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

Good morning, everyone. Thanks for joining us for another session at the 44th JPMorgan Healthcare Conference. I'm Brian Cheng. I'm the senior biotech analyst here at the firm. On stage, we have the CEO of Protagonist Therapeutics, Dinesh Patel. I'll now pass the mic to their CEO, Dinesh, for a short presentation, followed by a live audience Q&A. Dinesh, the stage is yours.

Excellent. Good morning, everybody, and thank you, Brian, for the kind introductions. It's a real privilege for Protagonist to participate at this prestigious conference, and this is for the sixth year in a row now. Just a quick reminder that we will be making forward-looking statements during the presentation and throughout the conference. So this slide provides an outline of today's talk, and it also highlights how the next 12 to 24 months are going to be a phase of immense growth and value creation at Protagonist, driven by 2 potential blockbuster approvals and launch, multiple clinical readouts, new discovery programs and a very strong cash position, right? Starting on the left then, this could be the year when we could be completing our very long -- decade-long journey from concept to commercialization through 2 specific assets, icotrokinra, partnered with J&J and rusfertide, partnered with Takeda. And in the middle, we are highlighting our development candidates, all working on validated biological targets, but with highly differentiated assets addressing specific unmet needs and spanning over multiple indications. Also, unlike ICO and rusfertide, these are fully owned by the company. 881 is potentially a best-in-class oral IL-17 antagonist. 477 is a triple agonist that marks our entry into the obesity space. And today, we are very thrilled to announce 2 new development candidates, namely a dual GLP-GIP agonist, 458 that adds to our obesity portfolio and an oral hepcidin functional mimetic, 8047 that could complement rusfertide. Moving to the right, we have added IL-4 and amylin as new high-priority discovery programs with a long-term perspective of expanding and strengthening our pipeline. Finally, we are very fortunate to have a very strong position, which enables us to not only fund our internal programs, but will also enable us to return meaningful capital to shareholders. So with this outline, now let's go through an overview of these assets and programs, starting with ICO. Icotrokinra highlights one of the most important partnership in Protagonist history, namely with Johnson & Johnson, which started all the way back in 2017. And it underscores both the strength of Protagonist discovery platform and the value of such strategic partnerships. And ICO, we believe will hopefully set a new standard of care in psoriasis and subsequently in other IL-23 mediated indications. ICO by virtue of being the first and only in-class oral IL-23 pathway blocker in late-stage development, it has 2 big advantages. First-mover advantage and also great scarcity value. So taken collectively together, the 4 indications where IL-23 blockers have historically found success, psoriasis, psoriatic arthritis, UC, Crohn's, these represent a total commercial opportunity north of over $80 billion. And the opportunity for ICO in particular, comes in 2 different ways. First, taking share of the market from the current drugs and second, creating its own new market. So all the approved IL-23 blockers today, STELARA, SKYRIZI, TREMFYA, these are blockbuster drugs, but these are all injectable antibody drugs. And marketing research data clearly suggests that almost all, 90% of the patients who are on injectable still will happily switch to an oral if a good option was available. The second finding is that from millions of people that are eligible for targeted therapy, more than half of them are not opting for anything for 2 reasons. They don't like injections, and they don't like the options that are currently available in the oral camp. So ICO, through its amazing combination of biologics-like efficacy, stellar safety, convenience of once-daily oral pill, it could benefit from both the existing market and also create a new market of its own. So collectively, when you put all these facts and figures together, it easily justifies a consensus forecast of $10 billion plus in total market value exceeding over $80 billion. This slide summarizes all the Phase III clinical data from various studies in psoriasis, and we'll keep this high level because this has already been shared before. But in terms of efficacy, you can see that high rates of skin clearance by all different measures are consistently achieved by week 24 and the responses are durable over extended periods. Besides efficacy, we believe equally important is safety. And honestly, it's not that often in our careers that we got a chance to say that, gee, our drug exhibits placebo-like safety. I guess that says it all. So taken together, ICO delivers what dermatologists and patients have been asking for all along, right, biologics-like efficacy with the convenience of an oral pill and without compromising safety. So these study results form a comprehensive data package that