Pharma Mar, S.A. (PHM) Earnings Call Transcript & Summary

Greetings and welcome to the PharmaMar 2019 Full Year Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, José Luis Moreno, Capital Markets and Investor Relations Director. Thank you, sir. You may begin.

Thank you, Jessie, and good morning to everyone. I'd like to welcome to all of you to our year-end 2019 conference call. On the call today with me are María Luisa de Francia, our Chief Financial Officer; Luis Mora, Managing Director of Oncology; and Pascal Besman, our Chief Operating Officer of PharmaMar U.S. As we always do, following our prepared remarks today, we will open the line for questions. And before we start, just mention that today's conference call may include forward-looking statements regarding future events or the future financial and operating performance of the company, and such forward-looking statements are only predictions based on our current expectations and actual results may vary from those projected. We disclaim any obligation to update any information provided herein, and we'll refer you to our safe harbor statement on our corporate presentation, which is available on our website, together with the press release of the results we released yesterday. And before I turn over to María Luisa, let me just remind you that the financials to December 31, 2019, do not include the initial payment of $200 million from the recent agreement signed with Jazz. The agreement entered into force in 2020, so none of that shows in the 2019 results, and we'll see that from the first quarter of 2020 onwards. And so I will now turn over to María Luisa, our Chief Financial Officer. María Luisa?

Okay. Thank you, José Luis. Good morning, and thank you all for joining the conference. I will start by making a reference to the achievement of the 3 main financial objectives that the group established for 2019 and that has impact in the financial statements. And I will end by referring to some of the significant items in the financial statements such as sales or debt or income tax. So starting with the 3 objectives achieved. First, in the oncology segment, resources were focused on our most advanced compound in our pipeline, lurbinectedin, in the small cell lung cancer indication in both the ATLANTIS trial Phase III and the Phase II trial in monotherapy, which we'll submit to the FDA at the end of the year for approval and the accelerated approval path. Prioritizing this over other developments resulted in savings of approximately EUR 15 million. Additionally, non-oncology segments like diagnostics or RNA interference also deprioritized certain activities, resulting in lower costs compared to the previous year of EUR 4 million. Secondly, another of our objectives was to divest our nonstrategic assets, which were our business in the consumer chemicals segment. This sale is reflect in the income statement as a result from discontinued operation and also is reflected in the consolidated statement of cash flow, showing a cash inflow of EUR 33 million. Another objective for the year was to secure new licensing or strategic agreements. In this regard, in 2019, we recorded EUR 4 million principally from the upfront payment for lurbinectedin license agreement with Luye Pharma for China territory, while in 2018, we recorded EUR 24 million for license agreements, EUR 15 million of which were deferred from previous years. On December 2019, PharmaMar and Jazz Pharmaceuticals signed an agreement to license and market lurbinectedin in United States. As José Luis just mentioned, such agreement became effective on January 2020 after receiving the authorization by the United States antitrust authorities. This was the trigger event for us to receive the upfront payment of EUR 2,000 million -- 200 -- sorry, $200 million and the reason why it has no impact in the 2019 financial statements. In 2020, and in accordance with the company's revenue recognition policy, this upfront payment will be recognized as a deferred revenue and will be taken to profit or loss over the period in which the commitments established are fulfilled based on the degree of progress of the activities that the company has to carry out. Regarding the upfront payment received in January, according our best estimate and with the information available today, we estimate that based on the fulfillment of obligations expected to be fulfilled during 2020, the amount of revenue to be recognized could exceed EUR 100 million. And finally, as I said at the beginning, I will refer to some of the items of the financial statements. In relation to sales, Yondelis sales performed very well, amounting to EUR 73 million, which maintained pretty stable compared to EUR 74 million in 2018. In relation to our debt, the group, following a policy initiated in previous year, reduced its total debt by EUR 10.7 million in 2019. So together with the EUR 22 million cash and cash equivalents reported, we closed the year with a net debt of EUR 60 million. And finally, in relation to income tax benefit. In 2019, as a result of the new agreement signed with Jazz, the company has recalculated future taxable profits in order to reflect the financial condition of the agreement properly. And as a result, the group has recognized an additional EUR 11 million deferred tax assets. The financial statement report as of December 31, 2009, (sic) [ 2019 ] are still photo -- still picture, which, given the recent developments, might have nothing to do with the picture that we might see 30 days after the close. And now I pass over Pascal Besman.

