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

Ladies and gentlemen, welcome to the Santhera Pharmaceuticals Conference Call. I am Alice, the Chorus Call operator. 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 two 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, Alice. Good afternoon and good morning, everyone. Thank you for joining today's call following the publication of Santhera's 2020 full year results this morning. I'll take you through the details of the results as well as providing with a wider update on our pipeline and strategy. But before we go into details, a short introductory overview might be in order. In a year of global turmoil, 2020 saw Santhera completely transformed, both in its pipeline, structure and financial outlook with vamorolone emerging as the company's new lead asset. We have new management, a new pipeline, a smaller company with lower costs, new shareholders and subject to completion of our bond restructure and new and stronger balance sheet. To reach this point, we had to pursue various financing opportunities to overcome our tight liquidity situation. We signed a transformational deal acquiring an assignment with a global option right to vamorolone from Idorsia and the concurrent exercise of rights with our partner ReveraGen. We have to go through a very frustrating setback with the disappointing SIDEROS interim analysis results and subsequent closure of the Puldysa program in DMD. And we have to conduct a painful restructuring exercise, where we had to say farewell to many great colleagues in order to cut costs and aligned with our future focus primarily surrounding vamorolone. We've survived a tough year and are now energized and optimistic for our future. Earlier this week, we announced Phase 2a long-term treatment data with vamorolone that indicate the long-term maintenance of treatment effect and disease modifying potential with vamorolone. This underpins our belief that vamorolone could emerge as a foundational therapy in DMD for all patients irrespective of gene mutation and as an alternative to corticosteroids. We're looking forward to brighter future and we call ourselves colloquially Santhera 2.0. We will now take you through the release that we issued earlier today. We'll begin looking at the financial performance, which our CFO, Andrew Smith will cover, followed by pipeline progress. Finally, I will discuss Santhera's outlook and plans for the future. And as always, at the end of my summary, we will open the lines, so you can ask questions. Andrew, I'll hand over to you.

Thanks, Dario, and hello, everyone. So starting with the financial update. Full year net revenue of CHF 15 million from the sale of Raxone was in line with expectations. The reduction on last year reflects the impact of territories out-licensed to Chiesi group as well as the inclusion of upfront milestones recognized in 2019. Cost of goods sold were CHF 10.4 million compared to CHF 5.5 million in the previous year and the increase was largely due to a one-off CHF 6 million impairment related to the discontinuation of Puldysa, which was partially offset by the full year impact of out-licensed Raxone activity. Total operating expenses were CHF 58.3 million, significantly lower than the CHF 80.7 million of expenses in 2019. The decrease can be largely attributed to the termination of the Puldysa program and the full year impact of out-licensed Raxone activities, leading to reductions in development, marketing and sales and general and administrative expenses. A total of CHF 27.4 million in costs are expected to be non-recurring. This includes an inventory impairment of CHF 6 million and Puldysa related operating expenses of CHF 11.4 million. In addition, the organizational restructuring that followed the termination of the Puldysa program is expected to reduce staff costs by approximately CHF 10 million in future periods. Whilst, we continue to look for suitable ways to further reduce costs, we will be flexible to the requirements of the vamorolone program. And in the event of positive results, we would expect certain cost increases around approval and pre-commercialization. Other costs included those associated with post-marketing study obligations for Raxone expected to be completed during 2021 and supporting the ongoing development of lonodelestat, which announced positive Phase 1 results last month. Net financial income and expenses increased by CHF 6.4 million to CHF 14.4 million in 2020, primarily related to raising additional funding, the impact of currency gains and losses as well as derivative accounting adjustments. We incurred a net loss of CHF 67.7 million in 2020 as compared to CHF 18.9 million in 2019. This can be attributed to the decrease in revenue following the out-licensing of Raxone and costs related to the Puldysa program. These were only partially offset by cost reductions. Cash used in operating activities was CHF 43.5 million compared to an inflow of CHF 2.6 million in 2019. The increase in outflow was mainly due to the decrease in Raxone revenue as well as the out-licensing milestone received in 2019, again partially offset by other reductions in expenses. Cash and cash equivalents at 31st December 2020 were CHF 12.4 million compared to CHF 31.4 million in 2019. So now I'll move on to the financial outlook for 2021. Currently, the company has a limited cash runway until Q3 '21. And therefore, there are material uncertainties regarding our ability to continue as going concerned at the end of the calendar year. As at April 27, 2021, the company had cash and cash equivalents of CHF 11.7 million and a further CHF 6 million available from the Highbridge facility subject to certain draw-down conditions. In particular, development of the pre-commercialization activities relating to vamorolone will require substantial additional funding, particularly in the latter part of '21. Executing our strategy is therefore dependent on further funding. As a result of the termination of the Puldysa program in 2020, the company ended the year with a limited cash runway. Initiatives taken during Q4 2020 helped to reduce cash flow from operating activities significantly. And in February '21, an amendment to the agreement with Highbridge provided additional funding and extended our cash runway to the third quarter. In light of the overall liquidity position and the need to raise additional funding during the year, we embarked upon a restructuring of the CHF 60 million convertible bond maturing in February '22. This process is in its final stages and is expected to result and exchange of approximately 75% to a new bond or completion of a consent solicitation process to lead to 100% exchange, with maturity extended to August 24. The 75% exchange would reduce the amount of maturing in February '22 to around CHF 15 million and a further update on the bond restructuring process will be provided in the next few days. At our Extraordinary General Meeting in March, Santhera's shareholders approved additional authorized and conditional share capital that would be required in the event of conversion of the convertible bond for the new terms as well as allow some for additional financing. So we're currently evaluating a number of different options to secure additional financing, potential requirements and sources will be further evaluated following the outcome for upcoming vamorolone six-month results. And these will be outlined by the Board at the upcoming Annual General Meeting in June '21. And now I'll now pass back to Dario.