formed the basis of NDA filing last year. Now moving from derm to IBD conditions. Here is a cross-trial comparison of Phase II UC study results of ICO with not just the IL-23 injectables, but also all other approved IBD drugs, including oral small molecules. And with a clinical response of 64%, ICO's efficacy is really at the top of the chart. These study results demonstrate the best-in-class potential for ICO in inflammatory bowel diseases, especially if you add the amazing safety profile of ICO compared to the other choices in the field. And of course, this has triggered pivotal studies in both UC as well as in Crohn's in the hands of our partner, J&J. So this is a concluding slide for ICO. It provides critical events and time lines, and it highlights the great breadth and momentum of ICO, starting with the potential commercial launch for psoriasis this year, followed by completion of pivotal studies and significant commercial expansion into other indications in the coming years. In terms of near-term catalyst, Phase III ASCEND study and the Phase III biologics naive psoriatic study, they will be completing their primary endpoint phase of the study. ICO is an incredibly important asset to J&J immunology franchise. And their expertise in this area through STELARA and TREMFYA will be a great asset for commercialization of ICO. And finally, the pronunciation of icotrokinra just got easier. J&J shared the brand name yesterday, it's Icotide, so much easier than icotrokinra, I guess. All right. Now let's talk about our next asset, rusfertide, that is also eyeing an approval launch this year. Rusfertide, as you recall, is a synthetic peptide mimetic of the natural hormone hepcidin, whose function is to control iron absorption, storage, distribution in the body. And by controlling iron, obviously, it is controlling red blood cell synthesis. So PV as a reminder now, is a rare disease characterized by excessive production of RBCs, and the primary treatment goal as per NCCN guidelines is to maintain hematocrit below 45%. So this provided the rationale to evaluate rusfertide, a very RBC-centric option for PV, and the study results have been outstanding. Rusfertide Phase III VERIFY study results were presented last year at a plenary session at ASCO. And it was really gratifying to hear an independent discussant describing this as practice changing and recommending it as part of standard of care for PV. The study met not just the primary endpoint of clinical response, but also met all the 4 secondary endpoints, including patient-reported outcomes. The core mechanism here, of course, is rusfertide's ability to control RBC synthesis and offer consistent hematocrit control. So patients on rusfertide treatment arm, they control hematocrit like magic, whereas the patients in placebo arm who are on standard of care, they see a rise in their hematocrit levels. And after 32 weeks when rusfertide is added to that treatment regimen, hematocrit levels are normalized fairly quickly. So it's really a titration to effect, and it demonstrates rapid onset of action. So rusfertide is showing a lot of promise as a potential first-in-class RBC-centric treatment for PV, and our partner, Takeda, has made a conservative estimate of peak revenue potential of $1 billion to $2 billion for this drug candidate. Now PV is a rare disease, but with pretty high prevalence number, north of 152,000 patients in the U.S. alone. And out of the 78,000 or so patients on treatment, their choices range from phlebotomy to hydroxyurea to interferon to Jakafi in HU-refractory patients. And polytherapy cycling through different treatments, it's quite a common occurrence for these patients. A very, very consistent observation amongst all these patients is that a vast majority of them, about 78%, they failed to control their hematocrit in a consistent manner. And this is true for all stages of treatment. And this is a clearly large unmet need and RBC-specific unmet need. And then, of course, it could be addressed by an RBC-centric agent like rusfertide, right? And therein lies the strong differentiation and the commercial appeal of rusfertide. So we now have a very comprehensive clinical data package from various studies, which form the basis for the NDA submission last month. And remind you that rusfertide is an orphan drug for a rare disease. It has Fast Track status, Breakthrough Therapy Designation, all of which should allow for an expedited dialogue with the agencies. And we anticipate potential approval followed by an almost immediate launch by our partner, Takeda, in the second half of the year. I would also point out that Takeda has strong experience and presence in the heme space and rusfertide is a high priority for them, which fits nicely in their heme portfolio. So this now completes our overview of 2 mature and partnered assets, Icotide and rusfertide. And now let's shift gears and talk about the next set of emerging and fully owned assets in our R&D pipeline, starting with 881. PN-881 is potentially a best-in-class oral IL-17 antagonist. It's almost like a second act for us in the inflammatory and immunomodulatory space, the first act being icotrokinra or Icotide