Oncopeptides AB (publ) (ONCO) Earnings Call Transcript & Summary

Good day, and welcome to the Oncopeptides Q2 2022 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Jakob Lindberg, CEO of Oncopeptides. Please go ahead, sir.

Thank you very much, and a warm welcome, everyone, to this quarter 2 webcast of Oncopeptides AB. Let's go straight to the disclaimer slide, Slide #2. As always, we're going to make future-looking statements, et cetera, and for anyone interested in the legal sort of reads of this, read -- just read the disclaimer. It's available on our webpage, and it's just the usual disclaimers, of course. Going to Slide #3. With me today, I also have Dr. Klaas Bakker, Chief Medical Officer; and Annika Muskantor, Chief Financial Officer. And we will all be available for questions and answers at the end of this session, obviously. Going straight to Slide #4, we're going to give a brief update of the quarter as such. And obviously it has been a very eventful quarter for us. And to some of you might even have some surprising news, not so much for us in the company, and we'll go into some detail of that. So I'm going to summarize some of the events. Klaas will go through very much of the regulatory pieces which is of course the core of the update today. Annika will then go through the financials, I will wrap it up and then Q&A. So going to Slide #5, the highlights. The big news this quarter and slightly afterwards is of course that the CHMP issued a positive opinion recommending the full approval marketing authorization of Pepaxti in the European Union. We also got the news that this was after the second quarter that the FDA announced a new Oncologic Drugs Advisory Committee meeting for PEPAXTO. That is a broad topic so far, the general benefit risk of PEPAXTO. This is scheduled for September 22nd. We have continued to advance our preclinical portfolio, which includes a follow-on compound to melflufen, OPDC3, which is an improved version and is ready for clinical development, but obviously prior to this quarter we had no financial resources to push the clinical development onwards, but that is something that we have to start to plan for now. We have also announced a biologics construct that belongs to the NK cell engager platform that we call SPiKE. And all of these things have progressed according to plan throughout the quarter. Quite importantly we also performed a directed share issue of a bit more than $40 million straight after the European approval, and we did this at 0% discount, so at market, which under these conditions must be seen as highly unusual and the sign of strength. With that, I will go to Slide #6. So what are we now focusing on? We are, of course, trying to capitalize on the full marketing authorization that is expected by the European Commission within the next few days to commercialize Pepaxti in Europe. We are also working diligently on supporting the type 2 variation for Pepaxti in Europe based on the OCEAN trial for earlier line patients. We expect to submit that initiative procedure at the end of the year. That's a 6-month procedure. And then, of course, a 60-day European Commission decision. So assuming that everything goes according to plan, that would lead to a broader indication in Europe by the third quarter of 2023. At the same time, we are, to some extent, at risk creating the foundation for marketing of PEPAXTO in the U.S. We are currently not marketing this product. But we are building the infrastructure again so that we can deliver this drug to patients so that scripts can be written assuming that we have a positive outcome one way or the other with the FDA, which, of course, we don't know at this point in time. But we are investing to make sure that it at least will be commercially available within a decent timeframe. This is different from full-blown commercialization, which we are not doing before we have more direction from the FDA of the U.S. We are obviously also giving everything we have been through, working very hard to attract and especially retain good people in this industry. We went through a very hard time from last summer until the European marketing authorization where we reduced staff with basically 90% or so and reduced our cost base very harshly to be able to reach that point in time because otherwise we would not have been. While we were confident in our science, there was a level of uncertainty. And now we need to sort of heal the wounds and make sure that we can retain and also attract new people as we slowly build the organization again. So with that, I'm going to leave the word for a regulatory update to Dr. Klaas Bakker, Chief Medical Officer. Thank you. Klaas?