Thanks, Andrew. Let me now take you through the details of our pipeline progress in 2020. As outlined earlier, we are focused on advancing vamorolone towards regulatory submission. We're obviously also looking for opportunities to progress lonodelestat into a Phase 2 trial and are currently evaluating design options with our advisers. Looking first that vamorolone, the development program made significant progress during the year, encouraging new clinical data during 2020 should further light on the compounds novel mode of action, efficacy, safety and favorable tolerability profile. And as I mentioned earlier, this week we announced new long-term data from the Phase a trial of vamorolone, which demonstrated a maintenance of treatment effect equivalent to a delay of about two years and declined for the time to stand velocity and confirmed safety and tolerability benefits of vamorolone over the two and half year follow-up period. Long-term treatment with vamorolone resulted in significantly fewer corticosteroid associated adverse events than reported in other clinical trials with other steroids. This maintenance on treatment effect indicates disease modifying potential of long-term treatment with vamorolone. We are equally excited about the findings that vamorolone did not show something of growth typically reported for other corticosteroids and also resulted in significantly fewer physician-reported adverse events, which are common reasons for corticosteroid treatment discontinuation. We are expecting the six months results from the pivotal Phase 2b VISION DMD study in Q2, so in this quarter of this year and are confident that they will provide further evidence to establish vamorolone as an effective treatment and valuable alternative to corticosteroids for the long-term treatment for DMD. If positive, the data would pave the way for the filing of a New Drug Application or an NDA with the USFDA in the first quarter of '22 and we would anticipate an EU submission in the second quarter of '22 upon availability of positive 12-month data. Now moving into lonodelestat, which is in development for the treatment of cystic fibrosis. Lonodelestat is a potent and selective circular peptide inhibitor of human neutrophil elastase and enzyme linked to tissue inflammation, which leaves the degradation of the lung tissue. This enzyme is associated with cystic fibrosis and other chronic inflammatory conditions. In December of 2020, Santhera completed a Phase 1b study in patients with cystic fibrosis, which assess the safety, tolerability pharma genetics and pharmacodynamics of orally inhaled daily doses of lonodelestat for up to four weeks. The study established a safe dose regimen and provided promising data on the safety of lonodelestat. In addition, the study demonstrated that the compound reaches its intended target in the lung and achieves complete inhibition of elastase without any drug or metabolite accumulation. This is a strong basis for us to continue lonodelestat development in cystic fibrosis, as well as exploring its potential in other in other inflammatory pulmonary conditions. Now looking to partnering an early stage parts of the pipeline. We've begun exploring partnering opportunities for vamorolone in indications beyond DMD and in locations outside the U.S. and Europe which are our primary markets for our own commercialization. Preclinical data has shown vamorolone potentially asthma, multiple sclerosis, inflammatory bowel disease, rheumatoid arthritis, critical illness, muscle disease and brain tumors. For some of these diseases, the prescription of standard glucocorticoids is limited due to the detrimental side effects. We believe partnerships here could result in significant future non-dilutive income streams. Elsewhere, we are pursuing collaborations with partners around lonodelestat in pulmonary diseases beyond cystic fibrosis. Now before we open the call to questions, let me share a few words on COVID-19 and our outlook for the upcoming months. We continue to closely monitor the impact of COVID-19 on our operations prioritizing the health and safety of our employees and clinical study participants. Looking ahead, our two operational priorities for 2021 on the preparations for U.S. regulatory filing for vamorolone subject to positive six-month data readout from the VISION DMD study and securing additional funding to allow us to pursue our plans this year and beyond. This concludes my prepared remarks. To reiterate, Santhera has survived a tough year. But we're looking forward to a brighter future, underpinned by vamorolone, which we believe could emerge as a foundational therapy in DMD for all patients. So I'll hand over back to the operator now Alice and we'll take some Q&A.

