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

Hello, everyone, and welcome to the Pharma Mar Third Quarter 2022 Results Presentation. [Operator Instructions] I would now like to hand you over to your host, José Luis Moreno, Director of Capital Markets and Investor Relations at Pharma Mar. Sir, please go ahead.

Thank you, Dacey, and good morning to everyone. I'd like to welcome to all of you to our 9 months results conference call. On the call with me today are Mr. Luis Mora, Managing Director of Pharma Mar; María Luisa de Francia, Chief Financial Officer; and Pascal Besman, Chief Operating Officer of Pharma Mar in US. Following our prepared remarks today, we'll open the line for questions as we always do. 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 forward-looking 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 on our corporate presentation, which is available on our website together with a press release of the results we released yesterday. As I said, we released our 9-month results yesterday. And as you have seen, our recurring revenues with our sales plus royalties continue growing. Our recurring business, it is important to highlight the fact that royalties grew up 30% during the first 9 months of the year. And strategically speaking, it is important to increase our efforts in R&D because it's investing in future growth of our company. So we will carry on investing not only in our late-stage programs, but also in our early stage developments. So the first few results showed 23% increase in our R&D investment, and that is particularly because of the full Phase III that we have ongoing in different therapies and indications in oncology, in RNA interference and Biology. And also because of our investment in some of our early stage projects, which are -- which we expect will show some advances in the following months. Despite this increase in R&D, we have generated EUR 40 million of operating cash flow, and we have reduced our debt level to the lowest in the last 20 years, but let me turn over now to María Luisa, so she can give you more details about financial results. María Luisa?

Thank you, José Luis. Good morning, and thank you all for joining this conference call regarding the financial results over the first 9 months of year 2022. The cumulative financial data for these 9 months showed an increase of 3% in terms of recurring revenues compared to the same period of last year. In relation to the sales up in the oncology segment, 3 things should be mentioned: First, net sales of Yondelis slightly increased 0.7% to EUR 52.2 million. But in terms of gross sales, this increase almost reached 6%. Second, early access revenues from Zepzelca in Europe amounted to EUR 13.8 million, compared to EUR 23.3 million as of September 2021. This decline comes from annual regulation in France related to prices of drugs offered under the authorization that is [indiscernible] system, which entails significant discounts for those drugs. During these last 9 months, this discount amounted to approximately 40% of the total revenues received in the period. Lastly, net sales of raw materials to our partners, including Zepzelca and Yondelis, increased 32% to EUR 17.8 million as of September 2022, from EUR 13.5 million registered at September 2021, compensating partially for the decrease in the amounts received from Zepzelca in early access. As part of the recurring revenues, royalties as of September 2022 were up to EUR 35.4 million, which means an increase of 30%. Royalties from Yondelis amounted to EUR 2.5 million and the royalties from Zepzelca, received from Jazz, amounted to EUR 32.9 million. Please note that Jazz sales for the third quarter are not yet published, so that the royalties for that period are calculated according to Pharma Mar internal estimates. On the expense side, we need to highlight the 23% increase in R&D expenses, up to EUR 57.1 million, as a result of our efforts focused on the advances of our trials in Phase III, which Luis Mora will explain in more detail. Other operating expenses have also increased, reflecting mainly the coming back to normal commercial activities after finishing lockdowns and, to a lesser extent, the impact of rising inflation. Therefore, EBITDA, as of September 2022, amounted to EUR 44.5 million versus EUR 55 million in the same period of 2021, which means 19% decrease resulting from the EUR 10.8 million on increase in our R&D expenses. The same can be said for the net result for the period from continued operations, which amounted EUR 48 million, compared to EUR 57.2 million at September 2021. However, operating cash flow amounted to EUR 14.4 million for the first 9 months even taking into account the EUR 57.1 million of R&D expenses in this period. We'll now make a brief mention of PharmaMar's cash and debt as of September. Good net cash, current and noncurrent amounted to EUR 201 million, net of total debt, which amounted EUR 39.8 million at the end of September 2022. In this context, and as a part of the company's strategy to focus in our whole business of developing and marketing drugs, the Board of Directors decided after considering different alternatives to discontinued diagnostic segment, activity carried out through Genomica. Net losses for the period from discontinued operation was EUR 4.6 million, compared with EUR 2.5 million in the same period of the previous. To conclude, I would like to highlight the consistency of the financial statements with previous quarter, the generation of operating cash flows even with growing R&D expenditure with the consequent maintenance of cash levels and reduction of debt. And now I pass the microphone to Luis Mora.

