Nxera Pharma Co., Ltd. (4565) Earnings Call Transcript & Summary

Right. Okay. Thank you very much for attending JPMorgan Global Healthcare Conference. My name is Horikawa of JPMorgan in Tokyo. And today, we have here Japanese company, so-called Sosei Group Corporation. This is a great honor for us to introduce Mr. Chris Cargill, Executive Vice President, CFO. And breakout session will be held at the Sussex room afterwards. I'll pass it to him.

Thank you, Horikawa-san, and good morning, everybody. Welcome to the Sosei Heptares' presentation here at the 38th Annual JPMorgan Healthcare Conference. This is the third time we've been presenting in the main track. It's the premier health care conference in the world, so we'd like to thank our partners at JPMorgan for inviting us back again. This morning, I'm going to give you a brief overview of our strategy, our technology, our core strengths, our focus areas, business model and the outlook for 2020 and beyond. So for those of you who aren't familiar with our company, we're actually in our 30-year anniversary this year since the company's founding in Japan, our original founder, Mr. Shinichi Tamura, he remains as Chairman and CEO of the business today. And if you look to the time line here, you'll see that the business, founded in 1990, had some initial success in 2004 with the acquisition of U.K. biotech, Arakis. However, in 2015, when we made the acquisition of Heptares Therapeutics, that was what really supercharged our business. It was a transformative acquisition. And today, we are a technology-led biotechnology company. The Heptares deal gave Sosei Group the technology underpin to become a truly global biotech company, and we focus ourselves in the areas of drug discovery and early development. As a testament to both of our Japanese and Anglo origins as a company, in 2018, we rebranded to Sosei Heptares, combining both of our corporate heritages. And as Horikawa-san said at the start, we are listed on the Tokyo Stock Exchange under the ticker code 4565, should anyone want to look us up. So we are a leading drug discovery and early development business, and we specialize in GPCRs. On the left-hand side of the business here, you'll see we are -- our origins are as a science and technology-led business. We are today recognized globally for the many scientific breakthroughs that we've made in the field of GPCRs. And just by the numbers, we've over -- we've sold over 260 molecular structures from over 25 different GPCRS. And this represents over 30% of all publicly solved structures for GPCR targets. We've got over 180 publications, including 7 prestigious Nature papers published and more than half of our company have PhDs. And we continue to invest in innovative GPCR structure and design technology, and we expect to maintain our leadership status for many years to come. If you look to the middle of the slide, here, you'll see we're a partnership-focused organization. Our technology, discovery, early development capabilities have attracted a number of world-class partners over the years primarily large-cap biotech and pharma partners. The likes of AstraZeneca, Pfizer, Takeda, Genentech and Daiichi Sankyo are our current partners here. We also have innovation venture-focused outfits. We worked with Medicxi and formed 2 spin-out companies with them last year. And lastly, and importantly, academic institutions where we collaborate in specific therapeutic areas in the University of Cambridge, Imperial College and New York University are some of the names that we collaborate with. On the right-hand side of the slide, you'll see that that has produced a burgeoning pipeline. The partnerships and collaborations that we've done to date have enabled a co-owned -- or to be co-owned pipeline of almost 30 programs. So we're very proud of what we've achieved in the last 10 to 15 years. Our technology in the assets that we use -- the assets that we generate from using it -- sorry, will continue to form the basis of many new partnerships and high-quality partnerships in the future. And so why do we focus on GPCRs? Well, the simple answer is, there's a vast opportunity, and this opportunity remains largely untapped. And we've done the math and on the 400 GPCR targets, that we believe are active in human disease, around 100 of these have been successfully drugged to date, leaving on the right-hand side, a 75% potential opportunity for first-in-class novel targets. In the middle of the slide there, we know many medicines that target GPCRs in the decades prior went on to become blockbusters and truly changed patient lives. Medicines, such as Abilify, Seroquel, Singulair, et cetera. We think there's many more medicines like these to be discovered over the decades to come, and we as a company are in a very unique position to exploit this opportunity from both the competitive advantage that we have on the technology side, but also to the know-how that the scientists in our organization have built up inside our world-leading discovery business over the past 10 years. And that's why names like Pfizer, Takeda, Genentech, et cetera, when they -- turn to us to go after bold, high hanging fruits, difficult to drug targets because it's these targets that have the potential to bring real innovative medicines to patients and rapidly. And this is the opportunity ahead for our company, Sosei Heptares. So turning now to our strategy. What is our strategy? Well, it's pretty simple. We leverage our core technologies and our core competencies. So the technology that underpins our business is called StaR and this enables us to stabilize GPCRs on an industrial scale, in turn, opening up modern structure-based drug design approaches. Our core competencies are focused on drug discovery and early development. At this stage of our life cycle, we don't want to overextend ourselves. And