Protagonist Therapeutics, Inc. (PTGX) Earnings Call Transcript & Summary

Good day, everyone, and welcome to the Protagonist investor call on updated Janssen agreement. [Operator Instructions] Please also note that today's event is being recorded. At this time, I'd like to turn the conference call over to Ms. Taylor, Vice President of Corporate Affairs. Ma'am, please go ahead.

Great. Thank you, and good afternoon. Welcome to the Protagonist Therapeutics conference call and webcast to discuss the amendment of the company's agreement with Janssen Biotech for the continued development and commercialization of IL-23 receptor antagonist. I am joined today by Dinesh Patel, Ph.D., President and Chief Executive Officer; and Don Kalkofen, Chief Financial Officer. With us on the call today are also Dr. Suneel Gupta, Chief Development Officer; Dr. David Liu, Chief Scientific Officer, Head of Discovery and Preclinical Development; Carter King, Senior Vice President of Business Development; and Matthew Gosling, Executive Vice President and General Counsel. On the call today, Dinesh and Don will cover the prepared remarks. Then we'll open the call for questions for which Suneel, David, Carter and Matthew will also participate. Earlier today, we issued a press release outlining the Janssen agreement amendment. This release as well as this webcast presentation are available in the Investors & News section of our website at protagonist-inc.com. Before we begin our formal comments, I'll remind you that various remarks we will make today constitute forward-looking statements for purposes of federal securities laws. They include statements about our plans and expectations regarding various programs. Actual results may differ materially from those indicated by our forward-looking statements. So we encourage you to review the risk factors section of our most recent periodic report filed with the SEC. I'll now turn the call over to Dinesh Patel, Ph.D., President and Chief Executive Officer of Protagonist. Dinesh?

Thank you, Jami, and thank you all for joining us today to discuss this newly announced amendment to our collaboration on oral IL-23 antagonist with Janssen Biotech. This amendment marks the beginning of an exciting new chapter in our long-standing multi-asset-based strategic collaboration which now encompasses 3 novel and promising clinical stage compounds, namely PTG-200, PN-232 and PN-235. In a nutshell, this amendment stems from the cumulative success that has been achieved by both parties in the IL-23 program over the past 4-plus years. The key component of the amendment and the magic phrase for today is that going forward, our partner, Janssen, will now be able to pursue parallel development of multiple oral IL-23 receptor antagonist in multiple disease indications. So in order to accommodate this path forward of rapid parallel development of multiple assets and multiple indications by Janssen, both parties agreed to simplify the mechanics of the previous amendment. In particular, we have mutually agreed to remove the more complex cost sharing structure and have restructured future development milestones so that they are no longer based on specific indications, but are rather now structured to qualify in the event of any of the compound achieving clinical success in any of the potential indications. I encourage you to review the 8-K and press release that accompanies this announcement. Those documents outline the specific details of the agreement as amended. On this short call, I want to emphasize a few key points. First and foremost, we view this amendment as highly favorable to Protagonist and its stakeholders. We are extremely pleased with the outstanding progress made to date in this collaboration. And we are also very pleased with the simplicity, clarity and the richness of various milestones that lie ahead of us with this new amendment in place. Second, this renegotiation of terms comes at a natural tipping point for maturing assets as both parties prepare for the successful base transition from Protagonist to Janssen for complete oversight and responsibility of all new clinical studies for all 3 oral peptides. This transition is obviously an outcome of success achieved to date in the oral IL-23 program, and it is a big step forward in the ultimate journey of, hopefully, getting the much needed medicine in the hands of patients. Third, as the press release and the 8-K indicate and as our CFO, Don Kalkofen, will elaborate, this amendment both increases the overall odds, and it also optimizes the timelines of achieving various milestones that lie ahead of us in this ongoing collaboration. Finally, while there are 3 specific clinical assets to date in the collaboration program, namely PTG-200, PN-232 and PN-235, this amendment will now enable Janssen to continue research on backup compounds for the next 3 years, thereby further improving both the likelihood of Protagonist earning milestones and royalties as well as potentially also extending the longetivity of the royalty terms. I will now turn the call over to Don, who will offer clarity on the specific financial aspects of the amendment. From there, I will offer some closing remarks, and we will then open the line for questions.