The first question comes from the line of Bob Pooler with Valuation Lab.

First of all congratulations with the progress made in restructuring the company as well as the convertible bond. A few questions in mind. First of all on for vamorolone. Yesterday, as you said, you reported a 2.5 year treatment data in the open-label extension trial, which looks promising. The first question, how important are these findings compared to standard corticosteroids?

So I'm joined by some members of my management team on the call. And I think this is one that I would like to pass to our Head of Global Medical Affairs Dr. Shabir Hasham.

Thanks for the question. And so there's two aspects to this and insights from the LTE 2.5-year data really help to try to characterize this. The first is what we're seeing in terms of treatment effect is very comparable to standard of care and that's in line with our expectations. But perhaps more important aspect is what we see at the six month time point in our 3 Study, which is what it's comparable to the time frame for the pivotal study is a very clean safety profile. What we're also seeing is about for a two and half year period, which is more important because some of these side effects take time to accumulate, we're seeing rates reported for vamorolone that are far fewer than it is in the published literature for other standards of care, that's the first point. And the second point is that they don't accumulate over time, both for those adverse events that are really important for decision-making to stop treatment, those are what we call the adverse events of special interest, such as weight gain, behavior, Cushing appearance, etc. nor do we see a dose and time dependent increase in treatment-emergent adverse events. So this tells us that we have certain from inside LTE a very similar efficacy profile, but it's very different safety profile and that is key to understanding the value of the modeling. What we also see is a very low discontinuation rate. And those patients who did discontinue because dose toxicity or drug-related adverse events, they discontinued for logistical reasons or going to other studies. So for us the LTE both at six month deserve for that a six month, but also the LTE at two and half years, significantly derisks for us the safety profile. And what we would expect to see in our workforce study is a very clean 6-month profile of the safety.

Just a follow-on question maybe, next in the number of patients and the blinding it so, what are the differences of low open-label trial compared to the pivotal the DMD trial and maybe also what are the similarities. So what should we read out of the long-term open label extension trial and can we read through to that decision the DMD trial?

