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

Welcome to the Pharma Mar Fiscal Year 2021 Conference Call. My name is Juan, and I will be coordinating your call today. [Operator Instructions] I will now hand over to your host, Jose Luis Moreno, Head of Investor Relations and Capital Markets to begin. Jose Luis, please go ahead.

Thank you, Juan, and good morning to everyone. I would like to welcome all of you to '21 Full Year Results Conference Call. On the call with me today are Mr. Luis Mora, Managing Director of Pharma Mar; and Maria Luisa de Francia, our Chief Financial Officer. As usual, following our prepared remarks today, we'll open the line for questions. I'd like to remind you that today's conference call may include forward-looking statements regarding our future events or the future financial and operating performance of the company. And such forward-looking statements are only predictions based on current expectations, and actual results may vary from those projected. We disclaim any obligation to update any information provided herein. We 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 that we released yesterday. In regard to our business, some of the most important highlights of last year have to do, of course, with ZEPZELCA. In this regard, after a very successful launch in 2020 and an impressive commercial work, our partner in U.S. Jazz Pharmaceuticals has established ZEPZELCA as the treatment of choice in second line in small cell in U.S. The commercial success of ZEPZELCA in United States has triggered a $25 million commercial milestone that have been accrued in 2021. Apart from the approval in the U.S., our partner for ZEPZELCA and -- other partners for ZEPZELCA in other territories achieved approvals in other countries. So thus, Specialised Therapeutics, received authorization for ZEPZELCA in small cell lung cancer in Australia and Singapore. Immedica received authorization in Emirates and Jazz also received the approval for commercialization of ZEPZELCA in Canada. Also, last year, we signed a license agreement for ZEPZELCA with 3 new regional partners for other territories, like Adium Pharma for 21 countries in Central and South America, Lotus Pharmaceutical for Taiwan and Eczacibasi for Turkey. Another very important event with ZEPZELCA last year was the start of a Phase III LAGOON trial in second line in small cell lung cancer, study that will serve as a confirmatory trial in the U.S. after the accelerated approval of the FDA and also, will serve as a registrational trial in Europe for the EMA. For the relevant news last year in oncology business was that our partners, Specialised Therapeutics, received authorization to commercialize YONDELIS in Australia for soft tissue sarcoma. In other areas of business, it is also important to highlight our -- concerning our RNA of interference development, our subsidiary Sylentis, last year started a Phase III trial with tivanisiran in dry eye disease associated to Sjögren's Syndrome, which is currently recruiting in the U.S., and we expect to finish recruitment at the second half of this year. As for the financial results, I'm glad to say that our recurring business continue growing. We are a profitable company and of course, generating cash. Now, I turn over to Maria Luisa, so she can give you all details about these financial results. Maria Luisa?

Thank you, Jose Luis. Good morning, and thank you all for joining this full year results call. The year 2021, from a financial point of view, leaves us with a very clear message. It was the year in which recurring revenues took over our income statement. These are revenues consisting of annual sales and royalties received from our partner sales, and they have increased by 27% compared to the previous year, amounting to EUR 165 million. Focusing now on recurring oncology revenues. So eliminating diagnostic revenues, which in 2020 had a significant peak due to the COVID-19 sales, then the increase is 37%. Proof of the importance of our growing recurring revenues is that if we remove the effect of nonrecurring revenues from just license agreement, upfront and milestones from both years, 2020 and 2021, then the operating profit rose 57% compared to 2020. The importance of the experience of recurring revenues can also be seen in the cash flow generation at the operating level. And this cash flow generation has happened, even taking into account that R&D expenditure in 2021, which amounted to EUR 72 million, represents 44% of total recurring revenue. Even so, we have generated EUR 26 million of cash at operating level. Another consequence of the good performance of the recurring revenue is that the group has improved net debt position compared to 2020, closing the year with EUR 167 million while reducing the total debt by 14% compared to previous year. We cannot fail to note that within 2021, licensing income, nonrecurring revenues, we signed accrual of $25 million, EUR 22 million from the statement of a commercial milestone foreseen in the Jazz agreement. Along with this milestone, we find the recognition of deferred income from previous year, near EUR 39 million. To summarize the 3 points on which the financial statement has been based and which provide us with financial strength and the capacity to finance our projects in the future are: strong growth in recurring revenue, cash flow generation at the operating level, even with growing R&D expenditure and maintenance of the level of net cash, with a decrease in debt. Before I finish, I would like to make a reference to ESG issues, where we had a special focus in 2021. The Board of Directors approved a sustainability policy, which contains our commitment in this area. And additionally, the Board approved an action plan containing our environmental, social and corporate governance objectives for the next 3 years. And now, I turn over to Luis Mora.