by focusing our efforts in this way, it enables us to produce innovative candidates or medicines that will be attractive for future high-value co-owned projects or long-term ventures. And it's executing these new partnerships and rapidly progressing the existing partnerships that we have, that is currently a part of what we are doing at Sosei Heptares. And now moving to the core technology, StaR technology, this is our secret sauce as a company. It enables us to develop smarter GPCR-targeted drugs. We focus on GPCRs because they're an important target class, as I mentioned, and they span many disease areas, although they are notoriously challenging to drug optimally. But with StaR we're able to overcome these challenges. It's the -- we believe it's the only scale technology available today that enables GPCRs to be stabilized in their natural state and function when removed from the cell membrane. And what this does is it opens up a world of rich, mechanistic and structural information for our scientists. And they can use that to design better drugs, including those with improved physiochemical properties, better safety and efficacy profiles and ultimately, driving reduced clinical attrition rates. And so while StaR proteins can be used as a base for peptide and antibody discovery -- and we've done some of this, our core focuses are really [oral] small molecules. So this potent mix of our StaR technology, combined with that huge target opportunity landscape that I mentioned earlier is what's really going to drive the success and productivity of our business going into the future. So moving now to our core competencies. As I mentioned, these are drug discovery and early development. We choose to exclusively focus on the front end of the drug development life cycle. And here on the chart, you can see that that's largely from technology through to Phase Ib patient studies. And we do this because we're very good at it, we're equipped to do it. But it is also relatively lower costs, lower risk and provides an element of downside protection for our business, should something ever go wrong. On the right-hand side, you'll see -- we see large-cap pharma, biotech names as being the better equipped companies to manage the extreme costs, the risks and the binary outcomes that can come with late-stage development. And by focusing on the front end here of the drug development life cycle, we also think that we're going to be exposed to favorable industry trends going forward. I think it's well-known in this room, the challenges that are faced by large-cap pharma companies and biotech companies as well when it comes to R&D, the ever-increasing R&D spend, the declining productivity, et cetera. With these ever-increasing pressures for those companies to come up with new blockbuster medicines, we believe the trends will favor us ultimately, as these companies seek flexible and agile ways to innovate. And that's what we're here to do; to help them. And so we're building a pipeline of high-value partnered projects and long-term ventures. And we're uniquely focused on the lower cost, high value add projects. So as you can see from the diagram on the left, there are multiple approaches from a cost versus value perspective in this industry. But to be very clear, we do not sit it in the lower left bucket. We are not a fee-for-service CRO business. We do not sell direct access to our core technologies. Furthermore, on the top right-hand quadrant there, we do not intend to move up the risk curve and commercialize any of our own drugs or medicines at this stage. So when it comes to the economics of our new partnerships, we're uniquely focused on the low-cost, high-value co-owned projects that I mentioned there. On the right-hand side -- I'm going to talk about some of the new partnerships we actually inked last year, which fit in this bucket. So with Medicxi Ventures at the top there, we created 2 unique asset-centric vehicles, and these are pursuing orexin agonism for the treatment of narcolepsy. We retain an equity stake in both of those vehicles. And at some point in the future, dependent on their success, those businesses will be sold or IPO-ed, meeting an inflection point for us and our partner. And next down with Genentech, we announced in July a multitarget GPCR discovery and development deal, which is focused on the GI immunology space. That deal brought $26 million in upfront and approximate milestones. We're also entitled to development milestones, sales-based milestones, tiered royalties, it's all up over $1 billion of biobucks on that transaction. And lastly, Takeda, again, a very similar deal to the Genentech deal, we've got $26 million in upfront and approximates. And the rest of the economics were very similar to Genentech. So that is an example of how we are exclusively focused as a business on high-value projects where the biobucks are at a minimum of $500 million or we'll invest in long-term ventures for long-term gain. And I should mention that these deals that we did in 2019 sit on top of the existing high-value collaborations that we have with Pfizer, AstraZeneca and Allergan, and I'll touch on those shortly. So we think we're uniquely positioned to drive global biotech innovation in our field. We have approximately 180 full-time employees globally. And we've recently established a center of excellence in the United Kingdom, where we have over 100 scientists at a state-of-the-art facility in Cambridge. Now this purpose-built facility, which is actually a sort of retrofit of the old Gilead facility, combines our platform technology, drug discovery, preclinical, translational and early clinical development teams under one roof for the first time. As many of you know, Cambridge in the U.K. is also one of the world's top biotech innovation hubs, and we've already seen an uptick in productivity