Isofol Medical AB (publ) (ISOFOL.ST) Earnings Call Transcript & Summary

Welcome to the Isofol Medical Q3 2022 presentation. [Operator Instructions] Today, I'm pleased to present CEO, Ulf Jungnelius; and CFO, Gustaf Albèrt. Please begin your meeting.

Thank you so much, and welcome to our presentation of the third quarter results of this year. We are, as we told you before, closing down the AGENT study in accordance with ethical and regulatory requirements. If we go to the next slide, the disclaimer, please read it through while I go to Slide #4. And Slide #4 starts with Q3 highlights. So let's look at what's happened during the third quarter of this year. First of all, in early August, we presented the data from our randomized pivotal Phase III study. And unfortunately and sadly, it showed that we did not achieve the primary endpoint of overall response rate or the key secondary endpoint of progression-free survival, two endpoints that were required for a positive opinion by the FDA and EMA for marketing authorization. We have now worked during the third quarter, and an additional study data during the quarter have confirmed the results of the primary and secondary end point, also on the survival endpoint. And this led to the groundwork where we took the decision to stop the ongoing Phase III study and terminate it early. Against this background, we have initiated a wind-down of the study and termination. And we will continue doing that as fast as we can, and it will probably take us through the end of the year and eventually into the first quarter of next year. The final data, clinical data and the gene expression data biomarker analysis are ongoing, and we will have a report hopefully during this quarter. Employees have been laid off, and we have terminated contractors. So keep in mind that, per law, you have a notice period in Sweden, so even if we gave them notice during the third quarter, the termination will occur during the fourth quarter to start with. We are also looking into potential possible alternatives for the company going forward. If you look on the financials, the results for the period amounted to SEK 32.5 million. Cash flow from the operating activities were SEK 44 million. We have a strong cash position at the end of the period of SEK 235 million per ounce. And we'll come in more into that a little bit later in the presentation. If we go to the next slide, Slide #5, just a depiction of the Phase III study. To remind you, we enrolled 490 patients in the first-line treatment of metastatic colorectal cancer, with the control arm being modified FOLFOX-6 with bevacizumab or Avastin. And the only difference from the control arm was that we exchanged leucovorin to arfolitixorin. We have the final data readout coming up during the fourth quarter. And as I mentioned earlier, the primary endpoint was objective response rate, and key secondary endpoints include progression-free survival and duration of response. We had roughly 90 hospitals worldwide, and the coordinating principal investigators were Professor Josep Tabernero in Spain and Professor Heinz-Josef Lenz in Los Angeles USA. If we go to the next slide. So the AGENT study did not meet the prespecified primary or key secondary endpoints. So the objective to get a positive opinion from regulatory engines was that we should at least have a 10% improvement in response rate versus control. And the secondary endpoint was progression-free survival, where the regulatory agencies wanted to see a nonsignificant but clinically meaningful prolongation, and the threshold there was set to 1.8 months. And then the other thing was safety. We could not see a detriment in safety on overall survival. So as a result, we did not see that difference in objective response rate, we did not meet that -- the 1.8 months of prolongation of progression-free survival. So a little bit about the background to our decision to shut down the AGENT study. First of all, if we look on the objective response rate and the p -- the primary endpoint objective response rate, if you look on the p-value, it was 0.85 million, and we need to achieve at least a [ 0.05 ]. So what this means is that 0.85 indicates that the response rates are very, very similar. On progression-free survival, we actually reached 12.8 months, which was something that we wanted to do. But we also saw with the control arm that it reached 11.6 months. So no difference was required. Keep in mind, the 1.8 months. So our p-value was 0.76. And that, if you remember, when we looked at the curves, they were super imposed. The more concerning thing, and that is mainly the biggest reason of shutting down the ongoing study, was the analysis of overall survival. That was a key safety endpoint, and it showed a preliminary indication of a nonsignificant detrimental trend on the experimental arm compared to the control arm. So what the FDA said, "In no way can you have a detriment on overall survival compared to the standard of care." And unfortunately, this was what we identified. When we looked on safety, there were basically no differences on safety. When we looked at the subgroups, either through intention to treat or per protocol, we could not identify any subgroup that stood out having a significant advantage for arfolitixorin. Based on this data then, it was not considered justified to continue the AGENT study. Keep in mind, with the detriment in overall survival, it was not ethical to continue exposing patients to arfolitixorin in the metastatic setting of colorectal cancer. We are still waiting for the gene expression analysis to come out. And the basis then that we draw was that, with the results we saw up to now, and it has been confirmed by what we've seen during the fourth quarter as well, is that there is no basis for submitting for an NDA for approval. If we go to the next slide, Slide #8. So if we look on the process then of what we have been doing since [ August 4 ]. So we are shutting down the study and we began that immediately after we concluded that we had a detrimental effect on overall survival. For the patients, it means that the different hospitals are now switching patients over to their current standard of care and continuing treatment, even patients that had a positive response to arfolitixorin have been switched over. If you look on the clinic, the hospital, we are now harvesting documentation and doing quality control on their contributions. And once we have all data and also have destructed the study medicine, we will close down the hospitals. This is a lengthy and bureaucratic procedure, so that's why we can see that some of the hospitals may not be closed out during this year. If we look on the reporting, we are archiving all study materials in agreement with regulatory rules. We are drafting a final study report, and that is expected to be drafted by the -- during the fourth quarter of this year. And once we have the study report signed off, we will start working together with investigators on a scientific manuscript. So that's the process going forward. That means that all contracts that we have are successfully being terminated. And we think then that, as I said earlier, either by the end of the year or beginning of next year, we will be done with closing down the clinical department on Isofol. If we look on the operations update, so we have done significant cost cutting. So if we look on the study, we are closing down sites, we are closing down contractors. And the other thing was that once you realize that you have no basis for a submission, we also immediately closed down the pre-commercialization activities. So we're also taking measures to decrease cost and also preserve the company's financial standing. You just noticed that we are a listed company on the NASDAQ, right? And what we're waiting for now is basically the final analysis on the clinical study. The other measures we have been taking is, as I mentioned, the pre-commercial activities are closed down, shutting down the AGENT study and compiling the final clinical study report, terminating contracts with subcontractors and vendors, and then we have started laying off employees. With that said, I will let Gustaf Albèrt, our Chief Financial Officer, take you on to Slide #10. Gustaf, over to you.