Thank you, Maria Luisa. Well, since 2021 was a [ solid ] year, regarding financial Maria Luisa explained very well the 3 main points that the governing business sales increased 27%, I think, which is very important in order to consolidate our reported business. The operating profit also increased 57% without the accrual effect of the incomes. And finally, the net cash increased 2.2%, even increasing the investment in R&D. I think this is the 3 main points that Maria Luisa remarked very well in our financial statements. Regarding YONDELIS, 2021 was a good year. We maintained in 2021, our market share in soft tissue sarcoma in second line was about 30%. The gross sales increased 3%, but the net sales was the similar figure than 2020 due to increased discounts in some South European countries. Important remarks for YONDELIS was the presentation in ESMO in the trial, LMS trial, the LMS-04. We demonstrate the combination of trabectedin+doxorubicin again. Trabectedin alone showed very important results clinically meaningful for the patients, even in overall survival and progression free survival. And also, in 2021, the ESMO guidelines include the combination of YONDELIS plus monotherapy for the treatment in soft tissue sarcoma. Regarding rest of the world, in 2021, some of our new partners start to distribute YONDELIS in different areas in the world. And in 2022, [ we observe ] continues to grow these sales in different regions. Also, in U.S.A and Japan, the YONDELIS sales increased in these 2 countries. Regarding ZEPZELCA, very good news, Jose Luis announced before, the royalties we collected from our partners from ZEPZELCA, increase in quarterly basis. And this is a good signal. The drug is established drug -- is the reference drug in second line in U.S.A. in small cell lung cancer. For 2022, a part of the approval we achieved through our partners in 2021, we expected more approvals in 2022. The dossier is presented in many countries around the world, and then we expected more approvals. Even in an important country in China, where the Phase I trial was already finished, we achieved a recommended dose, the same recommended dose than in Europe and U.S.A. And now, they are in conversation with authorities -- Chinese authorities for the next steps, and we expected some news across this year, 2022 and 2023. Regarding Pharma Mar, ZEPZELCA, the LAGOON trial we announced in December, this important trial, a pivotal trial. We started this trial, we will use to transform the accelerated approval to full approval in U.S.A., and we want to use this trial to achieve the approval in Europe. For Europe, it's important to remark they need a formal pivotal trial to achieve the approval. The important one was the first line maintenance therapy trial was announced with our partner, Jazz Pharmaceuticals and Roche. And this is a very good signal of the commitment of our partners with this drug. And we are sure that the drug will grow in the future in this country. The early access program, we started in the end of '19 in some European countries. In 2021 was very well, that their reactors were well-received by the doctors. Continues to grow in France and in other countries today. This early access program is open in Spain, in France, in Asia and in other countries in Europe, but not in all the countries are the same early access powers to finance this type of treatment. France is piloting in Europe about this early access. But ZEPZELCA is not only for small cell lung cancer. ZEPZELCA, we expected more indications. In fact, the trial we announced last year, we want to start in mesothelioma. We expect it to start this year. And apart of mesothelioma, we have assigned the other trials for the other indications. Then we expected ZEPZELCA -- we see ZEPZELCA's future in the market and beyond that, is small cell lung cancer in other indications. Ecubectedin, you remember is PM14, but the INN name is ecubectedin. Ecubectedin today is in Phase II, is tested single agent in a basket trial in 5 different tumor types included in [ embedded tier 1 ] in colorectal, in adrenocortical, in ovarian and some soft tissue sarcoma sub types. Apart the Phase II trial, the other 2 Phase I trials are ongoing in combination with immunotherapy and with irinotecan. Then we move forward with ecubectedin in the next step and now it's in Phase II. I want to pass to you 2 new compounds. We delay to start the clinical trials we expected last year. But finally, we want this year to include these 2 new compounds in clinical phases. All the works in preclinical are done. They prepared all the documentation and we expected to start these 2 new compounds, new clinical trials in this year. Regarding virology area, the NEPTUNO trial is still ongoing. The recruitment is ongoing in different countries. We relate, we announced last week in clinical trial, thus far the expected data to analyze the recruitment in December. The Omicron virus changed the typology of the patients, and this is one of the reasons why the recruitment is not going in light to our expectations. Beyond COVID-19, our labs are working in the applications, the other Pharma Mar compounds and other different bios. And finally, regarding Sylentis, happy to announce you one of the Phase I trials for macular degeneration was already finished. Now, we have expected the results and the Phase II we will start across this year. Regarding the Phase III for the Sjögren's Syndrome, dry eyes related to the Sjögren's Syndrome, the trial is ongoing, and we will finalize this Phase III. We will start the second Phase III that is needed for the regulatory purposes. But in parallel, in this year in '22, we will start the safety trial -- randomized safety trial what is needed in order to support any marketing authorization in [ Asia ] and U.S.A. and in Europe. Then in summary, 2021 was a very busy year. Above finally, the results was very good, and we expect it for 2022 to maintain this level of activity in R&D and the sales of our compound. Thank you very much.