Good Morning. Thank you, María Luisa. [indiscernible] some remarks and some details about the state of our products in the pipeline and different developments. Yondelis, María Luisa, explained before, the gross sales increased 6%. This is a good indicator, and we win the market share in soft tissue sarcoma in second-line and we contain today the dialysis and a standard of care for the patients. The net sales increased 1%. This difference is because that some countries in Europe include official discounts, and this is the impact in the difference between gross sales and net sales. Regarding the rest of the world, for our partners is reflected in the raw material we sell includes dramatically, the performance in different countries around the world very well. And Yondelis like European Union is considered now around the world standard of care in second-line in soft tissue sarcoma. The generic competition is not impacted in first 9 months this year, but we expected some impact in this quarter, fourth quarter 2022, and in the following years. Regarding lurbinectedin, the pivotal trial we will use to confirm the conditional approval in U.S.A., we will use for submission in Europe is LAGOON. LAGOON is on track, from our estimation is [ equipping ] and we will update in several days, the ClinicalTrials.gov because it's not updated today. I want to remark both trials, LAGOON and IMforte trial is the Roche and Jazz trial are ongoing, and both trials also have to compare the clinical benefit of lurbinectedin. The other trial was planned is [indiscernible]. We expect it to start in first quarter 2023. We are very close. We expected the [indiscernible] with [indiscernible] to conduct this trial very soon. This trial, we will combine lurbinectedin plus immunotherapy against the standard of care in the second, third line mesothelioma. Other indications for lurbinectedin, we are prepared, and we will inform as expected in the next conference call at the end of the year. Regarding the regulatory aspects for lurbinectedin, the [indiscernible] for approval was submitted in U.K., in Switzerland and in several countries in the rest of the world. And the regulatory process is ongoing, and we expected in first quarter next year now several approvals around the world. The use compassionnel [indiscernible], María Luisa explained, with the law change in France and now depend on the level of sales of this. This use compassionnel is some level of discounts applicable. If we consider the gross amount, Zepzelca increased the use in France. This is important because it's a good indicator to demonstrate a huge medical need for these patients and the drug is well perceived for the decisions. Regarding our partner in U.S.A., Jazz Pharmaceuticals, we are so happy with this partner. You can see the level of royalties increase when you compare with the first 9 months of last year, 30%. And this is very important for us and for the drug and for the patients. Zepzelca is considered a standard of care second-line in small cell lung cancer now in U.S.A. Ecubectedin, the other drug of Pharma Mar pipeline is in Phase II, conducted in several tumors, that trial is ongoing. And it's ongoing too with ecubectedin 3 Phase wise, one, combination with immunotherapy, the other [indiscernible] and the other trial in combination with radiotherapy. And 2 new compounds are presented to the regulatory authorities in order to start the clinical trial before the end of the year. It is under analysis for the regulatory authorities, and we expected the green line in November in order to start the participation in December. This both -- these 2 new compounds come from our R&D platform. And in principle, we will conduct in solid tumors. In Biology area, a [indiscernible], pivotal trial is ongoing. The [indiscernible] is not at the level we expected because of the pandemic and hospitalization [indiscernible] the patients, but I want to announce we are very, very close for the futility analysis prespecified in the protocol. It was prespecified in the protocol, several numbers of events in order to conduct this futility analysis. This analysis will be conducted by the independent data monitoring committee. The other important trial for biology area is the [indiscernible] trial. This trial will be conducted in [indiscernible]. The [indiscernible] for this trial is already submitted in several countries, and we expect the [indiscernible] to start this pivotal trial -- phase II trial, sorry. And finally, for the [indiscernible] and ongoing 2 Phase III trials, one for safety and the other one for activity. The trial is ongoing. We expect that in first quarter next year to finalize that equipment when we will finalize the efficacy Phase III trial, we will start the second efficacy trial are needed for a potential submission for approval. And the Phase I trial of macular degeneration was finished. They achieved the recommended dose and now are prepared for the Phase II trial. Okay. Thank you very much. I pass to Pascal Besman.