Thank you all. And over to Page #10, financial overview of Q3 2022. The revenues from reimbursement for the AGENT study from Japan continues into the third quarter and likely might continue into the fourth quarter. As Ulf mentioned, we have taken a lot of different measures to reduce and minimize costs. All pre-commercialization activities and costs has been stopped and closed in the third quarter. The AGENT study -- main cost for that, as Ulf mentioned, patients rolling over, et cetera, have been decreased and will, of course, continue to decrease going forward. And also, as Ulf mentioned, relating to closing both vendors and terminating and laying off of the staff, there is a delay for reductions, even though we can see a significant reduction or lower of costs and spending in this quarter that will continue into the next quarter. Moving to the next slide, Slide 10 -- 11, sorry. As you can see, the cash flow from operating activities is less negative than previous periods, and that is, of course, related to the lower results for the period. And also corresponding to the activities that we are taking in order to decrease those costs and improve cash flow, minimize the cash flow. And the cash position at the end period SEK 235 million and the working capital is SEK 184 million. Over to you again, Page 12. Thank you.

Thank you. Let's see. Here we go. This is the last slide and just sort of a recap on what has been said here. So what we are doing now going forward is we're focusing on diligent, efficient and high-quality approach of analyzing and collecting the final data. And that includes, of course, subgroups and gene expression data. And hopefully, we'll be able to start writing up the manuscript during the fourth quarter and publish it. We are shutting down the study in accordance with all the regulatory requirements and ethical considerations. And again, I'm hoping that the study will be shut down by the end of the year or beginning of next year. As Gustaf said, we are implementing significant measures to decrease costs and safeguard the company's financial position. And the other thing we're doing now is to evaluate and investigate alternative operational courses of action, including collaborations or structural deals to ensure the greater value for Isofol and Isofol's shareholders. And once again, I'd like to thank all the shareholders that have been supporting us for this. The unfortunate result was not expected, of course. But this is biotech. This is drug development. It's a high-risk enterprise where the rewards are very high. But eventually, you also end up, as we have done, in negative results. And then you have to basically maneuver so that you keep as much of the shareholder value as possible. With the cash position we are in, we are noticing that we are highly attractive for companies today. And hopefully, we will find a way forward for Isofol that will benefit our shareholders. With that said, I leave the word to our facilitator. Over to you.

