of the legislation on orphan drug designation and the differences in the mechanism of action. They are not 100% congruent. Both drugs would get an Orphan Drug Designation. That's our current assumption. And then on your last question on in-licensing versus acquiring, we believe that the setup we have chosen with the in-licensing is an optimal model because GENFIT define their model as taking drugs into the early space and then developing them. And as you know, we have a first opt-in opportunity with them. For us it allows us to start the premarketing activities and have deal terms, which are reasonable in terms of the upfront cash that we need to lay out. It allows us to derisk the deal, yet we have the upside of course to it for both parties if it works. And it allows us to also use the firepower for larger deals if we want to do that. So with this, I come back on your question where are the differences and what has made us go for elafibranor? Howard, if you can answer this.

Sure. Thanks, David. First of all, I want to say that we have looked as part of due diligence very carefully at the PBC landscape including all competitors having made this decision. Just to note that elafibranor is the PPAR alpha delta agonist, and seladelpar is a PPAR delta agonist. So there are different mechanisms of action. When we look at the elafibranor data from a safety point of view, the safety profile in PBC has essentially been entirely consistent with the good safety profile that was seen in thousands of patients in the NASH study. So there's not been any hint of any liver issues, no need to down-titrate. The drug is extremely safe and we think from an efficacy standpoint, really is very competitive in terms of reduction of alkaline phosphatase seen in the Phase II study, but also achieving the composite endpoints of bilirubin and alkaline phosphatase that will be -- that is the primary efficacy endpoint for accelerated approval in their Phase III study, which is ongoing and we believe ahead in terms of recruitment of seladelpar. So I think that for all of those reasons, we believe that we have made the correct decision in partnering with GENFIT on elafibranor for PBC.

The next question comes from the line of Jo Walton from Credit Suisse.

Perfect. Can I just ask about the dilution that you are talking about? Can you tell us roughly what R&D costs you are taking on next year and in 2023? And do you think that you will be doing some additional clinical studies, perhaps for let's say, European agencies to be -- to maximize your reimbursement? So just give us some idea of the R&D side? And when it comes to marketing, how should we think about this? It's not an area that you're in at the moment. So should we think of a new sales force gradually being recruited for, let's say, presumably a 2024 expected launch? And can I just also ask whether this was a competitive situation? There are many other companies, who are interested in rare diseases. Was this something where you had to perhaps give something extra to GENFIT because they were looking for -- looking everywhere for a partner? And the final question just for our modeling, you say it's double digit up to 20%. Would it be fair to start at something like 15 and then move up? Or is it much less in the initial phase?

Very good. Thank you, Jo. Perhaps I will start with your question 2, which relates to marketing and on the deal terms, and then we are going to come to your question on number one, which is the dilution. And I can also take the reimbursement question and additional outcome study. So let me start with reimbursement or additional outcome studies. The current study that is being conducted as the pivotal registration trial is going to be the trial which is also going to lead to reimbursement. We have Ocaliva being reimbursed in Europe and our payer consultation has shown that with the study that is being conducted, this can lead to a good reimbursement. And depending on the profile of the drug, if it would add certain benefits, there might be a certain pricing upside versus Ocaliva. We would, of course, have to conduct a clinical outcome trial because the pivotal study is based on an accelerated approval pathway. So that clearly will have to come. What the shape exactly is going to look like if it can be done by real-world effectiveness or if we need to do some sort of a randomized trial, et cetera, remains to be seen. We will have discussions certainly as soon as we see the data with regulatory authorities. In terms of your marketing question yes, we are assuming a launch in '24. We do have already, obviously field force in several of the markets in rare disease. To give you an idea, we have a field force on rare disease in the U.S. Remember, we have acromegaly with Somatuline. We have Increlex. We are going to launch Palovarotene and so we are going to certainly have to add a couple of reps. So there is going to be additional launch costs, obviously. We have also already MSLs in the U.S. on rare disease. We might also add a little bit there. So it's not going to be totally synergistic. We will have to add some resources on the marketing spend for sure because it's also a new disease area. But it's not going to be like starting from scratch and having absolutely no presence in rare. Then on the competition, I think I defer back in a way to what Pascal said during the call of GENFIT -- so Pascal is the Chief Executive Officer. The reason they went with Ipsen is that we are a midsized company, which has a truly global reach and being very strong also in the United States. We have 1/3 of our sales coming from the United States. We have all the infrastructure and so they felt that it was much more attractive to go with a midsized company than with a large company because in a midsized company, you get the full attention of a seasoned team of leaders. And you look at our new leadership team, the executive committee, everybody came from large companies, we know how to do this. So there is a lot of know-how now at Ipsen. We have shown that we can win also against large companies. You take a Decapeptyl, you take Cabometyx et cetera, they're all #1, Somatuline is #1 against Novartis, Decapeptyl against AstraZeneca or Takeda. So they really like the focus that the organization brings and the attention that you're getting from a midsized company. So in that sense, we believe the deal terms are very fair and we think they are very fair and reasonable for both parties. On your question on the royalties obviously, we are not going to give the details. They start at like 15 go to 20. So it's gradual depending on the sales that we're going to generate. So now I come to the question on the dilution, and I hand over to Aymeric for that.

