Santhera Pharmaceuticals Holding AG (SANN.SW) Earnings Call Transcript & Summary

Ladies and gentlemen, good morning or good afternoon. Welcome to the Santhera Pharmaceuticals Analysis Financial Results for the Full Year 2019 Conference Call. I am Alessandro, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. This conference call may contain certain forward-looking statements based on current assumptions and forecasts made by Santhera Pharmaceuticals. Such statements involve certain risks, uncertainties and other factors, which could cause the actual results, financial condition, performance or achievements of Santhera Pharmaceuticals to be materially different from those expressed or implied by such statements. These factors include those discussed in the comprehensive risk factor disclosure on the company's website at www.santhera.com. Santhera disclaims any obligation to update any forward-looking statements. The conference may be downloaded on Santhera's website during the 2 weeks following the call. At this time, it's my pleasure to hand over to Mr. Dario Eklund, CEO. Please go ahead, sir.

Thank you, Alessandro, for the introduction. Good afternoon, and good morning, everyone, in the U.S. Thanks for joining this call today to discuss Santhera's 2019 full year results and update and give me the opportunity to update you on our pipeline and key inflection points coming up this year. This is my first conference call as a CEO of Santhera, and I wish it could have happened under different circumstances, but -- especially since I would have like to see you all in person, but I'm sure we'll have a lot of opportunities to do so in the future. But for now, let me wish you all good health for the coming months. I trust that you've all read the press release this morning, and I'll keep my comments very focused, but I'll make sure we allow enough time for Q&A afterwards, after this summary. So let me start by giving an overview of our update or an update on the DMD pipeline. I'll start with Puldysa. The regulatory review of Puldysa in the EU is nearing its final stage. We are seeking a conditional marketing authorization for the treatment of respiratory dysfunction in patients with DMD, who are not on glucocorticoids. The process is running as foreseen, and we anticipate obtaining an opinion from the CHMP in mid-2020. As the European authorities are switching their meetings to a virtual setup, we do not expect the delay due to the coronavirus spread. Subject to a positive CHMP opinion and subsequent approval, we are planning for launching the first European market by the end of this year. Our goal is clear. We want to make -- we want to be the first to market with Puldysa with an approved drug in nonambulant DMD patients who are in respiratory decline. Subject to successful completion of the large Phase III SIDEROS trial, we plan to submit regulatory filings in the U.S. and in Europe, aiming at a label which allows treatment with Puldysa irrespective of steroid use of patients. So let me switch to our second DMD asset vamorolone. Vamorolone is -- I guess, is currently being investigated by the originator company ReveraGen in the pivotal vision DMD study in ambulant patients with DMD. Six months top line data from this trial are expected in the fourth quarter of this year. And if positive, we plan to file an NDA in the U.S. in the first quarter of 2021. Vamorolone is a first-in-class anti-inflammatory drug candidate with novel mode of action. It's expected to have a superior tolerability profile compared with glucocorticoids. On this basis, we are developing vamorolone with the objective to replace glucocorticoids a standard of care in DMD. Subject to positive vision DMD data, we intend to exercise Santhera's sublicensing option for the product for all indications and all countries except Japan and South Korea. With these 2 assets, Puldysa and vamorolone, our company's trust has become neuromuscular disease and especially in DMD. With these 2 products, Santhera is uniquely positioned to address the medical needs of DMD patients across all disease stages and importantly independent of the specific genetic background of the disease. This DMD portfolio clearly positions us as a leading company in the DMD space. Let me switch gears and switch to the second topic, which is our financial performance in 2019. As you can see from the annual report, we achieved sales of CHF 27.9 million in 2019 and slightly exceeded our guidance. This also shows our commercial competencies. What we achieved with Raxone in LHON, we want to multiply when we reach the market with Puldysa in the much larger DMD market. In May 2019, we entered into a licensing agreement with the Chiesi Group as well as recognized Italian rare disease company. And under this