Saniona AB (publ) (SANION) Earnings Call Transcript & Summary

Hello, and welcome to this live Q with Saniona regarding the Q3 report. And with us, I have CEO, Thomas Feldthus; and CFO, Johnny Stilou. Welcome both, and please start with your presentation. And after that, we will do a Q&A.

Thank you. So good morning, and thank you for joining today's call. I'm Thomas Feldthus, CEO of Saniona. And with me, I have our CFO, Johnny Stilou. We look forward to walking you through our second quarter and the third quarter highlights and outlook. So first, we remind you that this presentation includes forward-looking statements. And without limitation that also there will be something about business strategy, plans and objectives for future operations. These type of statements involve known and unknown risks, which may cause the company's performance and achievements to be materially different from those expressed and implied by these forward-looking statements. So Saniona is a clinical stage pharmaceutical company focused on neurological and psychiatric diseases, built around a successful partnership-driven business model. We are listed at Nasdaq Stockholm's main market. At closing price yesterday, our market capitalization was about SEK 2.1 billion. The liquidity in our stock has continued to increase during the year. The average turnover to date is around SEK 9 million. At the end of Q3, we had SEK 673 million in cash. We acquired our headquarter earlier this year for about SEK 72 million. We are confident that we can conduct a sale-leaseback transaction with a long leasehold. Including this amount and potential near-term milestones, we have more than SEK 900 million available for planning purposes. We are a lean and highly competent and efficient research and development organization. Our research department has delivered 4 new clinical candidates within the last 3 years. And we are now manning up in our development department, enabling us to take 3 of those assets into the clinics. Over the past 3 years, our partnership-based business model has created a robust pipeline and secured high-value deals that allow us to grow largely self-financed. As mentioned, we have a very strong financial position and with near -- over $70 million in cash and near-term milestones from -- worth $17.5 billion. Our CNS discovery platform has been validated through multiple partnerships while continuing to generate new internal programs. So we have a robust differentiated CNS pipeline entering clinical development. Recently, we signed 2 strategic collaboration agreements. In November last year, we entered into a collaboration with Acadia Pharmaceuticals, who is advancing ACP-711 for essential tremor with the goal of initiating Phase II clinical studies next year. During the past quarter, we entered into a collaboration with Jazz, who obtained an exclusive license to our preclinical asset, SAN2355. Jazz has not made any commitments in public, but given the state of the program, we find it reason to believe that they will start Phase I next year. And to make it crystal clear, Acadia and Jazz are responsible for all further development and commercialization. Saniona has no financial obligation in this context, but we are entitled to significant milestone payments and royalties as our partners progress these assets through development and commercialization. Based on the proceeds from these 2 deals, we are now advancing 2 internal assets for epilepsy and 1 asset for major depressive disorders. We expect to initiate 2 Phase I studies in the second half of next year and the third in the first quarter of 2027, aiming to start Phase II trials in '27,'28. These assets are early but valuable, and they address validated targets, and we have already demonstrated that we can monetize this type of programs. So let me start with our partner programs, ACP-711 and SAN2355. ACP-711 is a highly selective GABAA alpha 3 modulator that does not affect GABAA alpha subtypes influenced by the benzodiazepines. The compound has been well tolerated as shown in the Phase I testing, and it has provided biomarkers for both target engagement and functional EEG readouts. We closed the deal with Acadia in November last year. The total potential value exceeds $600 million, including $28 million upfront and up to low double-digit tiered royalties. SAN2355 is a highly selective Kv7.2/7.3 potassium channel activator for epilepsy and other indications. It has the potential to become best-in-class for both efficacy and tolerability because it does not activate other Kv7 channels that limit dosing in less selected compounds from our competitors such as Biohaven and [ Xenon ]. We partnered with Jazz to accelerate development and compete effectively with those competitors who are in Phase III today. We closed the deal in August this year. The total deal value exceeds $1 billion, including $42.5 billion upfront and tiered royalties up to low double-digit rates. In total, we have received $17.5 million in cash over the past 12 months and remain entitled to development milestones over the coming years, bringing the total payments up to $410 million. Of that amount, $17.5 million will be payable in the near term as our partners enter into the next clinical studies. In addition to this, we are legal to more than $1.2 billion in commercial milestones, bringing the total cash payment up to more than $1.6 billion, plus tiered royalties on future product sales. So I will now turn to our highly differentiated internal development assets. So SAN2219 is an innovative add-on therapy targeting focal epilepsy, which is the largest epilepsy segment accounting for about 60% of adult cases. Roughly 1/3 of patients remain uncontrolled despite that they received 2 to 4 antiseizure