rather. IL-17 is a clinically and commercially validated target with utility in multiple indications. And IL pathway blockers are almost on equal footage with IL-23 blockers in the psoriasis space with a current market share of about $9 billion ballooning to over $17 billion by 2034. And besides psoriasis, they also extend their utility to other indications, right, psoriatic arthritis, HS, spondyloarthritis, things of that nature. Current agents are all injectable antibody drugs. And the best-in-class injectable is BIMZELX or [ bime ] from UCB, whose unique feature is potency against both the A and F isoforms. So therefore, we embarked on discovering an oral peptide with BIMZELX-like A and F potency, and that is what we achieved in 881. And we have presented extensive preclinical data last year for 881. We finished the IND-enabling studies and commenced a Phase I study in the fourth quarter of last year. It's a pretty comprehensive 5-part phase study in about 150 volunteers comprised of SAD, MAD assessment of various solid dosage formulations and food effect. And the primary endpoint is focused around safety. The secondary endpoint is largely PK-centric, focused on drug exposure levels and identifying the optimal oral dosage formulation. And we expect study completion by midyear, which in turn would then influence the design and initiation of Phase II study in psoriasis by year-end. Let me now take this opportunity to introduce one of our new development candidate today, 8047. See, Brian, we always save some new announcements for this prestigious conference, an oral hepcidin functional mimetic. So in -- if 881 was a second act to icotrokinra in the I&I space, then similarly 8047 can be viewed as a second act to rusfertide in the heme space. The rationale behind 8047 is pretty straightforward. Rusfertide has already validated the hepcidin pathway as a therapeutic approach for erythrocytosis mediated diseases. And it's an outstanding drug. It's a weekly subcu injectable. 8047 is an oral option that can nicely complement rusfertide, and it can maximize the total addressable global market of hepcidin mimetics. And I do want to point out that unlike all of our previous candidates so far, which have been peptides, 8047 is a small molecule. We did an extensive comparison of various modalities that is peptidic versus small molecule leads and ultimately settle for a small molecule as the final choice over here. And this is just a summary of the potency of 8047, very similar to rusfertide, both entities are very potent, more stable and have superior drug-like properties in comparison to hepcidin. We have run extensive preclinical studies. And of course, we are saving this data for presentation at future medical conferences. IND-enabling studies are underway, and we expect Phase I initiation by year-end. A very noteworthy point here is that in healthy volunteers itself, we'll be measuring the effect of iron levels, and we'll be able to establish an early clinical proof of concept. The next phase, obesity, as we know, it's a pharmaceutical opportunity of unprecedented scale. And today, it is largely dominated by 2 products, semaglutide and tirzepatide, and these are both peptides and injectable peptides, right? So this was -- it was only natural for us to apply our expertise in oral peptides and develop highly differentiated assets for this chronic condition. And with that in mind, we are developing 477 as a novel oral GGG agonist with the objective of maximizing weight loss, offering better quality of weight loss and improving tolerability as well. And oral GGG, we believe, is one of the first-in-class category drug candidates here. And while that's where our focus is, we are also developing a subcu to maximize optionality and flexibility for both the patients and physicians. Also, early preclinical data shows a drug accumulation, which may facilitate the once-daily oral transiting to a once-weekly oral down the road and the once-weekly subcu morphing into a once-monthly dosing down the road. Time will tell. Both oral and subcu form of 477 are currently in IND-enabling studies, and we expect this to enter Phase I studies this year. And once again, over here, a Phase II study with proper choice of healthy volunteers and proper design of SAD/MAD studies could provide a fairly decent and quick early clinical POC in a Phase I setting itself. Now obesity is a huge opportunity. It's rapidly evolving and changing. And there is going to be a strong need for multiple products to cater to different subpopulations and comorbidities. Therefore, we have always had the mindset of building a whole portfolio. And I'm glad to make 2 new announcements today. Once we -- one, we have identified 458 as a new novel dual GLP-GIP agonist. And tirzepatide, as you know, is the best-performing, best-selling dual agonist, but it's an injectable. So our differentiation is oral, although we are developing both oral and subcu to preserve optionality. And second, amylin is a very important non-incretin target in the space, and this is a high priority target for us. So now this kind of completes our overview of clinical, preclinical discovery efforts. And now let's