agreement, Chiesi Group has in-licensed Raxone for LHON and all other ophthalmological indications for all territories worldwide, except the U.S. and Canada, for a total consideration of EUR 93 million. Also in 2019, we recognized an initial payment of CHF 46.4 million, which allowed us to push ahead with the development of our neuromuscular franchise as planned. We are reporting total operating expenses of CHF 80.7 million, slightly surpassing the previous year's level. Largely owing to the Chiesi transaction, Santhera closed the full year 2019 with a net result of minus CHF 19 million, compared to minus CHF 54.2 million in the previous year. And as of December 31, 2019, freely available liquid funds, that's cash and cash equivalents, amounted to CHF 31.4 million. So let me turn to the third topic, which is our financing and growth plans. Our ongoing development activity is gearing up for market entry with Puldysa and DMD and our intention to exercise the option to obtain an exclusive sublicense of vamorolone, our ambitious plans that will require substantial additional funding, especially in the second half of this year 2020. Thanks to cost-saving measures, which we already implemented, available cash is expected to fund our operations after the first value inflection point, which is the CHMP opinion of Puldysa expected in mid-2020. Obviously, a positive CHMP opinion, followed by approval, will significantly improve the ability to raise funds and should, in my view, also substantially boost Santhera's share price. It's also our intention to approach capital markets immediately following positive regulatory news for Puldysa. We want to secure additional funds before reaching that milestone to create a funding buffer. Also because of all the uncertainties around COVID-19 and related downturn in market sentiment. The company is, therefore, in discussions with several potential investors about alternative financing measures to raise about CHF 20 million. We are looking at debt financing, royalty financing, standby equity distribution agreement as well as the monetization of receivables. As you read in today's press release, we are also considering restructuring the CHF 60 million Senior Unsecured Convertible Bonds, which will become due in February 22, including a reduction of the conversion price. This would increase the likelihood of bondholders converting their bonds into shares and will limit repayment obligation, which in turn allows us to redirect funds to our own operations. Last but not least, the Board of Directors will propose at the forthcoming Annual General Meeting on April 22, the increase of authorized capital from CHF 3 million to CHF 5.5 million and an increase of conditional capital from CHF 2.5 million to CHF 4.8 million. This should also provide us with more flexibility in financing our company and could pave the way for equity financing, especially after Puldysa approval and subject to more favorable market conditions. So as you can see, we're looking at multiple opportunities to secure financing for our ambitious development and commercialization plans, both 2020 and in the longer term. We, and that means the Board of Directors and the executive team, are confident in our ability to successfully conclude these efforts. So this summarizes the key achievement for last year in my first month at Santhera. Before I close the summary and take your questions, let's take a look at our outlook. As we have phased out Raxone sales and our next launches at the year-end, we do not provide sales guidance for 2020. The core focus for 2020 is reaching the product milestones, on the one hand, as outlined, and securing sufficient liquidity to make sure that the cash does not become a limiting factor when we're implementing our strategy. We have a exciting year ahead with 2 milestones in 2020 as well as a launch in Q4 of 2020 of Puldysa. First milestone being the CHMP approval in Puldysa, the second milestone being the top line readout of vamorolone expected in Q4. And then the launch of Puldysa in the first markets in Europe in Q4. And then in early 2021, we are expecting to file vamorolone with the FDA. After that, with only these 2 assets, Puldysa and vamorolone, we will have either a submission or an approval or a launch every quarter for the next 3 years. So there's a lot of excitement in the organization about our future. And I want to close my opening remarks with that and now hand over to the operator for questions.

[Operator Instructions] The first question comes from Bob Pooler from ValuationLAB.

First of all, congratulations with your appointment as new CEO of Santhera. Actually, my first question relates to this. What actually convinced you to join Santhera? Is there something that the market is not seeing correctly?