Thank you very much, Jakob, and good afternoon, good morning, everyone. If we go to Slide #8, please. A quick recap of the CHMP positive opinion. This was unanimous. So all member states agreed that a positive opinion was appropriate for this product for triple-class refractory multiple myeloma. As you all know, this opinion is based on the Phase II HORIZON study, but also the Phase III OCEAN study was already used as a confirmatory study. Importantly with this confirmation, EMA confirms that the overall survival data in OCEAN, which has a lot of intriguing results, is the case of true survival heterogeneity. And this is important because this explains the direction of different overall survival results. As Jakob alluded to, the European Commission will now very soon make a legally binding decision within 60 days after the positive opinion and once granted the marketing authorization is valid in the EU and EEC countries, namely Iceland, Liechtenstein, and Norway. Then we go to Slide #9. As you may have noted, and we haven't press released this as we know this is not a material event. We have withdrawn the orphan designation of melflufen for the treatment of plasma cell myeloma. And I will go to into a little bit more detail here. When you want to remain or keep your orphan designation, you need to prove you are at least comparable or better than products in the same indication. And as you may know, we have been approved in patients with 3 prior lines. With that we are an earlier treatment opportunity than, for example, belantamab or selinexor. So that also means that the therapy to which we are compared to is CAR-T therapies. And as you may know, response rate mPFS are extremely high for these CAR-T cell therapies. And as such, we deemed it to be not feasible to show data showing equivalent or superiority of these CAR-T cell therapies. However, what I would like to emphasize is that this has no impact for our market exclusivity, no impact on pricing. And the reason is that we also have already comparative data with pomalidomide with the OCEAN label. The orphan drug designation is valid or very useful when you only have a limited number of patients based on a single arm Phase II trial because then you need to really protect it with the orphan drug status. In our case, that was no longer necessary since we also have the OCEAN data to support the full indication. So we just want to make also sure that this has nothing to do with the orphan drug status in the U.S. since that is another framework. This was within the EMA framework, and we decided ourselves to withdraw. Next slide, please, Slide #10. And then we have the next big event scheduled for the 22nd of September, the Oncologic Drugs Advisory Committee. Following the positive CHMP opinion, as we have stated before, we have had an intensified dialogue with the FDA, which is still ongoing. And this has resulted now in the announcement of a public hearing with the FDA's Oncologic Drug Advisory Committee scheduled for the 22nd of September. Preparations are naturally ongoing, and that also includes third-party engagement. And what we mean by that is that we will also have speakers on behalf of us speaking about PEPAXTO and the need for PEPAXTO. The briefing book which will give a little bit more flavor of the meeting will be publicly available the third week of September, the latest 20th of September, which is 2 days before the ODAC actually happens. Until then, and I think this is important to emphasize, we as Oncopeptides do not anticipate any public communication. The communication with the regulatory authority in the lead up to such an event is confidential. And until the briefing books are published, we do not anticipate to make any forward-looking statements with regards to the regulatory interactions we have with the FDA. With that, I would like to hand the mic to Annika Muskantor, our CFO. Thank you.