talk about the financial strength of the company. So for the financial overview, we intentionally chose this particular image as a backdrop. It's almost as if the individual here is representing Protagonist and proclaiming its financial independence. Okay. So we ended the third quarter of last year with around $679 million, which is sufficient to fund all of our operations at least through the end of 2028. And it is very important to stress, and my CFO, especially wants me to stress and clarify that this cash runway forecast through 2028, it does not include any future milestones, fees or royalty-based income that we would be receiving from our partnered pre-commercial assets, ICO and rusfertide. And let me offer more granularity, some of it for the first time actually on the potential future revenue generation from these partnered assets. So let's start with the economics around the J&J collaboration with Icotide. We have already received over $300 million to date in the partnership and are eligible for receiving another $600 million in future development and sales milestones. There are over $200 million as development milestones over the coming years based on success around second and third indications. So practically speaking, very achievable. And we have previously guided to a 6% to 10% royalty range. Today, we are offering more clarity. So we'll be kind of averaging around 7.25% in annual revenues up to $4 billion, after which anything over $4 billion is subjected to the 10% rate. And the royalty-based revenue table below is by no means a sales or revenue forecast by us. It's just an illustration. But an annual sales of $5 billion could lead to $400 million pretax revenue earn out, whereas if this becomes a $20 billion product at peak sales, then you're getting close to the $2 billion ZIP code. And now let's move to the next money tree, rusfertide, which is partnered with Takeda. Here, besides the normal milestones and royalty structure, we have a special provision to the current 50-50 co-development, co-commercialization partnership structure. So 120 days after the NDA filing, and the NDA filing was filed last month. We have a 90-day window wherein Protagonist can decide to opt out of the co-co arrangement, thereby converting into an out-licensing deal at a practical level. And the economics are very attractive if we opt out, $400 million onetime opt-out fee, 3x higher milestones and 14% to 29% royalties on a worldwide global sales basis. So not surprisingly, we are strongly leaning towards opting out at this stage, which will be sometime in the second or third quarter of the year. Now besides the $400 million opt-out fee, we also expect to earn about $100 million in development milestones centered around regulatory approvals. And the royalty range is 14% to 29%. The weighted average, and this is new information, is around 21% to -- at up to $1.5 billion annual sales. And then the royalty rates progress to 29% for annual sales exceeding $1.5 billion. And as you can see in the illustrative table below, how increasing annual sales of rusfertide can translate into significantly higher revenues. Now finally, let's cover the sales milestone centered around the 2 products. And typically, sales milestones are stretched out and aspirational at best. But in our case, we believe all of these, which are totaling over $1 billion are potentially achievable over the coming years. So this completes our financial overview. And we have provided not just the regular forecast, but also offered much more clarity today than ever before on potential milestones and royalties from ICO and rusfertide. And once again, these are not counted in our cash runway forecast through 2028. So let's finish the talk with what we started with. Protagonist is -- we are at a great inflection point in -- as a company -- in the growth trajectory as a multibillion market cap biopharmaceutical company. And we have different catalysts lined up over the next 12 to 24 months, and these range from the commercial launch of 2 different partner products, ICO and rusfertide, thus initiating the second act, both in the I&I and the heme space with oral IL-17 881 and oral hepcidin 8047, respectively, working towards building a portfolio in the obesity space with GGG 477, now also the GG 458 and early-stage amylin agonist. And at last but not least, adding a new very high priority target, namely IL-4 in the I&I space. And finally, having enough cash to not only fund all internal programs to clinical POC, but also returning value to shareholders through opportunistic share buybacks and further down the road, maybe even offer dividends. And this is just a schematic concluding R&D pipeline slide and commercial pipeline slide, actually highlighting various catalysts and inflection points over the next 12, 24 months. Finally, let me conclude by extending a special thanks to the entire Protagonist team, comprised of employees, advisers, consultants, patients, physicians, caregivers all across the globe for their unwavering support and dedication throughout our journey. And thank you all for your attention. And with this now, we'll be happy to answer any questions. Thank you.