medicines today. We estimate that refractory focal epilepsy market to be roughly $1 billion for this product. It's the same opportunity pursued by Xenon, Biohaven and Jazz with their Kv7 activators, but we approach it with a different mechanism. SAN2219 is a selective GABAA alpha 2, 3 and 5 positive allosteric modulator, mechanism similar to benzodiazepines, which are among the most effective antiseizure medications. However, they have major side effects, limitations because they act on GABAA alpha 1 receptors distributed broadly across the brain. SAN2219 shows no activity on alpha 1, given the potential to combine strong efficacy with much better tolerability. The molecule is designed to deliver direct seizure control and potential synergistic benefits on top of standard antiseizure medications while avoiding sedation, abuse liabilities and tolerance induction typically seen for benzodiazepines. Phase I trial is planned for the third quarter 2026 to second quarter 2027 to assess safety, target engagement and EEG biomarkers. And the proof-of-concept study is scheduled for 2028 to 2029 with 120 patients over 8 weeks. Phase III pivotal study is expected in 2030 to '31 comprising about 300 patients. So now turning to 2668, which we selected as a new candidate for severe pediatric epilepsy during the third quarter. SAN2668 is a unique GABAA alpha 2, alpha 3 modulator that combines strong antiseizure efficacy comparable to the benzodiazepines with none of the [ oxidative ] cognitive and motor impairment and tolerance induction. So it appears that they -- which appears to be much lower than benzodiazepines and at the same level as other selective GABAA modulators. The lead indication is electric status epilepticus in sleep, also called ESES, which is a severe pediatric epilepsy marked by non-convulsive seizures during sleep that cause neurodevelopmental harm. The ESES market itself is estimated to be about $400 million, but we see potential in several other epileptic encephalopathies, including Lennox-Gastaut syndrome, paving the way for a broad DEE label with multibillion-dollar expansion potential. So Phase I study is expected to start in the fourth quarter 2026 with validated target engagement and EEG biomarkers. The Phase II study for ESES will be based on disease-specific objective endpoints so-called EEG spike-wave index, which is typical for this type of seizures. Early proof of concept is expected from an open-label study in 2028, followed by placebo-controlled data in 2029. As mentioned, we anticipate that 2668 will demonstrate efficacy across additional pediatric epilepsies, supporting a broad DEE label. Therefore, this Phase II study may ultimately evolve into a basket design like the approach used by Longboard Pharmaceuticals. SAN2465 is designed to be a rapid acting oral therapy for treatment-resistant depression. SAN2465 is a highly selective GABAA alpha 5 negative allosteric modulator with a mechanism which is distinct from the SSRIs, NMDA antagonists and psychedelics. We believe 2465 has multiple billion-dollar potential in major depressive disorders. It leads [ indication in ] treatment-resistant patients, which account for about 30% of the 25 million to 30 million patients in the U.S. and Europe. In addition, 2465 also address key unmet medical needs not covered by current standard of care, including rapid onset of effect and cognitive improvement. So Phase I is expected in the first quarter of 2027, again, with validated target engagement and EEG biomarkers to support proof-of-concept dose selection in TRD patients. The proof-of-concept results are anticipated in '29,'30. To conclude, our differentiated CNS program have generated highly valuable partnership deals and validated our discovery platform. The partnership-based model allow us to advance our robust pipeline, largely self-financed. We hold $70 million in cash and expect near-term milestones inflows from about $17.5 million, enabling the 3 assets to reach Phase II proof of concept. We look forward to generate this data that would demonstrate patient benefits and increase asset value. And to illustrate the potential, I will show you this slide. So Saniona has the potential to reach a position like Longboard, Karuna and Cerevel before they were acquired by Lundbeck, BMS and AbbVie in 2024. That is where we are directing our efforts. To put it into context, Lundbeck acquired Longboard for $2.6 billion after they have conducted a Phase II study comprising 52 patients across multiple DEE indications, which led FDA support a broad pediatric DEE label. That's precisely the approach we are pursuing for 2668 for pediatric DEE epilepsies. We already have key opinion -- support from key opinion leaders and a seat in the form where the regulatory pathway is discussed with FDA representatives. Looking ahead 5 years, we aim to have 2 assets ready for Phase III and several earlier-stage programs comparable to Karuna and Cerevel at the time they were acquired in 2024. Including near-term milestone from Jazz and Acadia, we expect to have around $90 million available to execute this plan. Our financial modeling indicates that we will need roughly additional $60 million to bring 2 candidates to Phase III start in 2030. We have financing in place for several years and expect to raise additional money through midterm milestones from Acadia and Jazz, near -- new partnerships and also potential royalty income. We also think that Saniona will be seen as a highly interesting business case for institutional investors. Therefore, there is also the opportunity to raise additional financing within the next several years if desired. And I now turn you to Johnny Stilou, who will give an update on our financial performance during the quarter.

