Moberg Pharma AB (publ) (MOB) Earnings Call Transcript & Summary

Hello, and welcome to the Moberg Pharma Interim Report for July to December 2019. [Operator Instructions] And just to remind you, this conference call is being recorded. Today, I'm pleased to present Anna Ljung. Please go ahead with your meeting.

Thank you. Hello. My name is Anna Ljung, and I'm the CEO of Moberg Pharma. I also have our VP of Finance, Mark Beveridge with me here today. We're happy to present our interim report covering October to December 2019 that you can find on our web page. There you can also find a PowerPoint presentation. So I will start from that presentation. As a recap of where we are right now, let me start on Page 4. In summary, a year ago, we divested our commercial portfolio for SEK 1.4 billion, realizing the value of the OTC business and focusing our efforts on MOB-015. This also resulted in a capital gain of SEK 560 million, repaying the debt and distributing the proceeds now in November to our shareholders. Focusing on the current business. We now have a clinical pipeline consisting of 2 late-stage drug candidates with the potential to significantly exceed the value of the divested portfolio. Both drugs have demonstrated strong clinical results, which indicate that they have the potential to become market leaders in their respective niches. After these 2 products, we spend our absolute majority of our efforts on MOB-015 against onychomycosis case study filings. Moving on to the events during the period on Slide 6. In December, we received top line result from the North American study for MOB-015. In short, the primary endpoint was met. 70% of the patients were fungus-free, which is world-leading for topical treatment. But increased hydration causes temporary whitening, which makes an assessment of clinical cure more challenging. A shorter treatment period should solve this problem. I'll come back to this later and will spend the majority of the time in this presentation on these Phase III findings. In addition to the clinical results, we secured 2 important partner agreements with Taisho for Japan and DongKoo for Korea. With these latest additions, we now have licensing agreements signed with a total deal value of $120 million plus supply fees and royalties. Our further distribution of funds to shareholders was completed, paying the shareholders SEK 46.5 per share in November this year. On Page 7, turning to the North American Phase III results. The study was conducted at 32 sites, including 365 patients. And the key results include primary endpoint that was met, but at the lower complete cure than expected; mycological cure significantly higher and more rapid than expected, reaching 70% at week 52; and 83% of the patients who completed reported some form of improvement already at the first visit. And at end of study, 33% reported that their toenails were cured or almost cured and there were no safety issues. After results, the company engaged key opinion leaders to review and analyze the data to understand this conflicting data with high mycological cure and low complete cure. On Slide 8, summarizes the key endpoints and provides an overview also for current therapies. The fact that MOB-015 at 42 weeks achieved mycological cure in 70% of the patients is exceptional. The outcome of the study is surprising, since the high mycological cure normally over time is followed by complete cure. And you can see this for all of our competitors, where you have mycological cure rate in the 50% range, they have typically led to complete cure rates of 15% Whereas we have a couple in the 30% range, but then resulted in complete cure rates of 6% to 8%. And finally, we have the oral terbinafine, the current goal standard for treatment of onychomycosis, with mycological cure of 70% and complete cure of 38%. This is the same substance that we use typically, and we also get around 70% mycological cure. Furthermore, the onset of the antifungal effect is more rapid than for oral terbinafine, the MOB-015 delivering 55% mycological cure at 6 months versus 40% for orals and 37% already after 3 months versus 15% for oral terbinafine. These milestones that is expected since we're applying terbinafine directly on the nail. This also has the advantage of avoiding the systemic side effects of oral treatment. On Slide 9, we have talked at the values that I just described, showing the strong link between high mycological cure and complete cure rate for the approved drugs. Moving on to Slide 10. After analyzing the focus on the data, the company experts and key opinion leaders confirm the validity of the top line data, as presented in December. And they also found that the vehicle enables delivery of high amounts of terbinafine through the nail and through the nail bed. However, the hydrating properties of the vehicle also cause whitening discoloration in the nails. This phenomenon can be seen in majority of the nails with this transient as a water content normalizes after end of treatment. The whitening makes the assessment of clinically cure challenging, since physicians cannot distinguish between a nail that is discolored due to nail fungus or a nail that looks whitish due to the higher water content in the nail. Now on Slide 9, based on all available data, the company experts and key opinion leaders have identified a solution. A shorter treatment time has the potential to increase complete cure rates. And this is based on the high mycological cure rate of 70% and an even earlier onset than for oral terbinafine, a 40x higher terbinafine level in the nail bed than for oral terbinafine, as shown in our Phase II trial. We also know that 3-month treatment with oral terbinafine is a standard treatment, and that is effective. Reduction of the hydrating effect of the initial treatment phase and thus reducing the impact of the clinical cure assessment at week 52. The experts concluded that once-daily treatment for not more than 3 months, followed by maintenance treatment once-weekly is preferred. This should provide sufficiently high concentrations of terbinafine in the nail and nail bed and mean the normalization of the root accompanying the nail during the maintenance period. And from a patient perspective, a shorter treatment period is highly attractive. Since the North American trial met its primary endpoint without safety concerns and provided that the EU study also provides positive results, these studies can form a basis to register the product. The timing to optimize the dosing regimen will be dependent on the outcome of the new trial. On Slide 12, these key opinion leaders all have decades of experience with terbinafine and the key ingredients in MOB-015. They're all very excited about the high mycological cure rate, and fully support a shorter treatment regimen has the potential to achieve an attractive and complete cure rate. I am very grateful for the detailed analysis of the key opinion leaders that enabled us to find this attractive solution. And actually, the long-term market potential for MOB-015 may actually increase with these further results, since the shorter treatment is much more attractive. The improved product profile with short treatment periods also creates key competitive advantages compared to oral terbinafine. Each MOB-015 shows that same antifungal effect of oral treatment can show us high complete cure rate. There will be no medical reason to choose oral treatment over topical treatment. Also note that the U.S. trial provides some very strong claims, especially from a patient perspective, as 70% of patients get fungus free and 80% of patients support improvement already after 12 weeks. Moving on to the financial part of the report on Slide 14. The revenue for this quarter comes from upfront from the agreement with DongKoo in Korea that was signed this quarter. Whereas if you look at the full half year, revenues also include an upfront from Taisho of $5 million that was then paid in this quarter. Costs are in line, were slightly lower than previous periods. And please note that in addition to the cost in the P&L, we also had investments of SEK 10 million in MOB-015 in the balance sheet in this quarter. On Slide 15, after the divestiture and repayment of the bond loan, we now have a straightforward balance sheet with intangible assets as the only main item apart from cash. Also the intangible assets, capitalized R&D investments include MOB-015 of SEK 262 million and would be on -- of SEK 15 million, and then we have additional patents of SEK 7 million. The outstanding debt, what you pay during this quarter, once the company is now debt-free, SEK 837 million. SEK 46.50 per share was distributed to shareholders on November 26. And our cash position is now SEK 65 million, which is sufficient funds to complete the ongoing clinical trials and non-operations throughout the year. On Page 16, the cash flow before changes in working capital was minus 5%. And we decreased the operating receivables as the agreement with Taisho was entered on September 30 and the revenue from the account of SEK 48 million from this agreement was paid in this quarter. The investing activities include: capitalized R&D of SEK 10 million in MOB-015; and the debt of SEK 24 million was repaid, and the company's just now debt free; and further the distribution of the SEK 837 million was paid in November. On Slide 18, to conclude the presentation, we may need to navigate some hurdles, but the latest trial also provides us evidence supporting high potential of MOB-015. We look forward to receiving data from the EU trial in the second quarter. We remain fully committed to creating the future market-leading onychomycosis. The exceptional ability to kill the fungi with an early onset and the prospects of a shorter treatment plan are very exciting. We also have agreements in place for the major markets corresponding to a total deal value of 200 -- $120 million, while we keep the rights to ourselves for the U.S. market. I'll stop there, and I'm happy to open up for questions.