Bob, good to speak to you, and thanks for the question. I think what I didn't really appreciate when I was contacted by Santhera is what the market really doesn't appreciate either right now is the opportunity at hand here. I mean we have the ability to build a very attractive franchise in an equally attractive medical space with a high unmet medical need in Duchenne muscular dystrophy and neuromuscular diseases in a broader context. In our Duchenne muscular dystrophy compounds, Puldysa and vamorolone are perfectly complementary to all the new drugs that are being developed in this space. For instance, the Raxone-skipping therapies, the read-through therapies as well as the new gene therapies that are in development. So we're looking at a portfolio or a franchise that could really be market leading. And when I look at the long-term prospect of the company, I believe that Santhera can really become a consolidator in the rare and orphan neuromuscular space. I mean we're not going to enter into SMA or multiple sclerosis because there are much bigger players than us in those spaces, but there's a very broad space in between of rare and orphan neuromuscular diseases where we could really become a dominant player. But I think to get that credibility, we first need to launch these 2 DMD assets that we have successfully. And given my commercial background and my commercial experience from the past, I thought this was a perfect fit in terms of timing to join this company. The other reason why I joined was, I was aware of Santhera, but not been followed the company very closely in the past. I was familiar with idebenone or Puldysa and the past history of submitting that to the CHMP and not getting approved. So I was a little skeptical when I was first contacted whether this is something that I want to pursue, the company who hadn't run a prospect to be randomized pivotal study in between the -- or after the previous submission and I was wondering how the company plans to get the product approved again. But once I did my due diligence with friends of mine, who are in the regulatory space, medical space as well as having conversations with the Board members, it became clear to me that a lot of the shortcomings that the company faced in the previous submission have -- has since been elegantly addressed. And it really increased my confidence level in the company's ability to get approved with Puldysa in mid-2020. So the short answer to your question is the opportunity to really build a leading franchise in the neuromuscular space, coupled with my deeper understanding of the opportunity and the risk involved and the uniqueness of the products that the company has made it very attractive.

Just a follow-on there. [ Once ] you see the chances are for Puldysa receiving a positive opinion, more or less what has changed since Puldysa was rejected for the first time in history?

Sure. I mean the first time around -- so there are basically 2 components to the answer. The first component is the regulatory strategy, which is different this time around. So let me start with that. So last time around, the company submitted what is called the Type II variation to an existing approval of Raxone and Raxone for the LHON indication, was approved by the CHMP or the EMA as under exceptional circumstances. When you submit a Type II variation, it's essentially a new indication for an existing drug. And the company was given the guidance by the EMA to do so to submit the Type II variation pathway. But in retrospect, when you look at -- you're submitting a 64-patient study, a single study, as a Type II variation, as a new indication, the CHMP can't approve that on a conditional basis. Any Type II variation, any additional indication that gets approved on a permanent basis. So it's always easy to be smart in retrospect. But the better pathway would have probably been the conditional marketing authorization pathway, which is the pathway we're taking now where the product gets approved, not as an additional indication to an existing drug, but as a new drug in itself. And the criteria for being able to go the conditional marketing authorization pathway are twofold. On the one hand, it needs to be a rare and orphan drug or a rare and orphan disease that the drug addresses. And in that disease, there has to be a very high unmet medical need. No other drugs that can address the disease of the patient. And on the other hand, the company has to show a reasonable benefit risk ratio where the benefits outweigh the risks clearly. Provided that those 2 conditions are met and the company is agreeing to do -- running a confirmatory study, a longer study -- longer-term study, maybe with more patients, the CHMP can approve the conditional marketing license of such a drug. And most rare and orphan diseases nowadays do take that pathway, which we're taking now with the CHMP. So I think the regulatory strategy is a very different one. The other hurdle to get approved is significantly lower in this regulatory pathway. And then that takes me to the second component of what's different and that's the data set. If you look at the original submission, there was a discussion with the agency as to whether the primary end point of peak expiratory flow was the right end point to measure. The company had run the clinical study, DELOS study, [ met ] the primary end point with statistical significance, but yet there was debate about whether that primary end point is the right one. Now with the additional data that is now available from a large number of natural history studies where real-life decline of these patients are measured for multiple parameters, peak expiratory flow being one of them, the agencies have seen very clearly that the peak expiratory flow is declining hand-in-hand with force vital capacity, which is another parameter that the agency is looking at. And then these parameters -- if you can reduce the rate of decline on any one of these 2 parameters, you're also delaying the time to assisted ventilation. And that has become very clear to us and to the agency. But that data wasn't available 3 years ago. That data is now 10 years mature. So the clinical relevance of that primary end point is now very well understood. The second point was the long-term data. At the time of submission, the company only had a 1-year study. And the agency basically wanted to know is if you continue on this drug, that the delta between the control and the active continue in year 2, 3 and 4, can you expect to have a continued benefit from this drug or is it just a 1-year effect? And for that, we now have additional data with the publication of the SIDEROS study. SIDEROS was a long-term follow-up study of the patient from the DELOS study. And we have up to 76 patient years of data from that cohort. The longest follow-up is 6 years, and the mean follow-up is 4.2 years. And in that data, you can clearly see that the benefit of the drug continues to separate the 2 lines between the natural history cohort who are not on drug versus the patients in the SIDEROS study who remained on drug. So these are really significant changes in the data set that we can now provide. And we feel very confident that we've answered all the questions that the CHMP has. And really, when I look at the calls we now have with the [ operator ] and the core operator, a big chunk of the discussion now is around the design of the confirmatory study. How long? How big? What is a statistical analysis plan and so on. Rather than rehashing whether the questions that they originally had -- have been answered or not.