Thank you, Luis, and hello, everyone. A few comments here. Jazz continues to build on the successful launch of Zepzelca in the United States, and our royalties reflect that, and we are also optimistic on further market share gain in the future. We, with Jazz, continue to generate new data. And in Q3, we saw a presentation at World Lung in Vienna of Zepzelca versus a synthetic control arm as well as real-world data in over 700 patients characterizing Zepzelca use post approval in the United States. It's interesting to compare the submitted abstract to the final poster as it shows a difference in timing of 6 months as the progression and the launch went from October of '21 to March of '22, and it shows a change in use. Whereas the October '21 cutoffs saw over expectations in third line or later with the data 6 months later that was down to 38%. Then at ESMO, we have data showing real-world experience of 396 second-line patients post launch as well as a presentation from Canada of a 300-patient study versus a synthetic control arm. And finally, at the IASLC North America meeting in Chicago last month, there was a nice trial in progress poster of Jazz's Basket trial and more real-world evidence. Net-net, Zepzelca continues to build on its [indiscernible] as the treatment of choice in relapsed small cell. However, our goal is not just to see Zepzelca become a treatment of choice in the study. We hope to see Zepzelca change the paradigm of treatment. And in this game, we are excited to see the Jazz Roche [indiscernible] trial continue to accrue patients, and we know that a recent publication and remarks from the prior lurbinectedin trial of ours regarding patients who had received prior IO that "There was a numerically longer median progression-free survival in the lurbinectedin plus doxorubicin group versus the control group, totaling 6.9 months versus 4.2 months, improved results from patients previously exposed to PD-1 or PD-L1 inhibitors versus those who were not exposed were also seen in the Phase II lurbinectedin single-agent trial." So this is the third piece of evidence showing synergy or added benefit from lurbinectedin and IO. First, we had the patients in the monotherapy trial. We've got lurbinectedin after IO. Then we have the 2 small studies presented at SITC 2021 with 26 relapsed small cell patients in combination with atezolizumab and [indiscernible]. Getting the drug in physicians' hands so as to expand the knowledge and experience base and help patients with access is also evolved, and in this quarter, we saw 2 new ISTs with lurbi. One, in combination with trilaciclib in relapsed small cell, from UNC, Dr. Jared Weiss, had a French study in the maintenance setting of small cell lung cancer in combination with development. In addition, [indiscernible] has recently posted 2 new interviews with European thought leaders, Dr. Sanjay Popat, in the Marsden in the U.K.; and Dr. [indiscernible] in Paris. Lastly, on our in-licensing efforts, we continue to be in ongoing discussions and negotiations for a number of late-stage assets for European commercial rights. While the environment continues to be highly competitive, we have noticed of late that the public equity market conditions are driving more companies to reconsider their EU plan amid cost controls with the non-viability of equity financing. So we will keep working and hope to be able to report something concrete in due course. And with that, I'll hand the microphone back to José Luis.

Thank you, Pascal. With this, we'll conclude our remarks today. So, Dacey, we'll open the line for questions, please.

[Operator Instructions] Our first question today is from Ami Fadia from Needham.

Can you give us some color around the end market performance of Zepzelca, the royalties certainly showed a pretty nice increase. But if you could give me some color around that or how you estimate your royalty for the quarter, that would be helpful.

Thank you very much for the question, but the sales are Jazz sales. If you want to ask Jazz in the next conference call, they will organize in early November.

Okay. Can you give us an update on the LAGOON study with regards to patient enrollment and how the study is progressing?