Thank you, Dinesh. I'd like to welcome Protagonist team to come on the stage as well for the Q&A session. For those of you who are in the audience, if you have any questions, please feel free to raise your hand. For those joining us virtually, you can also submit your questions on the portal. Maybe Dinesh, you can introduce who's on stage for those who are joining us on virtual...

So next to Brian is Asif Ali. He's our CFO. After that is Arturo, who's just getting seated, our Chief Medical Officer; and then Sam Saks, our clinical adviser.

Dinesh, thank you so much for joining us here. It's always great to have you. When you look at your portfolio today, I know that you refer each asset as your kids. So a lot of your kids are now grown up, and you're still raising additional kids. So...

We are fertile.

Where do you want to take Protagonist this year? I mean, let's say, we talk again in December and perhaps 5 years down the line, where do you see Protagonist? What do you think Protagonist is going to be known for?

Yes. So I think Protagonist is going to be known for great science, creating highly differentiated assets, whether it's in a new indication or a rare indication or whether it is in a very crowded space, be it obesity. Science ultimately differentiates us from everything and anything that may be out there. So I think that's the mark we would want to leave. And what we are finding out is like you don't have to give up things just because the company is evolving or growing, right? I mean if you look at the typical nature of biotech, I mean, we have seen company after company after companies. They started with discovery and then they get a product, and they have to develop it and they are like, oh, now we have to cut off discovery or that sort of thing. And in our case, it's just the opposite. If at all anything, we are expanding discovery. I guess the genius is in making sure that you have enough of a cash runway. So we have been able to do that in a skillful manner. And ultimately, I mean, what matters the most is like how do we maximize shareholder value. And in a way, the benchmark is very simple. What is the value of your stock? What is the market cap of your company without further dilution and that kind of thing? And today, we are a $5 billion market cap company, and we aspire to get into the $10 billion, $20 billion category in the very near future.

Today is the first day that we started to see a lot more color in terms of how we think about breaking down the royalty streams coming from Icotide and also rusfertide. How will you want to divide resources among internal R&D pipeline? You also mentioned stock repurchase, potential dividend. How should we think about the division of potential resources?

Yes. So I mean, it's a very dynamic situation, right? And -- but of course, no sacrifices will be made in funding our discovery to clinical POC. After that, even if we have cash to go further, I guess it becomes a matter of practicality. And I mean, today, we can also state that, let's say, if it's a rare disease asset, like the oral hepcidin, over there, we may have the mindset of taking it all the way through approval and commercialization, right? But in the obesity space, I would very much prefer a pharma partner when we are doing, let's say, Phase III studies. Now it's not just about the money. We have too much money, but it's also like pharma, they bring incredible experience, expertise, their abilities to scale. Look at the wonderful things that J&J is doing with Icotide, right? So -- and it brings a great different form of validation. So those are the attractive features. As you know, we are always pharma friendly. So we'll continue to do that. And then in terms of capital allocation, that kind of comes after we fulfill the first requirement. And currently, the math suggests that we'll be able to do both. So we'll do it in a meaningful manner. But maybe Asif, you could chime in and share additional thoughts.

Yes, happy to. I mean that's -- I think you hit the key messages. It's a balance between capital return to shareholders while also complementing our discovery programs. And you saw the breadth of what our ambition is earlier in the presentation. So it really will be a balance. And as Dinesh said, at any time, it will be dynamic, and it depends on where and what progress we're making in that ambition.

Great. Before we get to the new data, I always appreciate that, but I want to touch on the upcoming data coming from 881. I think one is you had a lot of experience developing ICO. How confident are you in this program? And as we think about the healthy volunteer top line midyear, where do you think investor need to focus on?

Yes. So with 881, we presented extensive preclinical data last year. And that's about as much as you could do in a preclinical setting. And -- but at that time, we also communicated that, hey, going forward, we are going to be a little shy on sharing data right away for multiple reasons. So that's the path we are following now with 881. I guess with 881, the big signal one should wait for is like are we going into a Phase II psoriasis study or not. And that's about as much as we'll be able to share. But maybe Sam, Arturo...