Thank you, María Luisa, and greetings to all of you from sunny Dublin. And I will explain why Luis and I are here a bit later. I'm going to go over 3 areas: one, the regulatory process; one, (sic) [ two ], some KOL feedback that we want to share from recent interactions; and three, what's going on between us and our partner. So starting with the regulatory. I don't want to belabor things that are already in press releases and so on, but you all know that we filed in December. That filing was accepted on February 14 and press released and led to a priority review and a PDUFA date of August 16 of this year. The FDA did state in that letter that as of this point, there is no ODAC planned. Of course, they reserve the right to change their mind if they so wish. As you can imagine, having had this accelerated approval pathway opened up for us relatively recently and a partner onboard relatively recently in these regulator update's, we are traveling at warp speed. But our work with the regulators is very collaborative and cooperative, and we are very hopeful that we will ultimately be able to have the first new NCE for second-line small cell cancer available as a new option for patients, caregivers and physicians this year. The label that we have asked for is a broad label, a label of patients in small cell lung cancer who have failed one platinum prior. However, we have not started negotiations on label and won't update during that process until it's reached its finality. And so then to the second point regarding recent feedback. We were in the Santa Monica IASLC meetings last week with our Jazz partners and had a number of meetings where the enthusiasm for lurbinectedin seems to be high and rising. And so we shared information with them and look forward to a process with those U.S. doctors in the coming months, which will become more intense, no doubt. The areas that doctors alluded to as being really a potential interest to them, obviously, are efficacy, safety, ease of use. In regards to the NCCN guidelines, the NCCN panel for small cell is aware of lurbi and its data. And as and when it's appropriate to engage with them with an approved drug, we no doubt will do so, as our U.S. partner will. And lastly, in terms of interest from the KOLs, there's continuing interest in combining with I-O, and the announced combination with atezolizumab, which is now up and running, is into its second cohort. So the reason we are in Dublin, Luis and I, is this is Jazz's headquarters. And so we are spending the last couple days and today with the Jazz team going through a variety of things and hosting our first joint development committee. Lots of planning going on for prelaunch and launch. Obviously, any questions coming from investors regarding sales force size, launch, ramp, price, those are questions for Jazz, and they'll be delighted to answer as and when they can. We are very delighted to have Jazz as a partner because we are sure that they have the commitment, the resources, the talent to make this a success, a success for patients, caregivers, doctors and both partners. I now turn it over to Luis Mora.

Thank you, Pascal. Hello. Good morning. Well, I want to tell you some words about what we do now in PharmaMar and what is the strategy, well, not only for 2020 but for the following years. Now PharmaMar, we are obviously committed with our pipeline. We want to accelerate to start the clinical trials. Some very good candidates we have into clinical tests. In fact, our intention is in the 2020 and 2021, 3 new candidates will start the clinical trials. This is important for us then in order to have more the potential assets for the future commercialization. All of these new candidates is in solid tumors. Two, we will accelerate the -- some projects today we have in the pipeline in clinical setting. And we hope we move faster in the further Phase II and Phase III clinical trials. One important new now we expected is to incorporate the new assets, assets ready for sales, in order to increase the potential assets we have through the sales force. Our sales force now in Europe is commercialized only 1 drug, Yondelis; in 2019, performed very well, very stable like 2018, but we have the space to have more drugs; so the recent one new asset we expected to incorporate between this year and next year apart of lurbinectedin. Lurbinectedin, we expected to -- the ATLANTIS trial data, we expected full data in the second half of this year. And after this, we will prepare the dossier for European appraisal. Across this year and before, we plan to meet with the authorities in order to collaborate with the European authorities in order to see the best path for registration in Europe. Outside U.S.A. and Europe, we already announced some deals for China, Southeast Asia and Australia. And in the following months, we will announce new deals in order to cover the rest of the world territory. Part of that, you'll remember in last year, in August, we achieved a very good agreement with Janssen. We recovered the rights for the rest of the world. And across this year, we will announce new deals in order to cover a new partner the rest of the world and this news -- territory we'll recover. In summary, now the company will have the resources. We have the people. The strategy of the company, we will change. We want to incorporate new assets, licensing in, ready for sale. Lurbinectedin in Europe is coming. Yondelis sales are stable. Then we expected in the following years to not only maintain but increase the revenues and the profits in the company. Thank you very much. José Luis?

Yes. Thank you, Luis. And I think with these remarks from Luis, we'll open now the line for questions. Jessie?