Yes. So regarding the dilution, what is important for you to know is that even if GENFIT is responsible for the Phase III double-blind period, we will expense the cost of that Phase III as we will have right to really monitor and control that study. This means that I won't give you exactly the cost, but this is a 150-patient study for which we will be expensing the cost that will have some limited impact. As you know our pipeline is really allowing us to increase our spend in R&D, so we should not expect a high increase in terms of R&D ratio for Ipsen, but this will start in 2022.

So it's just extra R&D and the notional loss of interest on the upfront payment effectively that's the level of dilution in '22?

I think the dilution -- I mean the upfront payment is not really a dilution because the upfront payment will be -- I mean, will be amortized when we launch, as you know. So the dilution in 2022, 2023 is going to come only from this -- running this Phase III and also some of the prelaunch marketing costs.

And the next question comes from the line of Simon Baker from Redburn.

Just going back to Richard's first question on the difference between elafibranor and seladelpar. Seladelpar, as you said, was -- is a PPAR delta. And while elafibranor is PPAR alpha delta, I understand it's favors alpha. So I don't know what the implication is. I just give your thoughts on that. And also related to the molecule itself could you talk about any drug-drug interactions? I know GENFIT was investigating the interaction with indomethacin because it's impacted the enzyme that converts elafibranor into the active molecule. I just wonder if you could comment on that. I gather they've done a clinical trial. And then just a bit of housekeeping. In terms of patent protection, I think the composition [indiscernible] goes in December 2026. I assume for the U.S., we can add 5 years on for patent term extension. So would it be reasonable to assume you have exclusivity until essentially the beginning of 2032?

Very good. Howard, do you want to take those questions?

Yes. I mean I think that the mechanism of action for elafibranor is PPAR alpha and delta as a co-agonist. And we think that from a mechanistic point of view, the alpha component leads to decreased biosynthesis, increased biodetoxification while the delta component leads to increased bile asset output and decrease inflammation and so that may give you a sense of the potential differentiation. But obviously, we already know from a proof-of-concept study that the drug reduces alkaline phosphatase by 50% in patients with PBC over 12 weeks and achieves composite liver enzyme endpoints at a much higher rate than placebo and very competitive with other data. I'm not -- oh, yes, the second question was about drug-drug interactions. GENFIT has actually conducted a large drug-drug interaction program that does not indicate any significant issues in terms of co-administration of products. There's a couple more that need to be done with respect to [ PGP ], which will need to be done. But so far, the drug-drug interaction program looks like acceptable for co-administered drugs. In terms of orphan drug exclusivity, we believe that orphan drug exclusivity will be achieved in the U.S., which would give us 7 years of marketing exclusivity and 10 years of marketing exclusivity in Europe and the rest of the world.