as well as enhanced collaboration and partnership opportunities from having our employees based there. On the right-hand side of the slide -- on the Japan side of the business, we run our group and head office operations. In Tokyo, we have about 30 employees there. Now importantly, this is where we retain our public listing and have fantastic access to low-cost capital to fund our business. Our unique status as a Japanese listed Western biotech makes us also extremely well positioned to expand partnerships with the emerging Asian biotech and venture companies in the region. And this is certainly an area of growth that we're looking to pursue aggressively going forward. So moving on now to drug discovery and early development. So as I mentioned, we have a track record of attracting world-leading partners. I mentioned 3 of the deals that we did in 2019, but here is a summary of our track record over the last 15 years. A large number of these collaborations remain active today. And I think that's a testament to the quality of the stabilized proteins we deliver, the structures that we solve and the candidates that we generate for our partners. And furthermore, it's worth noting that since that AstraZeneca deal, on the bottom left-hand corner there that we did in 2015, we've inked new collaborations worth over $8 billion in biobucks and most of these co-owned programs are currently continuing to be advanced, which is great. The only exception is the Teva program, where we actually regained that asset, and we will advance it ourselves into Phase I this year, ahead of our potential future partnership. So some in the room might be thinking why do partners come to us. So why are we able to partner so regularly on such a scale. Well, it's because partners we find are attracted to our technology-led discovery engine. The StaR technology, as I mentioned, is very much at the center of what we do, and it helps us design smarter and safer medicines with better properties, but we can't rely on this technology alone to succeed. Technology evolves and so do we as a company. So that's why we're constantly pursuing new technology collaborations and acquiring tools to improve our discovery capabilities and in turn, driving higher quality compounds for our partners and for ourselves. And so for example, on this slide, on the left-hand side, you'll see we acquired CHESS and SaBRE technologies from a Swiss company, and this expanded our capacity to explore more GPCRs. We -- on the bottom right-hand corner, we entered into a DNA encoded library combination with a company in Germany to help us assess more alternative modes of action. We have recently installed a new Cryo -- electron microscopy machine in our R&D facility, but we are also a member of the much larger Cambridge cryo-EM consortium, and this is helping us to enable new and alternative ways to image biomolecules. On the top right-hand corner, we have put our first toes in the water, so to speak, by collaborating with the Bender lab of the University of Cambridge to look at implementing AI and machine learning into how we target ID -- into basically our target ID and drug discovery processes. And so it's this game-changing approach that's revolutionized GPCR drug discovery. And so we do exploit all those technologies, and this leads me to the next slide. We have industry-leading rates of productivity. So we are exploiting the technologies very effectively. We are now 2 to 3x more productive than the industry standard when it comes to discovery and early development of new drugs. We've generated 25-plus candidates in the last 10 years, 7 of which have progressed to or are currently in clinical studies. Projects that we were undertaking prior to 2015, we're taking on average 2.5 years to get to preclinical candidate stage. And we've managed to reduce that time to 2 to 2.5 years in the last 4 years, and there's more improvements to come. Furthermore, our preclinical candidates are now generally synthesized in under 500 compounds. This all amounts to very impressive rates of productivity that exceed industry averages. And it's yet another point of differentiation versus our peers when partners are looking to come and work with us. That productivity enables a steady state model that you can see on the slide here that can create multiple value inflection points for our company going forward. So with all of the projects that we are working on and that we will work on in the future, it is our aim to execute 2 to 3 new high-value partnerships every year. And we're able to confidently state this because our productivity allows for a steady pool of assets that we can either choose to partner early or -- as you can see here on the slide at the bottom, we can hang on to them longer ourselves until such time as we reach a higher value inflection point in that partnership. Now, of course, we're also able to accommodate partners who are not interested in our existing pool of assets but wish to pursue a high-value GPCR target of their own. And these are the sorts of deals that we have done with the likes of Pfizer, Genentech and Takeda. And so now, I'll move on to our existing partnered pipeline. There's a few programs that I want to highlight as ones to watch over the next 12 to 18 months. Up the top there, QVM 149, which is a product partnered with Novartis. It's a novel inhaled therapy for asthma. This is due to launch later in 2020 in the EU and other markets will follow. The next one down is with AstraZeneca, and that compound, AZD4635, which is an adenosine A2A antagonist. It's now in multiple Phase II trials in prostate cancer, so we expect to AZA talking more about this important immuno-oncology drug later in the year or early in 2021. And with Allergan, or soon to be AbbVie hopefully, we have a broad muscarinic agonist program that continues to progress. Ours