Thanks, Dinesh. I'll reiterate what Dinesh has emphasized that we're very excited about the outcome of this amendment. I will now quickly cover some of the finer details. The amendment we announced today provides for a few key changes to the original agreement. Specifically, after we complete the ongoing Phase I studies in PN-232 and 235, Janssen will lead the worldwide development, manufacturing and commercialization of all 3 assets, and in doing so, will deploy the breadth of its established global capabilities and proven clinical development expertise. Also under this amendment, the future milestone payments Protagonist can earn have been restructured to better reward Protagonist for achievements in any of the contemplated indications. Furthermore, our milestones can be earned irrespective of which indications advance first. Compared to the earlier agreement with specified achievement based solely on Crohn's disease and ulcerative colitis as the first and second indications, respectively. Now moving on [indiscernible] milestone details. Of note is that one and only one of the near-term Phase II milestones has been reduced from $50 million to $25 million. This milestone reduction has been more than offset by a reduction in our share of the future development costs of up to $40 million to $45 million. Therefore, going forward, those development cost obligations have been eliminated and our remaining obligation is limited merely to the studies currently ongoing. To clarify a bit more, under the restated agreement, following completion of the ongoing Phase IIa study for PTG-200 and the ongoing Phase I studies for PN-232 and 235, Protagonist will have no further development expense obligations, where previously, we would have been responsible for our ongoing 20% cost obligations for any new Phase IIa and Phase IIb studies. Another important change we achieved through this amendment is that we are now eligible to collect milestones at the start of any type of a Phase II study, which can lead us to earning milestones much earlier than at the start of a Phase IIb study, which was provided in the original agreement. Now beyond what I've just reviewed, all of the Phase III and beyond development milestones, sales milestones and royalty rates remain unchanged. Finally, as per the original agreement, Protagonist retains the right to co-detail up to PTG-200 and any second-generation products in the U.S. market for ulcerative colitis and Crohn's disease indications. Again, we're very pleased with this outcome and consider this a win scenario for both parties. With that, I'll turn the call back over to Dinesh.

Thanks, Don. So in closing, I would like to reemphasize that this amendment stems from the exceeding the expectations type of performance rating that has been achieved by both parties over the past 4-plus years, and it simplifies the path forward for rapid advancement of the multiple maturing collaboration assets from their current clinical development stage to the ultimate destiny of regulatory approval and the availability to the patients. As I mentioned before, the catch phrase rate for today is that with this new amendment, Janssen is now empowered to be able to pursue parallel development of multiple oral IL-23 receptor antagonist, that is PTG-200, PN-232, PN-235 and other future second-generation compounds in multiple disease indications that are addressable through blockade of the IL-23 pathway. The overall impact of this amendment is very favorable to Protagonist, both in the short term and the long term, and it significantly increases the overall odds of success and therefore, is a true win-win for all interested parties. This concludes our formal remarks, and we will now open the line for questions. Operator?

[Operator Instructions] Our first question today comes from Chris Howerton from Jefferies.

Congratulations to you, Dinesh, and the rest of the team, great deal or great rejiggering of the deal, I'd say. So for -- I guess for me, maybe just 2 questions. One, like a pretty high-level question. Perhaps for those of us that are not totally familiar in terms of the breadth of the opportunity for Stelara, where is that approved currently and kind of the indications that Janssen are likely to pursue as life cycle management strategies is one question? And then the second question is maybe just an easy one. With respect to the Phase IIa for PTG-200 in Crohn's disease, any additional color that you might be able to provide with respect to the timelines on that expected outcome? And with respect to the disclosure, will that be tied to a medical conference? Or will you be able to disclose that ad-hoc like a press release?

Both are very important questions. So in terms of the indications force, which Stelara is approved as of today, it's both in the IBD and non-IBD categories. As you know, in IBD specifically, it's approved for Crohn's as well as ulcerative colitis and Stelara is also approved for psoriasis and arthritic psoriasis. In -- with regard to PTG-200 and the ongoing Phase II Crohn's study, once again, as you know, at Phase II and beyond, Janssen takes charge of the studies, and so the real spokesperson for your questions should be Janssen, not us. But I can add that the study is ongoing and patients are being under enrolled.

Our next question comes from Anupam Rama from JPMorgan.

Just a quick one for me. Can you give us a sense of the Protagonist spend on the IL-23 programs? And when that spend you think will kind of wind down-ish for the Phase II PTG-200 and 232 and 235 Phase I? And with this agreement, now, should we be thinking about more of a flattish R&D spend year-on-year looking to '22 and maybe even '23?

Very fair. Let me deflect the question to our CFO, Don. Don, go ahead.

Yes. Anupam, thanks for your question. As far as the remaining spend, if you refer to our 8-K, we're estimating that we have about $6 million left to spend over the next approximately 3 quarters or so as we wrap up the PN-232 and 235 studies. As we've indicated, 235 is done at the end of this year based on target and 232 early next year. As far as our spend overall being flat, no, I think you're going to see that we're going to continue to have year-over-year quarter-over-quarter increases in spend. Obviously, a Phase III trial has a broader depth than what we've got in Phase II trials. And then certainly, we have an opportunity both in rusfertide as well as our own in-house PN-943 product as well.

But I think in terms of the spend on the IL-23 assets going forward, our estimate is that $6 million of expenditure and then all the milestones that are lined up, that is all positive revenue for us. Anupam, does that answer your question?

Our next question comes from Yasmeen Rahimi from Piper Sandler.

So maybe the first question to start is why now? Why we structured this agreement at this junction? And then who requested this change? Was this an effort initiated by you guys or was Janssen? And then the second question I have is I would like to understand the breadth of the second-generation compounds. Can you highlight how many other compounds you have that classify within second-generation aside from 232 and 235?