And just a follow up, specifically on the patent, is December 26, the base date on which you would then receive a patent term extension?

We would receive -- we would -- and I invite my colleagues to chime in, we would receive 7 years of orphan drug exclusivity at the time of approval in the U.S. and 10 years in Europe, at the time of approval.

It brings you indeed to end of '31 U.S. and '34 Europe.

Yes.

Our next question comes from the line of Richard Parkes from BNP Paribas Exane.

Firstly, I believe fibrates are showing benefits in treatment of PBC, including bezafibrate. I just wonder to what extent these are prescribed in the real world. And is there any risk that benchmark might impact market share or pricing achievable? And then secondly, I just wondered if you could discuss the hurdles and split of the milestone payments between regulatory and sales and clarify the comment around commercial milestones? Is that related to the strength of the approved label? And then finally, just on -- I wondered what work you've been able to do -- on around mapping of the prescriber base for existing standard of care and what that might imply in terms of the number of salespeople you might need to cover those centers?

Very good. Perhaps, Howard, do you want to take the fibrate question?

Yes. I mean our understanding while fibrates have been shown to be some benefit is that UDCA remains the mainstay of therapy for first-line PBC, and that hasn't changed. But as I mentioned, the issue is that while it has clinical benefit, there's 40% of patients who don't respond and remain at risk for progression and 5% who are intolerant. So -- and I highlighted some of the issues with Obeticholic acid that's approved for second PBC. So I think what elafibranor has is the potential to be an effective and safe therapy for patients, who don't respond to the mainstay of therapy, which is UDCA.

So in terms of the impact on pricing, we don't expect any impact on pricing because Ocaliva was approved with the current package that they had and we come with basically a similar package we're comparing against placebo and the payer feedback was that's the right comparison. And of course, they are going to do cross-study comparison versus Ocaliva just to have a look at it. And if we would want to go for a massive price difference, we would have to have a head-to-head study against Ocaliva, but we don't think that this is necessary. We are actually going to go with the placebo trial, get accelerated approval and get a decent price with that. The Ocaliva price is actually quite a good price. So for a rare disease drug, it's in the vicinity of what you would expect for a rare disease drug. So that's the price we have kind of put into the model and with is probably a slight plus given that we might not have the side effects that Ocaliva has. In terms of the prescriber base and the field force, it's too early to give you really precise guidance on this. And the reason is that as I said before, we have several products in rare disease. And so we need to look and do the exercise depending on what's going to happen to these drugs and what our effort is going to be on these drugs by the time we are getting into the prelaunch activities with the field force. Clearly, on the MSLs -- I mean, to give you an indication we have 5 MSLs today in a rare disease in the U.S. And with that, we can relatively well cover the U.S. And so eventually, we might have to add 1 or 2 MSLs right now. But on the reps, we certainly will have to add a bit of reps, but it's not going to be huge. I mean this is a rare disease drug, right? So it's going to be limited in that sense. The split on the milestones, we don't reveal this kind of very, very detailed points. But clearly, typically, milestones are being linked to the acceptance of a filing, for example or the sales that you achieved in the U.S. and also with the reimbursement in Europe. So we always have the policy that we want to link milestones to the reimbursement in Europe because achieving the regulatory approval in Europe as we all know, is just one step. It's really the reimbursement, which is the big thing.

[Operator Instructions] The next question comes from the line of Thibault Boutherin from Morgan Stanley.

Just a quick one on the PBC market. What is your view on the status of the patient population in terms of diagnosis and densification? Are you already at a good situation given existing therapies? Or is there more room to growth? So in other words, is it more about taking market share against Ocaliva? Or is it going to be -- is there kind of side about market expansion here?