So really the key difference is the control, right? So obviously the 4 pivotal study has a placebo arm for the, whereas the OO3 and LTE study is open label. Other than that actually they're very comparable. So we have the same patient population for to less than seven. We've looked at the distribution in terms of age. We looked at the distribution in terms of baseline time to stand as the primary outcome and actually they are very comparable to other than really the lack of control. We have a very good comparability and insight between the two studies.

Just on your cash lines which reaches to Q3 2021. How you progressing with the partnering opportunities of vamorolone outside DMD and our geographies outside the U.S. and Europe. Do you expect announcements soon and would that potentially be also be ahead of the top line results of the DMD?

I mean, obviously, we're exploring partnering opportunities both for geographical deals in DMD but also for potential other indications, where an asset like vamorolone would have medical value. We're not going to be providing ongoing commentary of where we stand in these negotiations. We'll make the announcement when the time comes. But I can say that from a geographical point of view, the priority has so far been China. And then, from a partnering opportunity in other indications. I've mentioned earlier, ReveraGen has already published non-clinical research based on biomarkers in a number of areas, whether it's IBD, lung disorders, arthritis vasculitis and so on. So we are considering exploring those indications ourselves. But there is also an opportunity to partner in therapeutic areas by developing additional dosage forms and formulations that would also allow then for a differential pricing a differential branding and potentially also provide additional intellectual property. But for some of these indications, this requires additional preclinical and or formulation work that we would be wanting to develop together with our partners. I hope that answered the question. I don't want to go into any specific commitments on timing of communication at this point.

And just coming back here to the convertible bond. You just that the bond maturing 2022 by 75% or CHF 15.29 million. Is there any chance you can decrease that even further by acquiring a 2/3 majority vote?

I'll take this. And as you know, the process is quite complex. We set out originally to restructure 100% of the bond and that was through a consent solicitation process, where we did not meet the 2/3 threshold, although 89% of those voted were in favor of it and but represented around 58% of the total. So we launched the exchange process to allow at least a partial restructuring. And as you saw earlier this week, we announced a 75% within the offer period have attended the exchange on the same terms. What we're doing is we've been seeking throughout to ensure that there are no further votes for the consent process. It's quite complex also if there are new bondholders needs to be verified that they help those bonds at the time of the original bondholder meeting and so on. And so we're in the process of confirming all that information. We've set a settlement date on the likely settlement date on the exchange process and we've said that we will update by Monday the 3rd at the latest on the process. It's difficult to tell, but custodians batched their information and send it through towards the end of periods and so on. And we're also have that some custodians. We're not passing on some of the information to some of their clients. So it's been quite a process in identifying and ensuring bondholders foreseen the right information. But we feel we've made significant process we either end up at the 75% or 100% potentially and that's we'll see in the next few days.

Just a final on lonodelestat. You successfully completed the Phase 2 multiple ascending trial in March. What are your takes on this early data for the drug anticipate fibrosis and its potential positioning in the market?

I think I'll take that one. It was a Phase 1b multiple ascending dose study Bob. I mean, importantly, a safe dose was established in cystic fibrosis patients. So the path for further development is now open. And with the safe dose, we also showed that lonodelestat by inhalation reached at the molecular target in the long at least a full inhibition of neutrophil elastase. So this supports the hypothesis that our potent selective elastase inhibitor like lonodelestat. When it delivered directly to the lung can address the chronic inflammation there. And it's important to note that this category of compound is not something new. I mean neutrophil elastase inhibitors have been used systematically in the past in these types of patients. But they haven't reached the lung in high enough concentrations and have been considered too toxic for clinical use. So are very, very selective and specific potent inhaled form of this is really something that is novel and in cystic fibrosis, no specific anti-inflammatory treatment has been approved. So we're planning our Phase 2 program now in cystic fibrosis. And the cystic Fibrosis Foundation, which supports our program, even highlights very prominently the importance to address the inflammation despite advances with the current treatments on the market. So the target population best suited to show clinical proof of concept for our approach is currently being key up in leaders leading experts as well as some members of the cystic fibrosis foundation and they will help us design the study accordingly.

