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

Okay. Welcome, everybody. I'm Doug Tsao, senior analyst at H.C. Wainwright. We are thrilled to have with us Protagonist Therapeutics, represented by the company's CEO, Dinesh Patel. I've known Protagonist for over a decade now, which makes me feel a little old. But it's been really remarkable to see the company's progress. When I first met Dinesh, the company was pretty much in like Phase I stage with PTG-100. And now the company is on the cusp of getting its first drug approved. So it's been a great. And not just its first drug, probably its first 2 drugs approved.

So with that, you recently received breakthrough designation for rusfertide for polycythemia vera, which is sort of the second time you received it. And you had -- previously had breakthrough designation. It was taken away based on some preclinical findings. I guess, from your perspective, is it safe to say the agency feels comfortable both with the profile as well as the efficacy. And I'm just curious what led you to reapply for breakthrough designation?

Yes. No, I mean, look, first and foremost, thank you for inviting us. We never take anything for granted, whether it is invitation at conferences or things in our pipeline, no matter how validated you are. R&D is R&D. You have to be on your tippy-toes all the time. So thank you. Yes. With rusfertide, it has been a great journey, right? It's one of those things where we said we are going to innovate on our own. It's a hepcidin mimetic first of its kind. So in the early beginnings, as you know, we had tried quite a few things, beta-thalassemia, HH and then finally, polycythemia vera. And the drug works in HH. In polycythemia vera, there is such a huge unmet need, and that's how our journey started. And then as you learn things, you get more familiar with the drug and you create your development program. So the latest thing is that we got spectacular Phase III results where we met not just the primary endpoint of freedom from phlebotomy for patients, but we also scored very nicely across all 4 secondary endpoints and some of the endpoints were related to patient-reported outcomes, right? In PV, with phlebotomy, especially, you are depleting patients out of iron in their body. So they have fatigue, brain fog, those sort of things. And of course, we got the opportunity to highlight the Phase III data at ASCO as a plenary session where the odds are incredibly low for being selected, right? They chose 5 abstracts out of 5,000-plus submissions. So I think it is the Phase III study results that has really turned the corner in every manner that you can imagine. And so we felt very confident reapplying for the breakthrough designation based on that. I mean if you look at the definition, of breakthrough designation. It is like, hey, your clinical findings are of such nature that they are suggesting a potential of your drug to have an improvement over the current treatment. And our data clearly suggests that this is the first ever erythrocytosis specific agent that will be -- that has the potential for treating erythrocytosis in polycythemia vera patients. So I think that probably is -- it's the new data that sheds new light and showcases the new potential. And at the ASCO plenary, if the discussant who is an independent individual is saying making comments like this could be practice changing. This should be part of standard of care. I think that's how we arrived at the breakthrough designation. And it also shows that the agency is doing its job. It's looking at what the data dictates and then acting accordingly. And now we are privileged. We'll have the privileges of the breakthrough designation basically.

And so presumably, you'll now have priority review, right, a 6-month review. How does that or does it have any effect on your sort of opt-in, opt out decision and timing?

Yes. So with breakthrough designation, I mean, you get expedited reviews and things like that. But we are not going to count our chickens before they hatch. So right now, the guidance is like we are not factoring in the possibility of a priority review kind of component. So it will be like, hey, we expect to file the NDA, we and our partner, Takeda, by the end of the year. So let's say, in December and then a year from now, you could be expecting approval. Now of course, if we get the priority review, that would shorten it by a few months, right?

And you have spoken about it is a $1 billion to $2 billion opportunity in PV. And you noted that you got a lot of feedback from KOLs at ASCO. And obviously, subsequently, I'm sure you're in constant discussion. Has your perception of the market opportunity changed? And has that feedback sort of made you maybe incrementally more bullish?