Yes, that's an excellent question, Thibault. And when you look at the publications on the incidents, you see actually and also the prevalence, you see quite broad ranges. I mean in the U.S., prevalence estimations, which are publicly available in publications, go from 24 to 39 patients per 100,000. In Europe, it's 22%. And that would suggest to me that actually this market is not at all mature yet. I think by doing more work on the detection and working with labs that this becomes kind of a mandatory check and informing a GP that there might be an issue and they might have to think of PBC. I'm pretty convinced that this market is going to continue to grow. So today, when you look at the Ocaliva sales, they are above EUR 300 million. The market is probably supposed to go to EUR 1 billion, and who knows, perhaps a bit more. So it really depends on what the trials are going to show and we will have to dig into that question with kind of the microscope to see is if the detection rate really already at its best. My hypothesis is the answer is no.

[indiscernible] Sorry, David, it's Howard. I just want -- however, if I could chime in also. I mean, I think that in the rare disease space, it's not unusual to see expansion when you have more effective therapies available. So I think David's hypothesis is right in that the prevalence data, actually some of them look like prevalence is actually slightly going up, which is not probably reflecting an actual increase but just better detection and the availability of additional effective therapies for these patients.

Next question comes from the line of Rajan Sharma from Deutsche Bank.

First, one just in terms of additional indications. How are you thinking about that? And do you see any potential for the asset outside of PBC? And then secondly, just on market sizing could you plan to discuss the PBC market size ex U.S. and Europe and what your commercialization and development plans are in those regions?

Just repeat the second question. You said ex Europe, was that right?

So yes, I guess you've provided some epidemiology or prevalence rates for the U.S. and then you mentioned in Europe, but then just thinking about ex U.S. and Europe, so in the rest of the world, what kind of prevalence rates are you expecting? And just be interested in your commercialization and development plans in those regions.

Yes. Okay. Great question. Thank you. So on the additional indication, we could look also at [indiscernible] and GENFIT is looking at this already. We need to know, of course, that data there would come later. And so that's something that we will have to look at in terms of the data that we're going to have in terms of the clinical data. Is that an indication we want to go after? So that decision is pending. In terms of the prevalence figures outside of Europe and U.S., it's actually pretty badly described. And so we believe obviously, that there is not a difference in the genes of people that would suggest that you only have this disease in the U.S. and Europe. So I think it's a detection bias. And we will, for sure, do work in the ex U.S. ex Europe markets to work on the detection of the disease. For example Japan or Australia et cetera, they have quite significant potential. And so that's -- those are interesting markets that we for sure, are going to work on.

[Operator Instructions] The next question comes from the line of Richard Parkes from BNP Paribas Exane.

Just a quick one on the Phase III study. I just wondered if you could update us on where recruitment is, I'm assuming it must be close to completion given that the Phase III will read out in early first half 2023, but just wanted to get an update on that and then could you just discuss the scope and terms of the options that you've got on future programs GENFIT? Just a little bit more color on that would be really helpful.

Yes. Howard, do you want to take the recruitment question?

Yes. Just to say that the recruitment is well underway. And again, this study was started prior to the seladelpar study. There are around 100 sites that are open and recruiting and so we anticipate that recruitment will be done shortly, but the trial is well underway and more than 50% recruited. So things are going very, very well in terms of recruitment and site participation.

On your second question, the scope is that we have a right for first negotiation. So it's an interesting model that we have set up with them and the equity stake that we have taken in them shows that we really want to collaborate with them. So they have a lot of know-how in hepatology. And they are looking at other things and they have just made today an announcement with a cancer drug in rare disease. So it's certainly something that we really like this future collaboration with GENFIT and having the option of negotiating with them on the drug as a first right?

There are no further questions, and I would like to hand over the call to the speakers for the closing remarks.

So with this, we're ending our phone call. Thank you very much for attending and wish you happy holidays. Bye-bye.

That does conclude our conference for today. Thank you for participating. You may all disconnect. Have a nice day, and merry Christmas.