Thank you, Thomas. Here, you see our financial results in the [Audio Gap] expectations. Net result for the quarter was realized with a profit of SEK 330 million, driven by the upfront payment of USD 42.5 million received from the Jazz agreement in August this quarter. As a result, the quarter ended with a total cash position of SEK 673 million, approximately the USD 70 million Thomas was referring to earlier. Next slide. Here, you find an overview of our operating expenses for the past 8 quarters. Operating expenses were SEK 48 million in the third quarter compared to SEK 32 million in the previous quarter. The increase in cost compared to the previous quarter is driven by higher CMC and [ tox ] costs as activity is increasing with clinical preparations as we prepare to move our 3 internal programs into clinical Phase I trials, along with incurred onetime costs relating to the Jazz agreement. Next slide, please. At the end of September, as mentioned, we held SEK 673 million in cash. As you can see from this graph, we have largely self-financed our current strong cash position with the 2 large partner deals we've made with the upfront payment from Jazz in August, with the USD 42.5 million mentioned and the USD 28 million upfront payment received from Acadia in November last year. As mentioned, we expect to receive an additional USD 17.5 million in near-term milestone payments, which will further bolster our cash position and provides us, as mentioned by Thomas, with a strong cash runway to progress our internal programs into clinical trials in the coming years. With that, I will hand the word back to Thomas for final remarks.

So to summarize the quarter, Q3 [Audio Gap] progress for Saniona and as we continue to execute our strategy to develop innovative treatment for neurologic and psychiatric disorders. Building on the strong foundation established earlier this year, we have advanced our pipeline, established new strategic collaborations and position the company for long-term growth. We announced the exclusive license deal on SAN2355 with Jazz in August. The agreement builds on our partnerships with Acadia Pharmaceuticals on ACP-711 signed in November last year. These nondilutive payment allow us to accelerate the development of our internal pipeline. Thank you.

Yes. Thank you for that presentation. So I actually got a question just recently from an investor about -- you mentioned this also, the burn rate in Q3 compared to previous quarters. But can you say anything about how you expect operating costs to develop ahead? Will they remain on this level? Or yes, how will they develop?

So as mentioned on the slide with operating costs, we did see an increase in Q3. It was driven by the increase in CMC and tox cost. And we will see in coming quarters -- of course, there will be fluctuations, but we will see an increase in our cost base as we move along. And down the road, as we move into clinical trials, our cost base will increase. Having said that, as also mentioned, there is specifically in the third quarter, a onetime cost relating to the Jazz agreement. That is obviously not something that we will see in coming quarters as it is a onetime cost.

Got it. And if we move ahead to some other drug candidates, I had one about SAN2465, and there have been mentions that it could have effects on brain plasticity, potentially improving the price level. Can you say anything about this? And if we can know more about this soon?

Yes, we are working more to get the data on that. But what we have seen in animal models is that when we dose the drug for just onetime dosing and then measure the effect, then it lasts for 24, 48 and even 72 hours after that onetime dosing. And at that time, there is no drug on board indicating these plastic changes going on. It taps into the same pathway as esketamine where it's known that there's plastic changes going on. So this is why we believe it's the case, but it's very difficult to prove, but we are working on that.

Got it. And in a recent presentation, you had mentioned that you probably can out-license one of your in-house candidates sooner than a proof of concept when speaking about the financial clinical development. Is that a possibility? Or should we -- is the main plan to take all in-house candidates a bit longer through the clinic?

These 3 compounds we are talking about, then we are taking in so far into proof of concept. And our aim is to take 2 of them to start Phase III. And you would say, is that -- is there a difference between having Phase II proof of concept and start of Phase III? Yes, there is because there's a lot of cost involved in making them -- prepare them for Phase III. And then at that time, you will see we will be a very different company at that time, what we can do.