Thank you, Luis. And now, with all our prepared remarks put for today. Juan will open the line for questions now. If there are any questions, we have -- we'll take the questions now, and then we have some from the platform, that I'll do myself.

[Operator Instructions] And the first question comes from Christian Glennie from Stifel.

Maybe start with a couple on the sort of more of the financials and guidance, and then a couple on...

Christian, sorry. Please, Christian, please speak up a bit. Your line is very low.

Is that any better? Sorry.

Yes, yes. It's a bit better.

A couple on the financials and then couple more on the R&D side. Just on the royalties in Q4. Is it possible to split out what was -- I think, because there would have been a potentially catch-up royalty for -- there was an additional EUR 10 million of sales that Jazz had in Q3 that wasn't sort of part of the initial recognition in Q3. So what was the split between the catch-up royalty potentially versus the sort of underlying royalty based on sales in Q4 for ZEPZELCA?

We cannot disclose the royalties of 4Q. It's calculated according our internal calculation of the company. We do not have information from Jazz regarding that one.

Yes. Christian, let me -- Yes. Let me clarify because we have received some other questions in the platform in regard to the sales of Jazz. So this gives me the chance to answer them both. As Maria Luisa said, these are our estimates, and we do not have any information from Jazz at this stage. And Jazz will release results later on today. So for all of you who are asking about the sales of Jazz and want to know exactly details about that, Jazz is releasing their results later on today. So you'll have the chance to find out more details on that.

Yes. And then, just to clarify what you said in your prepared remarks. I think you mentioned the sales -- the implied sales performance of ZEPZELCA last year has triggered a $25 million milestone. Is that in dollars, euros? And is that correct? That will be received presumably in this year?

$25 million. That's what it was accrued last year, which is EUR 22 million, what we have in our P&L. Again, there's another question on these, on when we receive it, whenever we receive these, we'll make it public. But it's already been accrued beyond that in '21.

Okay. And then, just on a bit of sort of R&D OpEx guidance for current year. You've obviously got LAGOON starting, mesothelioma expansion and NEPTUNO ongoing. What's the expectation for R&D spend in 2022? And anything notable on the OpEx side?

Yes. Well, what I explained before, for this year, '22, we will be ongoing the LAGOON trial, [ the onco trial and the Citerona trial ], NEPTUNO trial and Sylentis trial that is for Phase III ongoing. Apart, to push the PM14 trial in next Phase II and the 2 new compounds in clinical trial. And then -- but we expect that these to increase our investment in R&D, okay?

