PTC Therapeutics, Inc. (PTCT) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the PTC To Monetize a Portion of Risdiplam Royalty Stream Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Alex Kane, Investor Relations. Thank you. Please go ahead, sir.

Good morning, and thank you for joining us today to discuss this morning's announcement on the agreement with Royalty Pharma to monetize a portion of the risdiplam royalty stream. A press release with details about this morning's announcement can be found in the Investors section of our corporate website at ptcbio.com. Before we start, let me remind you that today's call will include forward-looking statements based on current expectations. Please take a moment to review the posted slide containing our forward-looking statements. Our actual results could materially differ from these forward-looking statements, and such risks can materially and adversely affect our business and results of operation. For a detailed description of applicable risks and uncertainties, we encourage you to review the company's most recent quarterly report, Form 10-Q, and annual report, Form 10-K filed with the Securities and Exchange Commission as well as the company's other SEC filings. Joining me on the call this morning is our Chief Executive Officer, Stuart Peltz; and our Chief Financial Officer, Emily Hill, with additional members of the team available for Q&A. Today's call and question-and-answer session will be focused on this morning's announcement. With that, I will now pass the call over to our CEO, Stuart Peltz. Stu?

Thanks, Alex, and thank you all for joining us today to review this morning's important announcement. Before Emily provides the details on the agreement with Royalty Pharma, I want to say a few words about the strategic importance of this partnership to PTC. At our core, PTC is an innovative company focused on applying scientific expertise to bring novel therapies to patients with rare disorders and high unmet medical needs. Risdiplam, on the cusp of potential regulatory approval, exemplifies how innovation can lead to meaningful therapies for patients and create value for shareholders. Its success underlies the vision of our diverse and robust pipeline, illustrating clearly how innovation can benefit all our stakeholders. As we previously described, we are focused on driving long-term innovation and growth to generate value creation. By 2023, we expect to generate more than $1.5 billion in revenue with at least 5 commercial products and risdiplam royalties with a strong pipeline of product candidates in development. But this is only the beginning. This partnership with Royalty Pharma provides the financial foundation for us to further expand and strengthen our robust and diverse pipeline towards commercialization. Today's announcement of our strategic partnership with Royalty Pharma accelerates risdiplam royalty cash flows, bringing forward significant nondilutive capital to drive innovation and growth. The additional capital will be utilized to expand our internal drug discovery development efforts, particularly in our validated splicing, Bio-e and gene therapy platforms. In addition, we'll continue to pursue strategic and synergistic business development opportunities, particularly those that leverage our existing global commercial infrastructure. We're very proud of PTC's groundbreaking science that led to the discovery of risdiplam. It would be the first oral treatment for people living with spinal muscular atrophy, and we expect it to be the most competitive and commercially differentiated product for SMA. As I noted, this collaboration brings forward significant nondilutive capital to accelerate our innovation engine while also allowing us to benefit from risdiplam's meaningful sales potential. This transaction is truly a win-win for both PTC and Royalty Pharma. I outlined earlier why PTC is so excited about this collaboration. For Royalty Pharma, it provides a highly valuable royalty stream that aligns with their focus on differentiated therapeutics for diseases with high unmet medical need. We are proud to partner with the leader in drug royalty monetization and look forward to a long-term strategic relationship with Royalty Pharma. Emily will now provide more details on the transaction. Emily?

Thanks, Stu. I'm happy to be on the call this morning to discuss the details of this exciting transaction for PTC. As Stu mentioned, this is a highly structured transaction that is truly a win-win for both parties. We received and evaluated several proposals, and found Royalty Pharma with not only the most attractive terms, but also as a leader in the space with the potential for long-term partnership with PTC. The transaction includes an upfront cash payment of $650 million from Royalty Pharma to PTC in exchange for approximately 43% of the risdiplam royalty payments due to PTC from Roche up until Royalty Pharma has received $1.3 billion return. PTC will retain the majority of the royalty payments, which allow us to recognize continuous contribution from expected growing risdiplam revenue streams. Beyond that point that Royalty Pharma has received their return, PTC has the potential to receive 100% of all global royalties through the patent life of the product. In addition to retaining the majority of the risdiplam royalty stream, we also maintain the entirety of the approximately $400 million in remaining potential milestone payments due to PTC from Roche. Importantly, with over $1 billion in cash currently, PTC is in a strong capital position to execute on our long-term goals. As Stu highlighted, the capital from this financing positions PTC to rapidly advance our rare disorder pipeline by expanding our platforms into new indications. This capital will also be used to continue our proven strategic approach to business development, particularly to leverage our existing global commercial infrastructure. We thank you all for joining us as we review this transformational transaction for PTC. Operator, please open up the call for question-and-answer session.

[Operator Instructions] Our first question comes from the line of Alethia Young from Cantor.

Congrats on this deal. It's very, very exciting. So I guess I wanted to ask probably the, perhaps, obvious one is that with the equity markets as hot as they are, give us a little bit more flavor on like why you really thought about doing a nondilutive deal under these terms right now to invest in your pipeline versus the financing? And then second question, can you just talk about -- I mean this is the preapproval, large upfront payment, probably one of the bigger ones they've done. Can you just talk about kind of their confidence and Roche's and you guys' confidence as we head into approval in the end of August?