Got it. And in extension to that, I mean, you mentioned about Longboard, for example, and a potential exit. But is there another possibility that you could develop into a full-fledged pharmaceutical company where you will do studies all the way into the [indiscernible]?

Yes. I said that if you're going in, in 2030, we could be well be several hundred employees if you are taking this into Phase III clinical studies. And there, you will be at a different -- you have a different platform to talk about these things. Right now, we are just 40 people in the ranks. And so it's a long shot, but this is what our ambition is.

Got it. And as you presented, you have a lot of already known drug candidates, but of course, there's the possibility to develop more in-house drug candidates. And one question I had was, is it more kind of target-based or indication-based when you look into new drug candidates? For example, now when you have a portfolio of epilepsy drugs, for example, are you kind of aiming to find a new target that could be used in other indications? Or -- yes, how is that process looking?

So we are focused on brain diseases in CNS and in psychiatric and neurological diseases. And we have 2 streams to look at this and the programs going forward. One is the market medical need and the clinical feasibility we are looking at. And this comes mostly from, you could say, more commercial oriented than clinical people. And then our scientists, they are looking at interesting new targets in the ion channel field where we have an expertise and come up with proposals. And then we look at this and we'll start programs accordingly along those lines. And we will, over time, putting more and more resources into our own research. In the past 3 years, more or less all our scientists have been working on partnered programs, and that will not generate our internal pipeline. But we have now and then have 6, 7 people available for a program, and that created the Kv7 program, which we put into lead op in 2022 and where we selected the candidate in 2023. At that time, we then made a collaboration with a company and now all people had to put into the partnership. But we got the candidate and then we sold it to Acadia for $42 million upfront. So it's a lot of value in our research, which we would like to harvest on. And we don't anticipate then going forward that we will make new research collaborations. Rather, we will use them for our internal development going forward because we see a significant value and we want to create a balanced pipeline internally.

Got it. And for example, you have a lot of focus on epilepsy. Is there more potential there? Or should we expect it to be kind of other CNS indications? Or yes, how much more can you develop in one indication, for example?

We have one compound addressing focal onset seizures, and we have one compound for pediatric epilepsies. But there are still things to go. There's -- particularly in the pediatric epilepsies, there are so many different types where you could look at different profiles, even in the GABAA space, by the way, but they are also in other -- with other ion channels. So epilepsy is still an interest area for us. But as I said, we are a CNS company, we are focused on psychiatric and neurological diseases. It could well go into other indications, too.

Got it. And you mentioned this example of companies that have been sold at high valuations. And can you kind of share any insights on how did their profiles look like? Were they narrow to one indication or broader in CNS? Or did it differ? Or what would an acquirer want to see in terms of...

The 3 companies we are [ referring ] to...

I mean, for example, Longboard and you mentioned some other acquisitions there with valuations that were higher and kind of -- if you were to position Saniona for an acquisition or such a deal, kind of would it be better to have a broader portfolio or narrow in terms of indications?

I use those 3 lighthouses, I call them, in order to illustrate the value, it's not necessary because we are pursuing an acquisition at the time. But it illustrate also the value because all these 3 companies have significant value prior to their acquisition. So there's a lot of value creation bringing this program forward to that stage. And this is what we are aiming at. When you're looking at the targets they have been using, then I think the Longboard was very focused on epilepsy, whereas [ CAR-TX ], which is a combo product, by the way, was addressing several different indications. And then when we're talking Cerevel, then they had several assets in Phase III and -- 2 assets in Phase III and also Phase II assets. And one of them were actually a GABAA modulator similar to SAN2219. But we think actually SAN2219 looks to be more efficacious but also has much better PK properties than this compound now controlled by AbbVie.

Got it. And I had one question about your drug candidates that are outside of the CNS space, for example, SAN903. Can you give us an update on kind of what you're thinking about this drug candidate? And yes, what are the plans there?

So it was -- we developed this compound for inflammatory bowel diseases. And it also have some ability to -- it looks -- have some -- shown potential for fibrosis in -- potentially in lungs and other organs. And we have come to a conclusion that the medical need in inflammatory bowel diseases is not so high as it used when we started this program anymore because the biologics have done a very good job there. So we are currently working on repositioning to other indications, and this is what we are working on through animal model studies. And we are waiting the results on this in order to conclude on what we are going to do with this program going forward. But it is outside the CNS space. So this is positioned for partnering.