Any rough order of magnitude?

No. Sorry.

Okay. And then switching to just to remind us on timings here. Recruitment, obviously, into LAGOON? Potential timing of data on Lagoon? And then, you mentioned that NEPTUNO was slower than expected. You're persevering there, but is there a point in time at which you might decide to stop that trial, if recruitment continues to be slow into NEPTUNO?

The LAGOON trial, the recruitment timing is expected 2 years. This is the formal estimation. But we expect that probably, we will accelerate this recruitment deal, then a number of hospitals want to participate in the trial. I will remind you more than 130 hospitals in America and Europe want to participate in the trial. There we expected that to give at least that officially 2 years. Regarding -- this is for LAGOON trial. I want to remark that the pivotal point to LAGOON trial is overall survival, okay? Regarding NEPTUNO trial, recently we delay to the finalization of the recruitment until December of this year. But I explained the Omicron changed the topology of the patients in the hospital. The NEPTUNO trial was the sign for the patients, hospitalized patients needed this excision, [ they had ] pneumonia et cetera, et cetera. And we have served with this Omicron effect in the patients. It's not a lot of patients with these characteristics hospitalized are more severe when they arrive to the hospital or is less than -- although needed for to go to the hospital. Then for this reason, the recruitment is delayed, okay? I want to remark the NEPTUNO trial is not only offering in Europe, is offered in Brazil, Argentina, Colombia, Peru and some country and Mexico, in South America. Then we will see the evolution of this pandemia whether to pull back our -- accordingly with our CMO, our expectation is in December of this year. Okay.

Sorry, you said potentially complete recruitment in December of '22?

'22. This is what we updated in the ClinicalTrials.gov.

Our next question comes from Alvaro Lenze from Alantra.

Congrats on the good results. Maybe, I missed this on the prepared remarks, but is the recognized milestones in Q4 have been EUR 23 million, and you have, for the Q4, recognized EUR 40 million in licenses, and this comes up from EUR 8 million in Q3 on a quarterly basis for the rest of the year? What is the remaining part of the milestones reflected here? I mean...

Okay. Is that the question? Okay, and just to -- we have, in our balance sheet a different amount regarding the upfront and milestone received already in 2020, amounting short and long term about EUR 95 million.

So what has the recognition of this -- the accrual of the already collected milestones been in Q4? Has there been any acceleration from what you accrued in Q3? And if that is the case, why is that so?

Yes, you're right. You're right. In Q4, we have, as you know, it depends on the performance of our commitments regarding the contracts -- regarding the agreement. And in the fourth quarter, we completed some of these compromises. So yes, in the fourth quarter, the amount recognized was bigger than in the previous quarters.

Okay. Understood. And also, a follow-up. The $25 million of milestones on -- the commercial milestones that you've achieved with Jazz. Is this part of the up to $200 million that was contemplated from commercial milestones in the agreement? And if that is the case, what is the timing that we could assume for achieving more of these commercial milestones?

What we've released in regard of the commercial milestones, Alvaro, $550 million altogether. We haven't disclosed any more details about when they're triggered, when we expect or what related to -- so commercial milestones also there are $550 million and this is part of our commercial milestones, but we have not released any more details on that.

Okay. And lastly, could this trigger an increase in the royalty rates that you are receiving from the sales of ZEPZELCA in the future, if commercial performance continues to improve? Or do you expect the percentage of royalties to remain stable from coming years?

Yes. As you'll understand, we have not disclosed that either. Of course, when these type of royalties are increasing our sales grow, but this is not disclosed either.

Okay. Perfect. And my last question on capital allocation. Whether you see your strong cash position as firepower mostly to accelerate internal R&D or whether you are seeing any opportunities for in-licensing or M&A?

