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

Good morning to everyone. I'd like to welcome to all of you to our third quarter '21 results conference call. On the call with me today are Luis Mora, Managing Director of Pharma Mar; and María Luisa de Francia, Chief Financial Officer of Pharma Mar. And as we usually do, following our prepared remarks today, we'll open the line for questions. I would like to remind you that today's conference call may include forward-looking statements regarding future events or the future financial and operating performance of the company. Such looking forward statements are only predictions based on our current expectations and actual results might vary from those projected. We disclaim any obligation to update any information provided herein. And we refer you to our safe harbor statement and our corporate presentation, which is available on our website together with the press release of the results we have released yesterday. As a headline of the -- with [ this quarter's ] release yesterday, which show a profit of EUR 54.7 million, which Maria Luisa will explain with more detail in a minute. Let me also highlight that out of the total revenue of EUR 144 million for the group. During the last those months, our recurring business grew by 31%, up to EUR 92 million. And like in previous quarters, this growth has been mainly driven by the oncology business. About royalties of Zepzelca coming from Jazz sales in the U.S. and as we did in the previous quarter, the information provided in our quarterly report is an estimate. Since information about the amount of Jazz sales of Zepzelca was not available at the end of the communication of our results. Jazz has his earnings call on the ninth of November, and we will know then what the actual sales of lurbinectedin were in U.S. in Q3. Talking about Zepzelca, we're very happy about how things are going. And in this regard, during the last September, we saw the approval for commercialization of our drug for the treatment of small cell lung cancer in countries like Emirates, Singapore, Australia and Canada. But to go over with more details, I'll now leave you with María Luisa de Francia. Maria Luisa, please.

Thank you, José Luis. Good morning, and thank you all for joining this earnings conference call. I will briefly refer to the 3 main aspects of the group financial statements as of September 30. These are revenues, investment in R&D and net cash position, including cash flow generation. The group's recurring revenues comprising sales plus royalties received from our partners increased 31% year-on-year to EUR 119 million. Most of these recurring revenues was due to net sales of Yondelis, 4% lower than in the same period of the previous year, despite gross sales being 2.5% higher. This was due to price pressure in several European countries. It is remarkable that Yondelis gross sales continue to grow after more than 14 years on the market. Additionally, Yondelis active ingredient sales to our new partners in the newly licensed countries also continue to rise. Sales of lurbinectedin in Europe under the temporary use of transcription program, increased 78% between periods to EUR 23 million, stabilizing in the last 3 quarters. Royalties received from our partners amounted to EUR 27.2 million, including EUR 25.2 million from pharma from -- Jazz Pharmaceuticals. However, please note that the third quarter 2021 amount is an internal estimate. Nonrecurring revenues are those resulting from agreements with our partners, upfront and milestone. Whereas as of September 2020, we recorded EUR 131 million of these nonrecurring revenues. At September 2021, we have recorded EUR 24.6 million, in both cases from the Jazz Pharmaceutical agreement. R&D, which is the group's largest expenditure has increased by 21%, reflecting the Phase III clinical trials currently underway in COVID-19 and in dry eye, specifically in patients affected by [ Sjögren's ] disease under RNA interference technology. In oncology activities, new Phase III trials have been designed with lurbinectedin in both small cell lung cancer and other indications and progress has also been made in the preparation of new candidates for clinical development. Overall operating expenses experiment slight increase of 1.4%. All of the above led to an profit for the period of EUR 54.7 million, compared to EUR [ 131 ] million for the same period of the previous year. If we were to eliminate the impact of nonrecurring revenues, namely Jazz Pharmaceutical upfront and milestones, the result as of September 2021 would be significantly higher than the result as of September 2020. Regarding cash position, I would like to highlight that we have improved the net cash position we had at the beginning of the year by almost EUR 8 million. A point to be valued if we consider that we have allocated more than EUR 47 million to R&D expenses. So that at September 30, we had a net cash position of EUR 171 million and cash of EUR 222 million. And finally, it is important to note that the group generated nearly EUR 25 million of cash flow from operations. To summarize, recurring revenues keep their growing trends. R&D investment increases along with trial activity. Compared to 2020, after eliminating nonrecurring revenues, the group's net result is much higher in 2021. We have generated operating cash flows, so we maintain a net cash position that allow us to address all ongoing projects without any stress. And now I pass the microphone to Luis Mora.