Thank you, Klaas, and thank you for giving me the chance to talk about the numbers. So if I could ask you actually to go straight to Slide #12. So let's focus on the second quarter first. Now the swift and decisive measures that we initiated last year have lowered costs significantly. The operating loss decreased from a negative SEK 344.8 million to a negative SEK 61.1 million. The large decrease is, as you can see, in operating cost is under marketing and sales that decreased from SEK 204 million to SEK 10 million. To put those expenditures into perspective, it's worth noting that marketing and sales expenditures last year supported double-digit sales month-over-month throughout the quarter. The cost that did remain during the quarter of this year are preparations mainly for market access in Germany and to some extent for the EMA application process. G&A has also decreased from SEK 41 million to SEK 17 million, which cannot make sense given that certain administrative resources are still required to support ongoing operations, but anything above and beyond that had been removed by that quarter. It's also worth noting that we are running a very tight shift and the costs have continued to come down since the first quarter of this year. R&D has decreased, but proportionately less and have gone from SEK 167 million to SEK 44 million. The R&D expenditures support our very important pipeline development that Jakob alluded to previously. And the decrease in cost is mostly attributable to the tail-end of cost close studies. You will in the report see net sales of SEK 8.8 million reported for the period, and that is quite a reversal of a provision based on sales during 2021 in anticipation of possible returns after the withdrawal in the U.S. We will, of course, be very transparent as new sales are booked. At the end of the period, we had 44 employees. Of these, 37 were active with a very underrepresented employees at the tail-end of their notice period. On to cash flow. So cash flow from operating activities amounted to a negative SEK 106 million, which can be compared to a negative SEK 346.7 million for the corresponding period last year. On the note of transparency and given that the individual months cannot be discerned from a quarterly figure, I'd like to take the opportunity to actually now confirm that the company reached the target announced in January for H1 of achieving an underlying operational burn rate of SEK 12 million to SEK 15 million per month, excluding remaining cost for discontinuation of clinical studies and expenses related to the EMA process. And also on cash, an update on the EIB loan, which is still under renegotiation. Simply in light of all the positive events during the summer, it is relevant to go back to the drawing board to align the discussion with our future needs and to match them with any loan-related obligations. And with that, I'd like you -- to ask you to turn to Slide 13, which will take us to the financial highlights for the first half of the year. Operating loss has decreased to SEK 160 million as compared to a loss of SEK 692 million for the comparable period last year. And cash flow from operating activities decreased from a negative SEK 733 million to SEK 272 million. And I'll actually not make any further comments on that since the comments made for the quarter are totally applicable for the first half of the year. Of course, happy to take questions, but I'm going to leave the financials on that and hand back to Jakob, please.

Thank you, Annika. So before we hit the Q&A, I would just like to leave a few concluding remarks. And let's jump to Slide #15. We had a very eventful second quarter, and we actually expect no less of an eventful third quarter and probably a bit into the fourth quarter as well. Many events are ahead of us. We're obviously going to get the full approval within the next few days from the European Commission -- for the European Union and the European Economic Area in the next few days. We expect a potential resolution with the FDA near term. The ODAC is one piece in that, but also, of course, discussions like Klaas alluded to, that are not public. We will prepare and execute the launch in Germany and German speaking countries. And we will, of course, expect them to both -- to communicate what is going on with regulators when we can. And I know that Klaas alluded to this as well that sometimes it's frustrating because we sit on half-baked information that might be relevant and our silence is not because we want to be silent, it's because we have to be silent. And unfortunately this is just the nature of the business that we are operating in. We are continuing to develop our preclinical portfolio. And given everything we have been through, we expect towards the end of the year to be able to give much more clear guidance on exactly what type of commercial organization we're going to build and where and what that means for 2023 that we are right now building and running at the same time. And it's just given where we were in the second quarter, which is a highly unusual situation that we might actually be a company with more or less around mid-30s, full-time equivalent of people that are on permanent contracts and potentially have global rights to fully approved oncology product in a major indication. You will simply not find an analog for that situation because it shouldn't really occur. But it is what it is. And we -- so far we have done the best, I think, we could possibly do with the cards that have been played to us, and hopefully we can continue to use the trust that you as our shareholders have put in us that we can continue on that path for the coming few months as well. With that, I would like to open the floor for questions and answers. Thank you.

[Operator Instructions] Our first question comes from Adam Karlsson with ABG.

I have 2, please. First, on the upcoming ODAC meeting, can you elaborate on what any of the specific questions are that the committee are tasked with providing input on? I know that you're constrained in what you can say. But specifically, I mean, we're expecting about -- on whether to lift the clinical hold, what the label amendment should be, whether the OCEAN study should be deemed confirmatory? Any confirmation on if any of those -- sort of both are expected or any more specifics would be appreciated, if possible? Secondly, a question on how you see the ESMO and IMWG treatment guidelines having been updated just last year, how that might be impacting the commercial launch of melflufen. The timing of those guidelines, obviously, meant that melflufen doesn't feature especially prominently at all. And the guidelines presumably won't be updated now for a couple of years. So your thoughts on the headwinds this creates for the uptake on melflufen and, I guess, in particular outside of academic setting where melflufen was sought to have an edge but that perhaps where all the doctors around the OCEAN study may not come to light. So your thoughts on that as well, please?