Yasmeen, these are excellent questions, and let us try to do justice to your questions. So why now and who initiated it? As you know, R&D is a continuum. And as time comes -- and in my script, I referred to it as a tipping point. So as the assets mature at some stage, both parties realize that, okay, now maybe it's a good time to transition us completely. In a way, it's no different from sending goods to college and saying, okay, now we are living all that sort of thing. And the in terms of who initiated it, it's fair to say it was kind of mutual as it became apparent that there are multiple indications we are thinking of with multiple assets in parallel development. So as you can imagine, one kind of dialogue leads to the other. And here, we are at a great outcome. Let me volunteer our SVP of BD, Business Development, Carter King. Carter, would you like to add anything?

Yes. So thank you, Dinesh. And yes, I think this is somewhat organic say, but why now is also, again, back to the strength of the outcome in the work to date. And it was just a natural inflection point given what Janssen wanted to do going forward did not really fit the contractual elements that we had in place at the time. And so we needed to resolve that and I think we've successfully done so.

And in terms of the breadth of the second-gen compounds clearly, 232 and 235 is what the whole world can stare at as of today. But as we have outlined, I think, in our press release as well, Janssen has the license to conduct research for the next 3 years. So there could be more to come.

Our next question comes from Joseph Schwartz from SVB Leerink.

I was wondering if you could discuss how the suite of IL-23 inhibitors you're developing with Janssen differ in terms of their pharmacology and target product profiles and how this could influence the conditions that they might be able to address. The data for some of the antibodies is pretty strong. So I'm also wondering, are there benefits to having multiple distinct IL-23 products in the market for different indications? Is this the goal for any reason that you can help us appreciate?

It's a very fair and intelligent question. As you can imagine, the idea over here is really what is the next phase of the Stelara and Tremfya franchise and to the specific and oral franchise in our case, right? And that is where, at this stage, what is prudent is you create multiple optionalities. And that is what has been done with the 3 assets that are visible as of today. And now whether this turned out to be a backup to 200, or a backup of a backup, or this turn out to be each asset for a different indication sort of things, those are all the optionalities that are available and will become more granular down the road based on the data that gets generated in the next set of clinical studies.

Right. Okay. That makes sense, and it's very helpful. And then can you quantify how much more rapid and/or expensive the development of these 3 oral peptides may be now under the new arrangement in any way for us?

I think it will be -- well, let me put it this way. We will be restricted from making such comments, but hopefully, you can sense the enthusiasm and excitement in our term.

Our next question comes from Gobind Singh from JMP.

Congrats, guys, on the new update here. Can you remind us what iteration of the deal this is? I think it might be the third, but I just wanted to double check. And then I appreciate the sensitivity. I'm just going to ask in case you're able to comment at all. Was -- is there any sort of safety analysis that's been done or any kind of a look at the ongoing Phase II that may have given Janssen some confidence? I know there's a lot of stuff going on with the FDA, for example, with the oral JAK selective drugs, and I'm just trying to dig a little bit more into the etiology behind this [indiscernible]

Yes. I mean, obviously, we cannot comment anything on the ongoing Phase II study. Once again, Janssen is in charge of that study. What I would emphasize, though, is like this whole amendment -- it's all coming from a position of strength and not any kind of defensive posturing. That's about as much as I could say. And in terms of the history of the collaboration, as you know, this was started in May 2017, so more than 4-plus years ago. And Carter, if I recall correctly, the first amendment was in May 2019, so roughly 2 years ago. So this is the second amendment.

[Operator Instructions] Our next question comes from Douglas Tsao from H.C. Wainwright.

Dinesh, congrats on the deal. Just curious, should we potentially interpret this as Janssen wanting to move perhaps more aggressively and more extensively with this suite of compounds? And perhaps they didn't want to sort of have any kind of rate limiting things in terms of the breadth of what they want to pursue an ambition in terms of cost?

Doug, I would say you are spot on. But Carter, do you have comments?

Yes, Doug, that's a great question. And I think it's really reflective of the circumstances. What has come to pass here is that we have grown a portfolio of compounds that are part of a very important franchise for Janssen, and they wanted to move forward with those compounds at all speed and across a broader scope than we originally contemplated. And so this amendment frees them up to do that. We still maintain some oversight and awareness of what's going on, but really transitions into a mode where Janssen employs the might of its full development organization to push forward with all speed.

And that is [indiscernible] back for a biotech company like Protagonist when a big pharma wants to run as fast as it can with the assets that you have discovered for that.

And ladies and gentlemen, with that being our final question, I'd like to turn the floor back over to Dinesh Patel for any closing remarks.

Thanks. Thanks, everyone, for joining us today and for letting us share this new, very positive and very exciting development at Protagonist. Let me conclude by extending special thanks to our Protagonist team, especially those individuals who have been affiliated with the Janssen collaboration and also to our partners at Janssen for making this collaboration extremely successful and for making this very timely amendment possible. Thank you, all.

Ladies and gentlemen, with that, we'll conclude today's conference call. We do thank you for attending today's presentation. You may now disconnect your lines.