Thank you, María Luisa. Good morning, everybody. Well, my colleagues can't comment many important items for this third quarter results. Regarding Yondelis, that Yondelis sales in Europe increased in the volume setting. And we a little increased our market share in soft tissue sarcoma in second line. Today Yondelis is considered reference standard of care for this treatment. But unfortunately, in some countries, in South European countries increased the pressure in the pricing and this caused that -- for this reason, the net sales are slightly less, the difference than the last year. For other rest of the world, from end of 2019, we recorded a right from Johnson & Johnson for Yondelis in many countries and the rest of the world. We signed about 8 new deals for 8 new partners. And these new partners start to promote and sell the drug in these areas. We are so happy with the evolution and we expect that in this year it will continue increasing in next months. Important one was the result of Phase II trial, IIS trial in leiomyosarcoma third-line in combination with doxorubicin against [ DOXIL ] and [indiscernible] was the best result show for any clinical trial in the history to treat this disease. Now we expected that these exceptional results, the doctors start to use this combination for the patients. Regarding Zepzelca, the one important item for us was that we achieved the agreement with FDA regarding the Phase III trial in the small cell lung cancer, confirmatory trial for U.S. market, and this will be the trial we will submit if is positive all the way, for the European authorities to commercialize the drug in our territory in Europe. The trial was signed. The trial is agreed and the trial, we expected to start in a few months, end of the year, beginning of the next year. Other indications, important indications for us are planet, and we will announce probably in the next quarter results. Regarding regulatory process in different countries around the world, part of the countries was approved in the third quarter like Australia, Canada, Singapore or Emirates. Many countries was submitted the dossier for small cell lung cancer. The regulatory process is ongoing, and we expect to announce new approvals in a few months in other countries. Regarding the special standard access program in Europe for Zepzelca in small cell lung cancer. We are so happy and is encouraging for us because in 2 years, we treated more than 1,700 patients in Europe. In some countries, is for some countries these were [ endorsed ] and these figures are reflected in the quarterly results. What is very interesting is that the treatment for the patients that were -- the Zepzelca is well received for the doctors and more and more patients are treated now. Then -- for us, this is very important. The drug today is available for the patient where it's needed. Our partnering with Jazz is very good. We are so happy. Even the level of royalties is an estimation for the company, but reflected the well positioned today, the drug in U.S.A. The other drug, important drug for us is ecubectedin, P14. Now this drug finally, it has a name. Ecubectedin is an INN name. They started this quarter, the Phase II trial in solid tumor. The trial is ongoing. And we expected the trial to continue very, very well in different tumor types. For the virus area, the pivotal trial NEPTUNO trial is ongoing. The trial going in different role in different countries. You can imagine that the level of the room and depend on the level of the pandemia in different countries, but we expect that this enrollment will increase in a few weeks because in some countries where the trial is open, unfortunately, for the population, the incidence of the COVID-19 is increasing. And finally, sorry, our activity in licensing, we are working very hard. We are working in that with contact with selected several drugs from several companies and when we will achieve any agreement, we will announce opportunity. Then I pass to Jose Luis.

Thank you. Thank you, Luis. And these are the remarks for today from our side. So we'll open now the time for questions. Simona?

[Operator Instructions] Our first question today comes from Joseph Hedden of Rx Securities.

Just firstly on the NEPTUNO trial. I appreciate what you're saying there about the increasing and likely speed up enrollment. But at this time, what's your best estimate of when we might see topline results? Is that a Q1 scenario?