The next question comes from the line of Barbora Blaha with Credit Suisse.

I have one remaining on Puldysa and the business there was down. And what is the impact on the Chiesi sales milestones of EUR49 million? Could we still expect them or the first stage next year? Or could you comment on this, please?

So Chiesi obviously continues to sell Raxone. And the last we heard from them was that the sales were doing well and growing. Whether they will be able to hit their first milestone we'll only know in August of this year. They have no obligation to report to us anything in interim results of sales. And the sales milestones are always calculated from August to August each year. So the first time they reach the sales milestone of EUR30 million by August of any given year, that would trigger the first milestone payment of EUR12.5 million to us. Whether they will reach that this year given that 2020 was a little bit of a -- and 2021 continues to be a little bit of an unpredictable year with regards to sales due to the pandemic, we don't know and we'll have to wait until August to see.

Can I just add to that, Barbora. It's not affected by the Puldysa termination because that was completely separate product. It's Raxone that's licensed to Chiesi.

I confused the name. I was talking about Raxone, sorry. And the business in France will you still intend, you still have to give it over to Chiesi, right, this is still with you?

We still have the rights to France and Chiesi has an option to acquire the rights for that. But in France, we are still in an in-completed phase of negotiations around reimbursement. And so Chiesi probably doesn't want to take on that territory by exercising their option before they know that the reimbursement situation there is clear. As we've mentioned in our annual report, we continue to sell currently in France. But those sales will fade out in the second half of the year because our reimbursement, our temporary reimbursement is no longer valid. We have filed an application for new reimbursement. And in the meantime, while we're in negotiations with the French reimbursement authorities, we will provide Raxone for free to about 150 patients in France, who are on the drug currently.

The next question comes from the line of Henrietta Rumberger with awp.

I still don't really get and how you intend to raise money, which you desperately need as you mentioned in your press release. What are your options there? And can you put a bit more flesh on the bones, please. Thank you.

I'll start and then I'll pass on to Andrew. I mean it's not uncommon in the biotech industry that a company that has a lead asset, in our case vamorolone is running, running short on cash and is able to then raise additional cash upon so-called inflection points. Our next material inflection point will be the readout, the six-month readout of the VISION DMD study. And upon a positive readout, you would typically then initiate a fund-raising process, which could take anywhere from a couple of weeks to maybe a month to then fill the coffers so to speak for until the next inflection point comes. So this is a pretty standard practice in the industry. And obviously, if the results of the six-month data is weak or poor, it becomes difficult to impossible to raise that money. But we are obviously not counting on that scenario, particularly given the Phase 2a data that we just saw after two and half years. We've been particularly encouraged to look forward to a successful outcome of the study and then a subsequent fund raise right after. Andrew anything to add?

I think when you have a compound like vamorolone with the potential treatment and potential peak revenues, in the various markets, other indications, that is a very good investment hypothesis behind that to help you, help fund that. And additionally, we have lonodelestat that we spoke about. And both dilutive and non-dilutive opportunities around those.

Henrietta, is that answered the question?

Yeah. Sure, thanks.

The next question comes from the line of Olav Zilian with Mirabaud.

I would have two. One is around the upcoming Phase 2b data on vamorolone and the other one on potentially remaining shrink ask restructuring of the bond. So more specifically, so the COVID-19 pandemic has potentially affected the institution of the Phase 2b study. And I would like to know how we have coped this that potential let's say obstacle coming from the pandemic. And so which tough you put in place to conduct hopefully starting correctly as originally planned and further the outcome of the study, the reporting of the data with that risk to see a delay and the pandemic that ongoing. Could you comment on this one, please? And the second question would be around the number of shares still approved, but not reduced for the restructuring of the bond. Would you have an estimate how many shares to be less for a potential placement? Thank you.