We don't update the number of patients included, et cetera, et cetera, but I can explain with you is according our [ forecast, forecast ] is on track, is opened several countries, U.S.A. and Europe and all the opening new countries and new hospitals are ongoing. We plan to improve more than 100 hospitals in America and Europe as the recruitment is on track.

Our next question is from Alvaro Lenze from Alantra Equities.

Going back again to the increase in royalties. So I understand that you cannot comment much on the dynamics of the end market, but since this is your estimate, could you give us an indication of whether this is your expected -- what do you expect for Jazz to have grown in the U.S. mainly? Or does this reflect an increased penetration in other geographies with other partners? Just to get the sense of where that growth is coming from. And my second question would be regarding the competition from [indiscernible] and Yondelis. If you have any early indications of what the pricing pressure could be in? What's the ballpark in terms of the new pricing? I don't know if you already have -- are negotiating the new prices? Or do you have any insight on what the competitors are looking for. And then my third question would be, once again, coming to the capital allocation, you continue to have a very high level of cash and valuations across the -- at least in public equities in the pharma industry have gone down significantly. I don't know if you're seeing any more affordable investment opportunities or whether we are getting closer to seeing any relevant M&A to accelerate growth or improve the diversification of the pipeline?

Okay. Thank you for your questions. Regarding the first question, we can speak about the sales outside our territory because I want to remember we licensed out our compound to the different partners around the world, and we can always think about the royalties we collect, okay? Then -- but -- these companies have some sales people, for example. They have conference call results quarterly basis. You can follow the performance of the drug in this territory. Regarding Yondelis, the impact of the price is managed by several countries by law. In several countries, no impact. In several countries, huge impact. That is not the equal impact in all the countries around the European Union, okay? Today, it's only 1 generic proof, okay, in Europe, and we will see because it's not only the impact. This is a public information and the normal work when one generic enters in the market. It's not only the price, but is the policy of the discounts around the different hospitals in order to keep the volume to sell these hospital then. In some countries, it's about 30%. In some countries, it's 15%, depends on the country, okay? And regarding the last question, the cash allocation, et cetera, and M&A. We explained all of this. For the last year, our teams are working so hard in order to include, in our commercial pipeline, some licensing in product. We screen our team, screen very well the market. We analyze more than 120 potential assets, et cetera. Now we are -- and several options are considered by the company, an internal analysis and we will see. This is one of the [indiscernible] for the company in order to incorporate these assets in our salesforce to sell more products than Yondelis. Then this could be one of the location, but the most important one is that we can support all the R&D investments in order to arrive to the market not only with Zepzelca in several indications, but the other drugs incorporate in the pipeline. Thank you.

[Operator Instructions] We have a question from Joaquin Garcia from JB Capital.

Just regarding the royalties for Zepzelca. During the first quarter, you restated your expected royalties. Did you do the same thing for the first half of the year? If so, what was the actual royalties for Pharma Mar for the first half of the year? Was it the EUR 19.9 million that you released during your presentation of the half year? Or did it change?

Yes. In the first quarter, as you know, we have every quarter to make our own estimation. In the first quarter, we overestimated royalties and therefore, we have to make an adjustment in the second quarter. And in the second quarter, we underestimated royalties, and we have to make an adjustment in the third quarter. In any case, the amount is not significant, [ EUR 200,000 ] up or down, so it's not significant. And we, obviously, have to adjust in the following quarter.

So royalties for the first half would be close to EUR 20.1 million or so, more or less instead of the EUR 19.9 million?

Yes, yes. Yes, exactly [indiscernible].

We have our next question from Joseph Hedden from Rx Securities.

Apologies if anything -- any of this has been asked before because, obviously, late joining the line. So just an update on the status of the pipeline programs. Is there any news on when the Phase III trial in [indiscernible] might start? And then just an update on your expected time lines for Jazz's IMforte trial. I thought there might be an interim analysis that's been discussed before. Is there any more you can say about when that should be expected and potential importance of that?