We can't disclose that today because the trial is ongoing. You can imagine when you achieve the number of patients. We need to include in this trial is 609. We need some period of time in order to close the database, clean the database and finally, to see the topline results. It is very difficult today to answer this question.

Okay. And then in your release when talking about your program, you spoke of the potential to start another trial in COVID-19 patients with a different profile. Could you go into that a little bit more? What kind of profile are we looking at? Or this is an opportunity.

Yes. This is a -- yes, the pivotal trial is ongoing is for the hospitalized patients, moderate hospitalized patients, they need oxygen, pneumonia, et cetera. This is a new small trial, is for severe patients, okay? Is that patient at progress and they are in worse situation than the moderate hospitalized patients. Then this is the most important new target population. And the population of high-risk hospitalized cancer patients, immunodepressed patients, et cetera, et cetera. Then for this target population, we will establish new trial. Probably the dose will be different. We will see is one, Phase I/II, and we expect it to start in a few months.

Okay. And then lastly, just on Zepzelca and the trials that are ongoing in small cell lung cancer with combinations with Atezo and pembro. I think we were hopeful to see results from those at some point this year. Have you got any -- is there any update on when we might see results from those trials?

This trial is -- we have 2 trials in combination with immunotherapy, one is with pembrolizumab and the other one is with atezolizumab. I want to remember this trial Pharma Mar is not a sponsor, is an IIS trial, then depend on the investigator PI on this trial they will finalize, and we will present this data in any congress in the near future.

Our next question comes from Alvaro Lenze of Alantra Equities.

Regarding the performance of Zepzelca, I understand that you do not have the full information from the U.S., but I don't know if you can provide us some information because the ramp-up of the royalty seems to be rather slow, whether this is due to changes in the stocking of clients or whether you're not seeing a very fast penetration of the product in second line. And also in Europe, I understand that Europe is only compassionate use. So you don't have like normalized demand, but whether this EUR 7 million to EUR 8 million of revenues from Zepzelca in Europe is what we should expect going forward until the product is eventually approved or whether it could also increase even under a compassionate use setting?

Well, regarding the first question, our estimation is to increase the royalties about 14%, 15%, something like that. This is our estimation. It's not just a number. It is an estimation quarter-by-quarter. In my opinion, in 1 quarter, this increased 14%, 15% is very, very important growth not only the sales but penetration, et cetera, et cetera, but this is an opinion. But the fact is we increased our estimation 14%, 15%. Regarding the second question, when you -- I don't know if you are aware, the conditions for the expanded access program. But for your knowledge, when any company launch this type of programs in Europe is when the available therapies that the therapies are exhausted. What this mean? Today, Zepzelca in Europe is used in expanded access in third- or fourth-line treatment without any activity, commercial, medical affairs, nothing. If the drug is approved in the future, first of all, they move to the second line, not third or fourth line. Second one, we will perform the activity regarding medical affairs and commercial setting. Number three, the [indiscernible] is only in 1 country, not in 28 countries around Europe, okay?

Okay. And a follow-up, if I may. Looking at drug prices, you mentioned that you have had some pricing pressure in Southern Europe in Yondelis, whether this is a one-off? Or do you expect further pressure going forward? Or could this be reversed as the pandemic is -- I don't know if you can provide us more color on that.

In any country is one-off. Then they increased the discount from one figure to the other figure, and this maintained in the time. I don't know if in 2 years or 3 years, they modify increase or not. This is decision of the governments of the different states, of the rules, et cetera, et cetera. But this reflects the last -- the last decision for these ministers of health of different countries, and this is in place until the new one or not depends country-by-country.

We currently have no further questions. So I will hand back to Jose Luis Moreno for any closing remarks.

Thank you, Simona, and thank you very much for your help today. And thank you to all participants for joining us in our conference call today. For those who would like to meet with the management, we'll be participating in the [indiscernible] Capital [ Iberian ] Conference and the People Healthcare Conference, both in November. And thank you again for joining the call, and have a nice weekend.