That's very positive. And just my final question, which is probably part of a, also confirmatory trials disease, through SIDEROS trial. How is that progressing? And when do you expect top line results?

So the SIDEROS trial, as you probably know, is one of the larger studies, if not the largest study ever conducted in DMD with 266 patients. Study is conducted both in the U.S. and Europe. And the study is designed as a pivotal study for U.S. approval and for expansion of our label in Europe. That study is now 95% recruited. And we expect to finish recruitment in the next months, unless the current COVID-19 issue delays recruitment. In that case, we believe that there's a good chance that we could close the study earlier, still get statistical power. So we're evaluating that as a team now, whether we're going to be doing that or not. But first, we want to see a slowdown. It's too early to say what impact does COVID-19 will have on wrapping up the patient recruitment in that study. But 95% recruited. So we should -- we're well on track.

Okay. And fingers crossed then for such an -- yes, an EU approval and also the idebenone top line results there. So keep operational and stay healthy.

You too, Bob. Thanks.

The next question comes from Olav Zilian from Mirabaud.

Congratulations on the progress and on your appointment, Dario, also from my side. I have 2 questions, if I may. Could you please give us a state of play heads up on the ongoing review process as such here in Europe on Puldysa and Duchenne? And the second question would be on vamorolone. So the the doctors [ kind of positioned ] as a substitute for steroid for treating early Duchenne patients. There are, however, also much big indications outside of Duchenne where the stock could become a substitute for steroids. What are your plans to tap these major revenues outside of Duchenne?

So just a quick -- thanks Olav for the question. So just a quick update on your -- on the first question on this CHMP status. We submitted our 120-day questions in the third week of February, so a week earlier than originally planned. And we feel very confident that we've answered nearly all the questions that they had in a satisfactory way. So the team is now waiting for the 150-day questions. And we're looking -- if everything goes according to schedule, we're looking to have an opinion by the end of Q2, probably late June. With regards to your vamorolone question, which is a really good one. I mean the originator company ReveraGen is obviously developing this for Duchenne muscular dystrophy and the CEO and Founder of ReveraGen is a Duchenne researcher and he designed his target product profile for Duchenne in order to have a product that has the efficacy on glucocorticoids steroids but without the downstream side effects or significantly less side effects. Should the clinical profile hold as we expect, then there are many other indications outside of Duchenne where this drug would potentially have a utility. I'm thinking of IBD, Crohn's disease, ulcerative colitis, but also rheumatoid arthritis and so on. There's an opportunity here to find a partner for these indications. And this could be a nice source for nondilutive financing for the company. So we are in very close collaboration with Idorsia with regards to finding a sublicense partner for this. Ideally, we would like to have one partner -- one large partner who could cover the geographies that we don't cover ourselves in DMD, but also in indications outside of DMD, but it's still very early stage. So we're still exploring potential partner candidates, and we're doing this in very close collaboration with Idorsia. So stay tuned for news on that front, but it's a very good question because the compound, clearly, is potentially very attractive in other indications than DMD. But we, as a company, just don't have the bandwidth to commercialize in those other indications. So we would have to find a partner for it.