is targeting Alzheimer's disease and the neurobehavioral symptoms associated with Alzheimer's disease. And if muscarinic agonism sounds familiar to anyone in this room, it's probably because it's the same mechanism being pursued by Coruña pharmaceuticals, which is a company that's been talked about a lot this week, they're presenting tomorrow. And if you want to know more about this kind of mechanism of action, I'd recommend you go to their presentation. And with Pfizer, we have one candidate that rapidly entered Phase I at the end of last year, less than 6 months after being nominated as a candidate. And we've got 2 follow-up candidates, which we also would like to see advance this year, and we look forward to hearing more about that. And lastly, at the bottom there, the asset-centric vehicles with Medicxi, we announced on Tuesday, actually, that ahead of our scheduled milestone point, Medicxi has decided to draw down further funds to advance discovery and development of the orexin agonist for narcolepsy on those programs. So we see that as a vote of confidence in the programs. And we look forward to hearing more progress about them in the year ahead. And now to our rapidly emerging in-house pipeline. As you can see, we have quite a broad in-house pipeline that we are developing, both from a therapeutic area perspective but also modalities. As highlighted earlier, small molecules are really our specialty focus area. And so the peptide or mAb projects that you see here will likely be partnered with experts in their field at some point in time. As you can see there where the green tick is we plan to put another agent into Phase I clinical studies this year, the CGRP antagonist. It's a differentiated CGRP antagonist approach. And we look to put that into Phase I this year and hopefully have a candidate ready for partnering soon thereafter. Lastly, out of all the other projects on this slide, there is the possibility that some of them will end up in the hands of partners this year as we look to structures and new deals. And as you've heard, we are continuously replenishing this pipeline with new and exciting projects. Going ahead, we will be primarily focused in the area of GI inflammation and immuno-oncology. This is an area where we've identified as there being a rich vein of big GPCR targets, potentially simpler studies and faster studies to do and those which may have better readouts. So that's what our focus will be on going forward. So now moving on to our achievements this year and the outlook. As I stood here last year, at the same time, I was fortunate enough to be able to announce the AstraZeneca program going into Phase II in prostate cancer, but we actually achieved a lot thereafter. And I'll just quickly touch on a few things. We were able to execute on every single one of our strategic goals. We did one new venture deal with Medicxi. We wanted to do one new discovery and development deal, we did 2: one with Genentech; and one with Takeda. And we managed to progress existing partnerships with Pfizer and had 3 candidates nominated to move forward from a deal that we struck with them in 2015. So we had a great year in 2019. We're very -- extremely focused on maintaining that momentum into 2020. So here's what those achievements last year mean for our financial metrics. So since pivoting our corporate strategy away from being a wholly-owned drug development company in late 2018, the benefits are now starting to flow through our financials. As you can see from the charts, these are our 3Q numbers which were released in Japan in November. Revenues have significantly increased. Cash operating expenses are down. And as a consequence of this, we've shifted from a significant loss-making business to a company which was profitable as of Q3 2019. We are focused on pursuing more business development opportunities to drive sustainability in these financials. And I should add that we are very well capitalized, we have a sufficient cash runway to prosecute our business plan for the next 2 to 3 years. We have the right management team, scientific Advisory board and supportive key shareholders to move us forward. So our management team remains very strong. We still have both the founders of Sosei and Heptares actively involved in the business. However, recently, in our U.K. research business, we made a series of promotions to ensure that we are well positioned for the future. Now one of those promotions, Dr. Miles Congreve, who is now our Chief Scientific Officer is sitting here today with me on my left. And we also promoted another individual to the role of CTO. So we're really looking to build out our expertise going forward and not slow down. Our Scientific Advisory Board there in the center was recently refreshed. We think we have some of the best names in the industry to work with us and help shape our future and science-led approach to the organization. And finally, this year, we welcomed capital group entities as new institutional shareholders on our register joining Taiyo Pacific, who have been with us for some time. And so we're really building out our institutional ownership and a supportive shareholder base for the future as well. And so now looking to the 2020 outlook and what you can expect to see from us, well it's much of what I've discussed today, really. We're going to seed new waves of prediscovery projects. We're going to continue to deliver candidates in in-house programs for partners. We're going to continue to progress our existing partnered programs. And we're going to execute new collaborations and partnerships with world leaders that we haven't worked with before. That concludes my presentation today. Thank you very much for coming. Please join Dr. Miles Congreve, our Chief Scientific Officer and myself for a Q&A breakout session in the Sussex room. Thank you very much.