Yes. So thank you. I can give initial commentary and, Klaas, please add if you would like to add something. But on your first topic, unfortunately, we cannot give any guidance on the specific questions. It has to come from the agency. It's their questions, and it has to come through their briefing document and official communication. So to the extent we know them, they have to be deemed confidential for us and will have to come from them. And it's not because I don't want to talk about it. It's -- I just can't to the extent I would know them today. To be frank, I don't. So the specifics are not known to me now. But even if they were, I would not be able to comment on it. As to the second question, I think that while IMWG treatment guidelines and ESMO guidelines are relevant, I would argue that there are 2 different levels that are really relevant here. So the first one is the NCCI guidelines that are updated more regularly, but obviously, you need to come into the queue and be on schedule again, assuming that the FDA would come to a position where we would remain on the market in the U.S. The second is that in Europe, most guidelines are in reality national. And the weird part with the national guidelines is that, as you know, in Europe, cost benefit is a central piece. So national guidelines are not just built on the clinical data, but also clinical data juxtaposed with the cost of the treatment, which, of course, they look a little bit at ESMO IMWG, but ultimately, treatment guidelines are very local. So this also means that you will not be able to get a really good position in national guidelines until you have a price in that geography in Europe. And as you know, that will take time. And the first up for us is, of course, Germany, as we announced our price -- opening price since you have a 12-month free pricing period before you have the negotiated price. So I don't think that IMWG ESMO will impact this a lot. But obviously, to your point, we have a lot of work ahead of us at the moment, assuming that the FDA turns around here to get to the NCCI. And the second step is the moment we have a price to influence the national guidelines in each country specifically and it's a bit of a mosaic to get that right in Europe.

Okay. No, that's very helpful. Can I maybe follow up on the second point then, given what you were just saying? What, if anything, can you say on how you're thinking about pricing in Europe, say, relative to what we learned about the pricing last year in the U.S., yes, how should we be thinking about the pricing?

We fundamentally have the same price philosophy as we had last year. We think that is appropriate. And with that, we mean that we have shown superiority of pomalidomide. So we priced at a slight premium to pomalidomide, but below the latest sort of generation of drugs that is sort of below selinexor, belantamab and the CAR-Ts, of course. So if you think about that as a mental framework, you will find because we think that, that is the appropriate pricing for us, which means that we are sort of less. We are priced below the other new entrants, but at a slight premium to par. If you look at par pricing in Germany, for example, it's around -- depending on the exact month below at around EUR 7,500 to EUR 8,000 a month right now. And they had, of course, higher starting price. But that means mostly since when you have your free pre-pricing period, you then have a mandatory rebate, et cetera, on top of that. So normally, then you would try to aim for a price slightly above that price level. So with the mandatory rebate after the free pricing period, you end up roughly where I just now stated. And with that, you will be able to guess that you probably have a price around the EUR 10,000 mark per month initially through the free pricing period with the reduction. That's our aim, right, our aim, but this needs to be supported by the value dossier and as well as in the negotiation with German authorities.

Our next question comes from Boris Peaker with Cowen.

Maybe the first one, I just want to follow up the discussion on the commercialization in Germany. If we just focus in Germany alone, is there a path to just being profitable on Germany? And maybe let's just open it to kind of a wider question in general. If you get approved in Europe over the next few days, let's say, how much money would it take to get to kind of a profitability or cash flow breakeven in Europe alone before we even consider kind of the cost of the U.S. commercialization?