[Operator Instructions] Our first question comes from Christian Binder at Redeye.

Just a quick one. I wondered whether you could elaborate a little bit more on different alternatives after winding down AGENT. I mean you already talked about potential structural deals or collaborations. But could you elaborate a little bit more on, I guess, the 2 alternatives, that is either you liquidate or you try to do some deal in that way going forward? So can you just elaborate a little bit more on your reasoning? What different factors do you consider when you think about maximizing shareholder value?

Yes. I can do that. So first of all, if we look on our politics or in oncology with the clinical results, specifically the overall survival results, this drug is painted in oncology. So finding other routes in the area where we have freedom to operate according to our contract with Merck is basically closed down. So what alternatives do we have compared to a controlled liquidation? A number of companies are desperately trying to raise money in the circumstances that we are in today with the financial crisis, the inflation and interest rates going up. Of course, our shareholders invested in health care. So of course, we are looking for companies specifically and most desirably in the health care sector. Companies that our shareholders would probably say are not super high risk, but they come a bit further ahead in what they've been trying to do. So basically, that's the type of companies we are looking at and seeing if a deal or something can be struck with a company where we would be able to use our shareholder's value to maximize the shareholder price, either being incorporated into another company or merging or acquiring. The door is open. We don't -- we haven't set any pokes in the ground saying this is the way forward. We are listening and actually seeing a number of fantastic opportunities being presented for us. It will be up to the Board to decide the way forward. And we are also seeing that, should something happen, it should basically be a decision that happens fairly fast, so that we can use the cash position we have to boost the shareholder value. I don't know if that answers you question.

No, that definitely answers my question. Just a quick follow-up there. I guess we can expect a more clear communication on which package to go forward in Q1 next year. Or do you have a time line or is it uncertain right now?

That would be my hope that by the Q1 report, you will have the results of our efforts in clear text.

[Operator Instructions] And we have no further questions on the phone line. So I'll hand back to the speakers.

Thank you. And there is a couple of questions on the web. The first one is being, at the end of September, there were 15 full-time employees and about 10 consultants, with the termination of employee contracts, how many employees do you expect to have at the year-end of 2022?

A difficult question. It depends on where we are with the closing down. We can't terminate all staff and have work left, right? So we have to be diligent. But I would expect that if we haven't reduced the workforce by more than 50%, we haven't been diligent.

Thank you. And could you elaborate a bit on the average termination period for the employees being laid off?

That's hard because according to Swedish law, depending on how long people have worked in the company, the notice period seems to increase with the years worked. But baseline is usually, I think, around 3 months. So if you give notice in the first quarter -- sorry, in the third quarter or end of third quarter, you'll see people leaving by the end of the year or in December. We already have people that have left the company, so the process is ongoing.

Thank you. And finally, what is your estimate on the year-end cash balance?

I think that's a question that my dear financial -- Chief Financial Officer should speculate around. Gustaf?

Okay. Thank you. In addition to what you said in the previous question, of course, the 10 consultants that was mentioned in the Q3 report will be significantly reduced in Q4. The cash balance at year-end, we have to come back to that because that, of course, depends on the successful implementation of the different activities. But we see that we are making progress, and we are making good results with the activities and measures we are doing. So it will be, of course, less than what we have now. And if you look into the Q3 report, you can see that the burn rate has been reduced significantly and that will continue to be reduced significantly. And we do not really want to guess a number for the year-end, but it will be a reasonably good number.

Thank you. And by that, I'll hand back to you, Ulf, for your concluding remarks.

Okay. Thank you. Okay. Thank you so much for listening in to this Q3 report. As we indicated when we talked the last time, we have done significant cost reductions. We are still working diligently on understanding the data. And by the fourth quarter, my hope is that we will have a full report signed and that hopefully -- hopefully, we will also know the way forward for Isofol. So with that, thank you so much for listening in, and we'll be back. Take care.

Thank you.