Yes, both. I want to remark in 2021, we generate cash, okay? This is important to know. But in any case, our resources was estimated one for to push our pipeline. I said before, in 2022, we have at least 4 Phase III ongoing, apart of the Phase II another candidates will join for clinical trials. And we continue towards an important project for licensing the new drug for our sales force. It's not -- we don't say never, but we will need the tool to finance this potential licensing, okay? I want to say that. But what is important to remark is in this financial resources, but in 2021, we generate cash. We will ensure the future development of the company and for R&D and for current release and new indications.

[Operator Instructions] The next question comes from Joseph Hedden from Rx Securities.

Congrats on a strong set of numbers. A lot has been answered already, actually. But I just wondered if I could get an update on what's happening with the mesothelioma program. It seems to be quiet on that front.

Mesothelioma trial is in combination with the immunotherapy. We are, today, in -- the protocol is finished, the CRO is selected, the centers are selected, too, and we are very close to finish an agreement with an important pharmaceutical company of immunotherapy in this important company in order to start this pivotal trial. The trial, we will compare ZEPZELCA plus immunotherapy against the treatment of choice, the patient (sic) [trial] will perform in more than 100 hospitals in Europe and U.S.A. The primary point is overall survival, and we expect it to start first half of this year.

Okay. First half, great. And then perhaps, if I can ask on the YONDELIS. Just what your expectations for on the pricing dynamic going into this year? I mean, there's obviously been successive rounds of cuts that have affected YONDELIS while it seems that market share is stable, if not, growing. Just want to get your thoughts on what YONDELIS could be doing this year.

Well, I don't have a crystal ball, because this -- in Europe, the market access is not easy and the other countries, more than the South European countries have, more pressure from the pricing, discounts, rebates, et cetera, et cetera. But in 2022, in general, we don't expect more pricing pressures in the overall. We suffered '21, '20 and '19. Then as per the news we have today, we don't have any advice about this potential solutions or more discounts regarding the prices of YONDELIS. But it's good. I want to use your questions. What is very interesting when we launched YONDELIS in 2007 for soft tissue sarcoma, the average number of cycles received by patient was 4.5, okay? 4.5. Today, the average number of cycles that patience is to receive is 9. Then the -- obviously, the awareness of the product, the use of the product for the doctors, et cetera, et cetera, this is good for the patients, for the doctors and Pharma Mar, obviously. So the patients maintain this drug more and more time without progression. And this is an important impact in the sales, as you can see. We are the leader of the market in second line. We are first of our competitors, our competitors after YONDELIS is one that is [ up for me ], say, [ Ritalin ] and some generics like [ GenTex ].

We have one question from Christian Glennie from Stifel.

Okay. I just wanted to clarify again on the financials, just the current outstanding Jazz milestones from the original deal, what's the current balance? And how is that likely to be recognized in terms of number of years? Is it evenly spread over a number of years? Or how does it play out exclusive of the commercial aspect?

Yes. Good try, Christian. The commercial milestones, as we said, we did disclose this $550 million and what we've received is $25 million. That's what has been accrued from us, yes. So from the total milestone -- commercial milestone, you deduct that $25 million, and you'll have what is left.

Sorry. No, no, I'm just talking about the accounting of the original 300 million amount -- original deal...

Sorry, Yes, yes. We told you the amount that's still pending to recognize as income about EUR 95 million. And in next year -- in next years, we have -- it depends on the time it takes us to accomplish our commitments regarding the agreement. Our calculation is that in 2022, around EUR 30 million could be recognized, but it depends on the accomplishment of commitment.

Okay. That's helpful. And then maybe finally, just on the dividend, obviously, you increased that this year. How should we be modeling or expecting dividends over the next years? Is that going to be progressive? Is it going to be similarly expected to have that growth there or what?

Yes, as we said in previous years, the dividend will be decided by the Board, or the Board will decide to propose a dividend to the shareholders' meeting on a yearly basis. And that will depend very much, of course, on our investment needs in R&D and so forth. I mean, the priority of the company and the management is to cover all needs, investment in R&D, which is investment in the growth of the company. Once all that is planned, then they'll decide on the dividend on a yearly basis.

We currently have no further questions. I will hand over back to Jose Luis for the webcast questions.