Yes. So I mean, if you look at the prevalence numbers in the U.S. alone, it is around 150,000-plus patients, right? And about 70% of those, so about 85,000 are actually getting treatment of one kind of the other, and you can find their data in the databases, that kind of thing. What we are finding though is like more than 2/3 of these patients, they have one common problem. They are not controlling hematocrit levels below 45% in a consistent manner with the current standard of care, whatever they may be using. And our drug, as I mentioned, it's a very erythrocytosis specific agent. And if you look at our Phase II study patient population, Phase III study population, that is the common denominator. It's like the standard of care is not working. Hematocrit is not controlled, and these patients could benefit from rusfertide. So in theory, that 2/3 of the population, so to speak, just in the U.S. alone, right? So about 50,000 patients, roughly speaking, that is the target population that could, in theory, be benefiting. And so I'll leave it at that. And Takeda has put out a forecast of $1 billion to $2 billion. We believe we are comfortably at the high end of that spectrum rather than at the low end of the spectrum.

And Dinesh, I mean, I go to the opt-in and opt-out decision that you face. And I'm just curious, is there -- do you see the -- in terms of if you opt in or opt out, right, even if you opt in, you don't necessarily have to build a commercial infrastructure, right?

Yes.

And so really, in some ways, the decision really comes to sort of, a, your sense of the overall market opportunity and whether you would prefer to get some additional cash up front. How do you -- has that shifted your sense of -- or how is your thought process evolving in terms of the opt in and opt out?

Yes. So I think at a practical level, we need to make that decision, let's say, by the middle of next year because the -- that optionality comes into play 4 months after the NDA filing and there is a 90-day period. So let's say, if we do the NDA filing in December, then from April through July is the time frame when we need to make that decision. So we still have ample time to make that decision. But here, I will offer a slightly new perspective on how to think about it. If we opt out, we get $400 million as an opt-out fee, right? And then there are also differences in milestone payments. Milestones are higher if we opt out. The first one being the NDA approval. If we opt out, it's $75 million versus if we are opted in, it's $50 million. So there is a delta of $25 million right there. So $400 million plus $25 million, that's $425 million. So look at it this way. If I stay opted in, it's almost like Protagonist has made an investment of $425 million into rusfertide. So we are like doubling down on rusfertide, so to speak, right? Whereas if we opt out, we are saying we have invested enough in rusfertide the opt-out terms are excellent, right? 14% to 29% royalty worldwide, where 29% is very much within reach. It is within this range of $1 billion to $2 billion guidance we have provided, right? So it's not like a pie in the sky kind of crazy number to qualify for that. 29% is a good number. So I think with opt out, it's difficult to lose. And with opt out, we now get this extra $425 million that we could think of doing a couple of things with it, right? Investing in our own R&D, as you know, the J&J deal we did on ico that was all the way back in 2017 when it was a preclinical stage asset. Well, now Protagonist is in a different situation. So we could hold on to our assets for longer time periods, at least up to clinical proof of concept, that kind of thing. And ours is a validated platform and a validated team. So we feel comfortable investing in our own R&D in a deeper and longer way. The other thing would be also looking at external innovation. It's -- we are a technology platform company. There are ways and means of improving and strengthening the platform through things like formulation, AI, those sort of things. And we don't have to be experts in everything, right? We could be inheriting those things from outside as well. And then, of course, opportunities or early-stage assets where I would feel comfortable that my discovery team is saving at least 12 months, if not 18 months on a new program or something like that. So we will look for those opportunities. But we also believe that in spite of doing all that, investing in internal R&D, looking a little bit at external innovation, we'll be left with ample cash if we opt out. And then keeping in mind the royalty streams that come from the 2 pharma companies, both J&J and Takeda. Right now, share buyback on a regular basis, not a onetime thing, also appears to be an attractive and very tax-efficient option. So it will be like do all of that.

And Dinesh, one of the other events -- or actually, one quick on the opt out. So you have noted that it's 4 months after the decision plus 90 days. If you do get priority review, does that get abbreviated? Or could you opt out, potentially.

No, the opt in, opt out is more to -- the clock starts ticking from the day the NDA is filed.