[Operator Instructions] Our first question comes from the line of Christian Glennie with Stifel.

Three questions, if I can, please. Firstly, on the lurbi data -- the ATLANTIS data, sorry. Obviously, the timing of that, you talk about full data in the second half. I think previously, you talked about data in midyear. Just to be clear in terms of when you think that headline data in terms of the primary end point is likely to fall, before or after the PDUFA date for the monotherapy? Second question is on R&D spend in 2020. Just -- obviously, you had a step-down last year with winding down the ATLANTIS and largely finished the mono trial. So where does the 2020 R&D spend end up versus the EUR 50 million last year? And then just finally in terms of plans for new indications, follow-on indications to small cell for lurbi. You talked about obviously joint steering committee underway. What should we expect in terms of new indications and timing of -- in terms of what those might be and the timings of when they might be into clinic?

Okay. Thank you very much for your questions. First of all, I advanced before we have the full data in the second half. In fact, when we achieve the number of events, since many patients are still under treatment, we have a time to move these patients to compassionate use. These take time. This is not automatically. And then when we will finish that, we will start all the analysis. For that, it's difficult now to say when exactly data for that we see in the second half. Remember, the ATLANTIS trial was -- prespecify many certification factors for that to see a good analysis. It's true the primary endpoint is overall survival for the entire trial, but we have -- we want to conduct all the analysis through resistant, sensitive patients against only topotecan, against CAV with brand meds and non-brand meds. Then we want to see all the full data when we will disclose these data. Then this take in the second half. But either it is before or after of the PDUFA date. Now it's difficult to see with after or before. In any case -- but we want to remark the dossier submitted to the FDA is based in the Basket trial monotherapy, and ATLANTIS trial is a combination trial, lurbinectedin plus doxorubicin. Regarding the expenditure in R&D, we don't expect a material difference in 2020 regarding -- if you compare with 2019. And question number three, the new indications, in fact, we are now working with our partner in order to explore the potential new indications. As we want to remark the very good activity in the past we see in -- with lurbinectedin in breast cancer, BRCA 2 mutated patients; good activity in mesothelioma; good activity in ovarian-resistant cancer. I mean we want to explore not only PharmaMar, now with our partner, the potential future indications. We will see. Thank you.

Our next question comes from Jose Maria Canovas with JB Capital Markets.

Congratulations on the results. A few questions from my side. First of all, I'm following up with the guidance. I don't know if you have or if you intend to give research and development guidance or targets for the coming years, not only for 2020 but looking a bit forward. That would be very helpful. And secondly, I was wondering if you could give us some detail regarding the evolution of Aplidin in Australia. So how are -- well, first of all, what was the contribution in 2019? And how are things evolving there? How do you see them for 2020 and onwards as well?

Okay. Thank you very much. Regarding the last one, is Aplidin, you'll remember we licensed the drug for our partner, Specialized Therapeutics, not only for Australia, including Australia, New Zealand and 8 Southeast Asian countries. Today, the -- Aplidin was -- well, was approved in Australia. They start very soon the market access process in Australia. This year is the last step. It's a long process. We expect that in the -- at the end of this year, they'll launch the product in Australia. The market is so good for the potential sales. And the deal for PharmaMar will be interesting revenues. In this territory, it's not only Australia, and the dossier is already submitted in other countries in this territory. But it's STA who conduct this activity in the territory. Regarding the guidelines for R&D, we never disclose that. But I want to advance to you before I say we -- in 2020, we don't expect a material difference with the investment in -- during 2019. In 2020, we don't have any Phase III ongoing. The new drugs will start the clinical trials in the Phase I. Some assets we have now in clinical trials ongoing, we will start the Phase II. Then in 2020 and 2021, we don't expect that very big material changes in this setting, okay?

Our next question comes from Joseph Hedden with Rx Securities.

Just on the lurbi-atezo trial. I'm just trying to understand the rationale of the design, looking at the criteria for inclusion/exclusion of second-line patients who have failed platinum-doublet but are checkpoint inhibitor naive. So I'm just wondering what the reasoning behind that is considering that checkpoints are now moving first line. And then on the accounting. I just want to confirm the P&L treatment of the upfront. Was that EUR 100 million to be booked over 2020? And then if so, when is -- what kind of period are we looking for the remainder of that being booked over? And then just thirdly, the tax implications of that. What do you expect your effective tax rate to be in 2020?