So I'm going to answer this by not answering certain aspects of your question because I'm not in a position to give appropriate guidance yet, but I can tell you that assuming that you get the price level, if you look at the basket of myeloma drugs in Germany, for example, you find that the average price for myeloma products with the exception of generic REVLIMID now, basket price is around EUR 8,000 a month, right, for the basket. And at that price level, it is no problem to be profitable on a country level, it's not. Then it's a question what is the optimal level of investment in terms of medical affairs function, et cetera, to support that? But this is especially true in light of the lack of post-marketing requirements and post-marketing commitments for us. So it's absolutely a very profitable business to be in as a company, assuming that we can get the price that I just talked about. So -- but the exact right investment level to hit the sweet spot in terms of how much medical affairs resources do we want, do we want sales reps or not where there are a lot of philosophies out there right now in Europe. And as you know, sales reps can hardly get to put through the door in multiple hospitals and institutions nowadays. So you can think about this in various ways. And we are running all these models. We have a fairly set view now that will be taken by the board, how we want to do this, of course. But the profitability is not the question. The optimal investment level is a topic of how elastic is that in terms of what can be achieved by adding additional resources. And I don't have the solid answer to that yet.

Got it. And maybe just quickly on the U.S. So if you get a positive ODAC vote on the 22nd of September, what's been kind of the timeline after that in thinking this scenario?

So here, we have -- first of all, I think, as you know, the ODAC, I think, might be a little bit -- I think you should look at the events following the ODAC, right? Like what happens after the ODAC. Sometimes an ODAC can be fairly hard to interpret and sometimes a no becomes a yes and sometimes a yes becomes a no. So it's -- I would really look at the events following the ODAC. I think everyone wants to do criminology on the actual ODAC in itself, but ultimately, it is the events that follow. And I -- Klaas, you could comment on that after I finished here. But the second topic is how fast can it go. And we have a few positives. We already have a J-code but we're not in the NCCI guidelines, right? So we were taken out. So we need to return to that. And I don't have a timeline for how fast that can happen. And for many, it's important to be in the NCCI guidelines to actually be there. But the J-code is alive and kicking, which normally takes a long time to get. So that's a huge positive in terms of speed to market. When it comes to the actual commercialization, I would separate that into 2 topics. One is commercially available, which means that a physician can write a script and we can deliver the product and we can get paid for it. That is built on having sufficient pharmacovigilance infrastructure, medical information as well as the financial backbone and the drug supply and the rest is in place. We deem that we can have -- we are already doing this, but of course, we took this decision early this summer, and it is roughly a 6-month period, which means it is we cannot, straight after a positive opinion of an ODAC and an FDA decision, actually charge money for the drug. We're going to make everything we can to make the drug available, but we will not be able to charge money on day 1 because simply, the backbone will not be there since we broke it down. As then to the commercial buildup, we get reps, et cetera, in place, that will, of course, take 7 months and I will need to return to that, the exact plans and the scale-up and the amount of investment we are willing to take as well as potential partnering discussions in parallel, right? But Klaas, maybe you would like to comment on the events following the ODAC or the ODAC itself there.

No. Actually, I think you mentioned the most important piece, which is that the ODAC itself is just one piece in the chain of events that most of the time happened within the weeks after the ODAC where the FDA takes a formal position that may or may not be aligned with the ODAC's view. And I think that's the most important thing to consider when listening to the ODAC.

And just as a final note, Boris, we have remained in contact with HCPs, et cetera, and they are actually very interested in the product. So I think my biggest headache, so to say, is to actually get the backbone so that we can have drug supply and charge money for the product and the NCI guidelines. I think those are the 2 key components, and we cannot do the NCCI guideline part until the FDA has lifted. If they do that, the current situation has resolved the current situation. When it comes to the supply piece and to be able to charge money, we're doing it right now at our own risk. And that's important to be able to -- so that we can achieve that goal before the end of the year.

The next question comes from Patrik Ling with DNB.