Okay, right. So then you have a plan to nominate oral hepcidin by year-end?

Yes.

And there a number of different ways that you could go with that. And does progress with that program influence the opt in and opt out? Or are you thinking of opportunities separate from PV? As you noted, you have sort of data in HH and the other areas that you could potentially go with a hepcidin...

I think it's a fantastic question. And I mean, mechanistically, rusfertide and oral hepcidin, they are very related. But in terms of clinical development or in terms of partnership with Takeda, those are two very independent and separate things. Now we totally fully own oral hepcidin. Takeda will have the right of first negotiation. So that's about as far as the connectivity goes. Now in terms of utility, also you are making a good point. I mean, PV is an obvious one. But there could be other indications where there could be benefit from once-daily oral dosing and moderate concentrations of your drug versus the once-weekly injectable that currently -- that's how rusfertide is being used. So those are the kind of things that we could explore and see if with an oral hepcidin, the clinical utility could go above and beyond PV.

I guess I wanted to turn to ico, right, because that's one of your other key assets. And how do you see it differentiating from the competition in the IBD space in particular?

Yes. So ico has been an amazing journey, and I cannot thank J&J enough for what an amazing job that they have done in the clinical development of ico. As you know, they already filed the NDA. They filed it in July for psoriasis, so touch wood 12 months from July. So next year in July, we will see where we stand. But as you know, IL-23 blockers, I mean, they have a presence both in the derm and IBD space, right? So in psoriasis. Now a couple of things. One is IL-23 is a very proven mechanism that is both efficacious as well as very safe, right? The other thing is we still are the only oral IL-23 blocker that is out there. And if you look at all the things that J&J is doing, for example, let's say, in psoriasis, I'll get to IBD in a minute. The Phase III data is excellent. They have done a head-to-head superiority study with deucra, the TYK2 inhibitor from BMS. Over there, we scored positive. They are planning to do a head-to-head with their own drug, STELARA. The adolescent population data is outstanding. If you add all this up, what it means is like not only is this an only oral IL-23 drug that would find utility that way, but it also is marching towards maybe this is because it's a proven and established mechanism through SKYRIZI, TREMFYA, all that, it could be a first-in-line therapy option. That's a huge, huge opportunity. And their own marketing research has suggested that about half -- more than half the I&I patient population that is eligible for targeted therapy, they are not opting for any because they don't like the injectables because they are injectables. Injectables work, but they are injectables. And in oral, honestly, there is a toxicity baggage with the kinase inhibitors, right? You just can't escape from that. So this will be the first option that is both efficacious and safe and oral. So you can also envision new market penetration in the I&I population, including both the derm and IBD conditions. And even those who are on injectables, 75% have expressed interest in switching to oral if a good option is available. And hopefully, that's what our drug is. Now in IBD, actually, if you look at our UC data, it's outstanding. 30% clinical remission at a higher dose, that's about as good as it gets in UC. And this is on a proven mechanism. And based on this data, of course, it's Phase II data, but it's like this could be the best -- one of the best UC drug -- oral drug that could be out there. Actually, not just in comparison to oral, even with injectables or through different mechanisms. 30% is high. It's very high. And in a way, this is not just by chance, right? The very first thing we did when we started the program in 2014, we opted for the receptor, not the ligand, which is what the antibodies are targeting. There was a reason the receptor is overexpressed in the GI tissue compartment of IBD patients. So maybe that logic is playing a role. I mean this could be a bigger IBD drug versus a bigger psoriasis drug. Time will tell. And J&J clearly is voting with its feet. They have already announced that they are going in Phase III studies, of course, in UC, but also they're in Crohn's. And target is validated. There is so much familiarity. They know all that one needs to know about IL-23 blockers, things like that. So I think ico could have an amazing presence in the IBD space.

So I wanted to turn to 477 because the obesity space has become incredibly crowded, both with people trying to develop next-generation incretins, both injectable, oral. You have new approaches like NRLP3 (sic) [ NLRP3 ] inhibitors. I'm just curious how you see yourself with 477 differentiating from not just what's on the market, but what is potentially coming to market.