Yes. Great. Thanks, Alethia, for that question. Yes, we looked at multiple deals, and we had certainly careful consideration. And then we thought that the monetization of the royalties was the best path forward. We obviously looked at all options. Maybe I'll have Emily talk a little bit about the deal. But clearly, this was nondilutive capital. Emily, you want to talk about it a little bit more?

Sure. I mean I think if you look back at PTC over the past 2 years, you can see we've been very highly disciplined and creative with our approach to capitalization and really look to maintain a lower cost of capital. We received several proposals. We evaluated those proposals in comparison to both equity and debt options. And as Stu mentioned, this was one of the lowest cost of capital. And it also had the contributing benefit of allowing us a partnership with one of the gold standards in the royalty monetization space, which could be beneficial long term as we continue to grow.

The other thing I think that's important to your second question was, what's it say? I think if you look both at the deal terms here, this is -- well, there's so much data out there already known about the program and the product that they were able to evaluate. And you could see that the terms of this deal are similar to really an approved product, which is why we're able to get it -- get these terms even before approval. So I think that does speak to just the strength of the product and the data. And there's so much data and evidence out there about the product and why it's high value, which is why I think when you look at the -- at this transaction, just how we think how good it is, it reflects really a product that's there. There's obviously a lot of enthusiasm for a successful commercialization. I think, in some ways, this deal very much is external validation of the confidence of risdiplam that we share with our partner.

Our next question comes from the line of Joseph Thome from Cowen and Company.

Just the first one, just to make sure, because it is the preapproval. Are there any terms related to the successful approval of risdiplam, either in the U.S. or in the EU or ex U.S. territories that would prevent this from going through? Or is it just the confidence that you mentioned in the prior question? And then second, if you could just discuss kind of management's appetite to do licensing and royalty deals going forward for some of your other products? Is this a case-by-case basis where this made sense here, but maybe not in the other products once they reach the development and commercialization stage? Or how are you thinking about that?

Sure. Why don't you talk a little bit, Em, on the deal?

Sure. No, there are no gating terms for approval. And I think that really reflects the strength of the data we've seen from risdiplam and the expectation for risdiplam to be the most competitive global product. So I think RP's proposal was a reflection of that confidence. And we look forward to bringing that improved therapy to patients.

Yes. And I think also on your second question in terms of thinking about other in-licensing of other products, I think we've always stated that we continually look at business development opportunities and for the right deal that we think is both strategic and synergistic, that we'd obviously consider them. And I think from our point of view that this is -- that we look for things like this on a case-by-case in terms of monetization and other things as well. I mean this is a -- can be a way to bring nondilutive capital, especially, I think, in this particular transaction. And while it's not approved yet, we got deal terms that are much like that. So I think it really is, a, a vote of confidence of risdiplam in terms of the value of it in the SMA, and also gives us a partner who we can certainly transact with. We've known, actually, Royalty Pharma for a year. We've been talking to them. This was obviously one of the things that we were thinking about at some point to consider, and we think that the transaction is really good for us. And obviously, there's lots of ways you can work with -- we can work with Royalty Pharma to help grow. So we certainly consider that in the future.

Our next question comes from the line of Joel Beatty from Citi.

Congrats on the deal. The first question is about the specified amount that's in the press release. Is there some maximum that once you hit it, that you will no longer have to pay anything back? Could you tell us a little bit how to think about that? And then the second question is for risdiplam's planned sales during coronavirus. How does that affect the way your product is positioned versus the other 2?

Sure. Em, why don't you take the first part?

So the way the deal is structured is there's $650 million upfront for 43% of the royalties. So we will still be receiving the majority of the royalty on an annual basis until Royalty Pharma reaches their return of $1.3 billion. Thereafter, PTC has the potential to receive 100% of the royalties through the patent life of 2034.

Yes. And then on the second part of it, well, we feel that risdiplam is the most differentiated and competitive product for SMA. It's obviously orally bioavailable, systemic, so it not only fits within the CNS, but it's all other tissues. And it's now very clear that it's a disease of more than just the CNS. So I think there's lots of differentiating benefits of an oral therapeutic as opposed to one that requires in-hospital procedures. So that's especially true, I think, during the COVID period. So we think that COVID, unfortunately -- while unfortunate, probably makes an orally bioavailable molecule even that much more attractive. So we, in a sense, anticipate a strong launch. As you know, we already have an early access program. And so I think we're very much excited to bring this to patients, and we think it's going to be quite valuable to these patients. It also has the advantage of being -- the fact that it's oral, that it has -- not only do we think that's systemic as every tissue, but there's going to be savings to the health care system. You don't need any medical procedures to be able to take this.

Our next question comes from the line of Brian Abrahams from RBC Capital Markets.

Congrats on the deal. Two quick ones from me. First off, as you think about prioritizations for use of cash, can you maybe talk a little bit about how you envision allocating it with respect to internal versus external programs? And which internal programs would be highest priority? And then just secondly, on the terms, is there any sort of minimum on the royalties that they might receive? Any sort of, I guess, minimal return or backstop to the deal?

Sure. Thanks, Brian. So Em, why don't you take the second first?