Thank you, Juan. We have got a good number of questions on the platform. Quite a few of them have already been addressed. We have some repeated questions. So what I'll try to do is addressed to those ones who haven't been addressed. There's another good number of questions about NEPTUNO. Just to remind what Luis just mentioned, there's been an update on the expected end of the trial being in clinical trials. As Luis pointed out, as our expectations and as he mentioned as well, that will depend very much on the level of recruitment and the availability of patients. So as he said, this is an expectation. In regards to the -- an update on patients recruited on this trial, just to remind you that we do not update recruitment in any of the trials. And -- so this is information that has not been disclosed. So all that, in regard to NEPTUNO, we have some other questions. For instance, Luis, we have questions about the trial with lurbinectedin in China and what's the situation with our partner and what will be the next steps?

Yes, as I've said before. In China, the Stage 1 that we said in these patients was already finished. We will achieve the same recommended dose that we used in basket trial. That's a good -- very good news. And now, they are in conversation with authorities for the next step. What we expected for China is a submission dossier for approval. Is a submission dossier or at the end of '22 or '23. And this is important because China is a big country for small cell lung cancer, because it's linked to the smokers. There in China, the incidence is much higher than the European. But in any case, is that we have a partner, it's Luye Pharma that is in charge on all of these works.

Great. And then since you mentioned China, we had some other questions about approvals in other countries. Again, these, when they happen, we'll be announcing their approvals or registration in other countries. Let's move forward with other questions. Again, we had some questions about milestones. So milestones, this is in regard to potential milestones in case our partners just will have approval in first line. Is this already been agreed, Luis?

Yes, this has been put in agreement.

Okay. So this is already being agreed. Let me see some more questions here. We have some questions about tivanisiran, our development with RNA interference. I think you've mentioned, but if you want to repeat what's the pathway now, we are basically ongoing? What was the next steps?

The current Phase III is ongoing. We expect it to finalize the agreement this year. Is -- this trial is a randomized trial for efficacy. The second trial for efficacy, we will start when we will finish the current clinical trial. And in parallel, this year, we will start the randomized trial, the safety trial that is necessary for any submission in [ RNA ] from the authorities, where we'll have randomize trial, the safety is the obviously, and we will start this year too.

Another question about Sylentis, about SYL1801, which has a Phase I ongoing and expected to finish this year. What is the situation on that?

This Phase I trial, we've finished this trial in December 2021. Now, we are awaiting the results of this trial and the Phase II for this indication and with this drug will start this year. Then this is a good news. And I want to remark, this Phase I trial is to achieve the recommended dose from the safety results with this Phase I trial.

All right. We have just a final -- another question in regard to virology. This one goes rather than COVID and [ vaccine production ], they're asking what are the projects or we plan other projects or the studies in other viruses?

Yes. Well, we never announced any news because today is in our labs, our scientists are working in order to discover new molecules. We have some good team activity with new molecules. We'll be active against other different type deals done for COVID-19. Then we expect it to have more compounds in the near future to complete all the different bidders.

Okay. I think with that we've covered everything. So there's a few more questions, but I'll repeat it. Again, to remind you that our partner, Jazz Pharmaceuticals, will release results later on today. So all those questions about their sales and everything on their side, you'll find that out today. And I think we've covered more of everything. Or just a final question here about facilities in Madrid, the new works that we've done on the new facility, they are asking if they are working already.

Yes. In '21, we have a new warehouse. We have 5x more capacity, and we have more capacity of production and the new offices. All of these 2 investments are a very functional step in our working.

All right. Thank you very much. No more questions. I'd like to thank you all for connecting today to our conference call. And I would like to thank you all for joining us. And for those who would like to meet with the management, we will be participating in the forthcoming Needham Healthcare Conference next month. And prior to that, we'll be delighted to welcome you to our Key Opinion Leader event about small cell lung cancer that is scheduled for the 9th of March. We hope to see you there. Thank you again for joining, and we'll see you soon. Thank you very much.

This concludes today's conference call. Thank you so much for joining. You may now disconnect your lines.