Yes. So here I'll digress a bit. HCW through an amazing party yesterday night, right? Maybe analysts were not allowed, I don't know, but everybody enjoyed it. But if you are such a late entrant to such a huge party, which is the obesity space, think of it as a huge party, then how do you create your presence or how do you get noticed, especially when you enter Sting is already performing, that sort of thing. So that's -- yes, we are late entrants in the obesity space, but it's like our key mantra all along has been in whatever we do, there will be one common prominent thing, differentiation. We have to be differentiated in a positive way from anything and everything that is out there. So we went straight to the KOLs in IBD and said, look, we have a platform, amazing platform. We can create anything. Give us a profile. So that's where the GGG came to the top. And in a way, we are the only company that is an oral GGG with this kind of exposure and presence. And if you look into the details, we have also paid careful attention to the relative potency of GLP versus GIP or GCG. We don't have much time, but I encourage people to look at our previous presentations when we announced that clinical candidate, things like that. So we have gone through great pains to create an entity that is just outstanding, very well differentiated. We have done head-to-head comparisons with retatrutide, of course, in a preclinical setting. There are reasons to believe that our drug is as good or actually better in some of these studies in sino and monkey compared to retatrutide. But once again, I'll use a qualifier. This is preclinical. We don't want to get carried away. But it showcases like what is the level of differentiation that we aim for. And especially when we are late entrants, but then it's a huge market opportunity. And that's why we opted both for the oral and subcu, right? It's like -- I don't want to predict the future, if I don't have to, why to take any chances, develop both. Now I believe for majority of the time, majority of the patients will use the oral. But talking to the KOLs, it seemed like if you had the subcu option, that was also desirable in some instances. And the switch with the same chemical entity from injectable to oral will be very convenient.

Do you expect the oral and the injectable to sort of pursue the same indications? Or is there an opportunity to sort of have them or could they potentially sort of diverge in terms of their development path?

Yes. So definitely the same indications and time will tell. This is where the science is still evolving, and we'll have to explore those things clinically, right?

Okay. And just maybe really quickly because we are in theory out of time, but we'll go into stoppage time. I don't know if you're a soccer fan, but just touch on 881 and what you think differentiates that molecule. And we've seen some sort of separation between the IL-23s and the IL-17 sort of overlapped an indication pursuit, but now have sort of gone their different ways. Sort of what is your thinking around where -- the direction you want to take that asset?

Yes. So I think there are two kinds of differentiation, and I'll be brief. It seems the IL-23 blockers, clearly, IBD is their domain, very unique to them. And it's psoriasis and psoriatic arthritis where I think there will be the overlap. And I think both IL-23 and IL-17 blockers will have a presence. Now of course, IL-17, their separate domain is HS and spondyloarthritis and things of that nature. But collectively, these two category of drugs, I mean, they will dominate the whole I&I space, and we are fortunate to have presence in both. Now with regard to our oral IL-17, once again, the same thing, differentiation, differentiation, differentiation. Compare our peptide to other oral small molecules that have been out there, we are more potent by orders of magnitude. I mean, really 100-fold, 1,000-fold more potency, that is something to write home about, right? And then also the spectrum of activity, the best-selling drug and the best drug that works to IL-17 mechanism is BIMZELX and its unique feature is that it blocks both A and F isoforms. We believe our peptide is the only one out there in the public domain that has demonstrated blockade against all 3 AAA FFF isoforms. So that's unique as well. And we will hope that logically speaking, we should expect those kind of things to potentially translate in a clinical setting. Time will tell. Well, 881 is already marching into a clinical study. Our guidance was fourth quarter. So -- but the study has been sketched out there on clinicaltrials.gov and the journey has started.

Okay. Great. Well, with that, I think, unfortunately, we got to wrap up. I think we -- I only got through about half of my questions. So we'll have to save it for another time.

Excellent. Thank you.