Let me just say that we know the actionable levels from the antibody. So in terms of IC50, IC90, the pharmacokinetics here are very value creating because the target is already painted, and we just have to hit it.

And you all saw the trial design for the Phase I study. It's very comprehensive, and we would be obviously testing different doses that give us the optimal PK, similarly, testing different formulations. So stay tuned.

Yes. And we are, I mean, obviously, planning for success. As I mentioned, it's a very comprehensive Phase I study, and we are taking a leap of faith, evaluating solid dosage formulations, and we will see what the data teaches us by midyear.

The -- maybe switching gears to oral hepcidin. It's definitely a surprise that this is a small molecule. How different could this new molecule behave compared to rusfertide, which is a peptide? And can you also remind me if Takeda has the right -- has the first rights to in-license this program?

Yes. So excellent question. And look, at the end of the day, we concluded that we should be agnostic to whatever modality it be. Sure, our expertise is in peptide therapeutics, but just like anything else, we just have to be open to all different scenarios. And in this case, we did extensive comparison with a peptidic lead and the small molecule lead, and the small molecule won. So that's it. And just a digression. But hey, recently, we had a VP of Chemistry, who was the VP of Chemistry at Dicerna that acquired by [ Novartis ]. Now he -- Dicerna, as you know, is focused on oligos. And so we bring yet another level of expertise. Now I would also share that I have known Charlie Xiao for decades. I hired him in 1993 at Affymax. So we go a long way back.

Any questions from the audience?

Just to follow up the question [indiscernible] Takeda.

Oh, yes, yes, sorry. Yes, yes. So this is a fully owned asset by Protagonist, and Takeda has the right of first negotiation.

Until what period of time do they have that right...

The question is until what period of time until they have the rights.

I don't think it is period sensitive. That's my recollection. And we have had rights of negotiation arrangements previously in other kind of setups. And I think it's an easy thing to give and live with. It doesn't take away anything from your full ownership on the entity.

Just on the obesity front, today, you disclosed 2 additional programs in the obesity side on top of the GGG that you disclosed last year. How do you think about rolling these assets out? Because ultimately, I think earlier today in your remarks, you talked about on the obesity front, this is more -- this is definitely anchored towards partnering with a pharma. How do you envision within the next couple of years, building these 3 assets out so that one or more of these assets will be attractive to attract a partnership?

Yes. I think our mindset is that, look, with obesity, we are just scratching the surface. I mean if you look at the market research data, it's like about 3 million, 4 million patients are being treated out of 300, 400 that may be eligible. So this market would grow by 2 orders of magnitude. And what's the hottest thing today, it could be all very different a few years from now. And we are already seeing that, right? It's like now all of a sudden, amylin is the most shiny object or very long-acting drugs could be the next thing. So you just have to be on your tippy-toes, and we like it that way. So we are just increasing optionalities, right? Our expertise is oral, but yet we are like in talking to KOLs and all that became apparent like, hey, creating a subcu optionality may not be a bad thing. So now it's the same API, same drug substance. So it hardly matters to us in terms of extra efforts or something. It's so convenient for us to develop both. So we'll keep our eyes and ears open and keep adding different assets to the portfolio.

You have a pipeline of a large-cap pharmaceutical company. And today, you add...

Except for the valuation, the market cap. Yes.

And today, you add dual inhibitors, both oral and subcu on top of amylin, which are all really interesting. How do you think given the size of the company? I mean, clearly, you have a lot of cash and you're going to have more cash. But how do you think about executing on this plan? Because it's quite a pipeline before and you've added substantially to it today.

Yes. We will build the company and have the resources, both financial and operational resources as needed. We are constantly on the lookout for great people, people with the proper skill set. So we look forward to scaling the company, and we are super excited about it.

Maybe just lastly, the last assets that I want to touch on is the IL-4 on your earlier slide. What is the plan for that asset? And how should we think about where that fits into your whole portfolio?

Yes. I mean, as you know, IL-23, IL-17, IL-4, these are probably the 3 hottest targets in the I&I space. And [ dupi ] is like a great role model. It's an injectable. And so that is what we'll be striving for in an oral IL-4 blocker.

Well, that's all the time we have. Thank you so much for joining us.