[Operator Instructions] Our first question comes from the line of Klas Palin from Redeye.

I have a question about the outcome of the North American study and the findings now that you have in hand. Has this, in any way, ceased your view of the best strategy for commercializing of 015 in the U.S. market? Because you had previously indicated that you want to report, much less the strategy, as well as potential partner takes part of the market.

Thank you for your question, Klas. No, I think the strategy remains unchanged. So our goal is, as this is the main market for us, we want to keep part of that market by ourselves and then work with a strong partner that could target dermatologists as well. So we split that market in 2, basically.

And such a partner, do you expect that to contribute to products in upcoming additional clinical trials? And would that be your goal?

I'm not really sure I understood the question. Could you repeat it?

Yes. I guess given the complete cure rate and the pretrial, even though you get -- you would get perhaps MOB-015 approved in the U.S., it still would be a good thing to conduct further clinical trials that could -- where you could show a higher complete cure rate. So I guess would you be trying to find partners that could support during such clinical activities?

Yes. So I think to fully capitalize on MOB-015 potential, we need to show the advantages of shorter treatment in another study. And of course, we're talking with our current partners and potential partners on how to conduct such a study.

Yes. Okay. I also have a question. If you maybe can give us sort of an indication how the costs for the -- the remaining cost for the Phase III program will be distributed in the coming quarters. Just a broad picture, not -- yes.

Yes. So we're almost at the end of that study. The last payment for that study will actually be in the third quarter when we get the final study report. So those costs, I expect them to come either the second quarter or the third quarter this year.

And the next question comes from the line of Klas Pyk from Nordea.

So first on the financials. You guys provided that the European study is successful and you meet the primary endpoint, when do you expect to launch? And is connecting that to your cash position of SEK 65 million? Yes. How long can you be funded without launching? That's my first question.