So maybe a follow-up on your relationship with Idorsia and exercising that option. So officially, we would expect it not to occur before the end of maybe this year when the pivotal data will be published on vamorolone in VISION. However, ideally, from a commercial point of view, you would license it out earlier. So how can you get access to that right to supply this compound?

So the timing of the option exercise would be after the pivotal readout, which is the 6 months pivotal readout and the FDA, given their good for good, and their not for good to file. So we're looking at an exercise of the option probably shortly thereafter, which could be end of this year or could be in early Q1 of 2021. Now the question is, how can we find a partner and a deal before exercising the option? We can line up a partner. We can have those negotiations with a partner that are -- they are pursuant of getting the option exercise. So we don't have to exercise the option if the data isn't solid. But you can already line up a partner ahead of time so that if the option is exercised, that partner has the right of first negotiation or even has the rights for the product outside of the territories that we intend to commercialize ourselves. We obviously have to do that together with Idorsia, and we're working very closely with Idorsia on that.

And considering an option for the option like advancing the exercise of your option such that you can hand out a sublicense rights to a potential pharmaceutical partner. Would that be a way?

Yes. I mean that's one alternative that we're looking at. I mean the -- if we have a partner who's interested in the rights for vamorolone in the joint expanded geographies and new indications and they are providing us with the upfront payments for such a right, then we always have the option to either exercise the option early or still wait for the pivotal trial readout.

The next question comes from Henrietta Rumberger from AWP.

I have actually 2 questions. One is, maybe you can sort of specify a bit more. So the cash you have right now, if I understand correctly, that will last until midyear, until the CHMP will decide on the drug? And the second one is how much? Because it only says you will need a substantial amount of -- or you will need to raise a substantial amount of cash. Can you put some kind of figure behind that, please?

So first, Henrietta, the question on the cash reach, the current cash reach. We have communicated that the current cash reach is until early Q3. So it goes slightly beyond the CHMP approval. However -- what we would like to have is a buffer so that we are not under tremendous pressure after the CHMP approval to immediately raise new funds. Just in case this COVID-19 scare and the world situation is -- doesn't allow us or doesn't make it an opportune time to raise cash to have a bit of a buffer. And so for that buffer, we're currently looking to raise $20 million, and we believe that should be enough. With regards to the long-term financing of the company, I mean we're still looking at all the details of the clinical trial spend, need, launch costs, the sales ramp-up, time to peak sales for both idebenone in Europe and vamorolone in the U.S. All of those parameters are being rechallenged now and looked at. So it's a little bit too early for us to exactly say how much cash we need until we break even. But I also want to emphasize the fact that I want to maximize the value of the company, not work until -- and breakeven as soon as possible. We have pipeline assets of tremendous potential, and I want to make sure we maximize the value of the company long-term rather than looking at how can we break even as soon as possible. Because I don't think that's in the interest of the shareholders.

Well, I mean I was not talking about breaking even. I just wondered how much money you will need to raise, considering that, again, it's really bad timing for raising money for small companies.

Sure. No, I think I can disclose this much because that is a given is that with the capital that we're requesting from the Annual Shareholders' meeting that's coming up in April, we want to do a capital raise in the second half of this year on the back of a positive CHMP opinion. That capital raise is not going to be enough for us to launch a product in Europe and in the U.S. within the next 24 months. So we will have to have another larger raise probably in the first half of 2021.

So the one you're talking about -- the smaller one would be this $20 million range you mentioned earlier?

No, the smaller...

And then after that a bigger one would follow at some point.

No, the $20 million range is a short-term financing. That would create the buffer that we need. In case there is a delay in the -- because of COVID-19 in the CHMP decision, which we don't hope will not be the case, and don't expect to. But we would want to have that buffer anyway. And then once we have the CHMP approval, we would then, in the second half of this year, do a proper equity raise.

There are no further questions at this time.

Okay. Well, if there are no further questions, I thank you all for your attention. I think it's going to be an exciting year, and I hope you keep following us and keep following our progress because we have a very solid, strong team who are extremely bullish about our future, and we look forward to delivering good news at the midyear results. So with that, thank you very much for your attention and stay healthy.

Ladies and gentlemen, the conference is now over. Thank you for choosing the Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.