So I'll take the first one and ask Shabir to chime in if there is something else to be mentioned and then give the second one to Andrew. Although the study is still scheduled to read out in Q2, which is what we've communicated all along, so we are in Q2 and so it will be before the end of the quarter. With regards to -- so there is no delays because of COVID or any new delays because of COVID as it pertains to the study readout. As it pertains to the execution of the study, the primary endpoint which is time to stand velocity is something that can be measured from a distance through video and so on. Some of the secondary endpoints require patients to go on site. And so there may be some data, data points missing if patients haven't been able or willing to travel to the site for those measurements. But we're not going to be commenting on specifics from the study at this point. We will just have to wait for the read out. And obviously, we're in constant consultation also with the FDA on our plants and we're getting a very good advice from them also on how to handle potential COVID related items or data that's missing. Shabir, anything else to add to that?

I would just add there echoing your point. So obviously, we're aware of the pandemic and put into place protocol defined measures to protect the primary endpoint, but also additional analysis are in agreement with the FDA to deal with the secondary endpoint.

And the second question Andrew?

I'll answer the -- in terms of the remaining shares. There is two main areas that affect the usage of shares, one is the outcome of the bond restructuring, which is not set yet and depends on the final equity referencing price to set the new strike price. So we'll be able to give an update on that when we give the final bond update in the next few days. There is still quite a range that could cover. Additionally, it depends on how much of further financing we draw down in our available facility, which is an exchangeable facility and may use some of the result in some of the share usage. So it's not something I can give you a straight answer on right now. But we have to give you an update when we give the further bond update.

So meaning, when it comes to a short-term capital measure on the back of course to Phase 2b data, you would still expect to have a huge uplift to do an immediate capitulation?

Yes, we'll believe so.

Because otherwise new shares could only be approved in the upcoming AGM?

That is correct.

So may I ask you this, your current Chairman stands for the election at the AGM?

My understanding is that, yes, he is standing for re-election at the AGM.

So the feedback efficacy from shareholders is anchor has grown. I'm not sure that you might be reelected, so have you taken initiatives to look for new one?

No, this is something that I am currently quite content with the Chairman. And if there are shareholders who were not content with the Chairman, and they can vote with their papers at the Annual Shareholder Meeting. And if you -- if a particular shareholder wants to put forward an alternative candidate for Chairman and that is their right. But I'm not currently putting forward another Chairman.

In the event of a non-election, how will the SASM?

I'm not a governance expert on Swiss Annual Shareholder Meetings and what would happen. But I don't see. I don't see really a scenario, where he wouldn't be reelected unless something dramatic happens. If he would not be reelected and there is no other candidate, I assume that the Board would have to appoint a Vice Chairman. We don't have a Vice Chairman at the time, or the time being. And I assume that Vice Chairman would manage the Board at interim while there is a search for a Chairman. But again, that's just my understanding. I'm not saying that this is exactly how it's going to happen because I've never faced a situation like that quite frankly. Does that answers the question, Olav?

Yes, certainly. Thank you.

Okay, thanks.

Gentlemen, there are no more questions at this time. Back to you for any closing remarks.

Thank you, Alice. Just a couple of closing remarks from my side. I think when I look back at the year and a half that I've been here as a CEO now. I mean we've -- the Company is almost unrecognizable to what it was a year and a half ago. We have new management. We have discontinued the legacy lead compound in Duchenne, which was Puldysa. But at the same time, we've licensed in global rights in all indications for our platform in a product with vamorolone, which frankly has much more potential than Puldysa, would have had both in DMD but also in other indications. We have completely restructured the company from well over 100 FTEs to now well under 50 FTEs today and have a much lighter cost structure as a consequence. We've now addressed also the overhang of debt, which has prevented our cash raises to-date with the CHF 60 million soon to be matured overhang of debt. Investors are reluctant to give money to a company only to pay back debt. So it has been imperative for us to be able to remove part of all of that debt or at least remove. I made the wrong word, but to postpone the payment of that debt in order to bring in fresh cash. And so now we have already succeeded to do 75% of that and in the next few days you may hear that we've successfully restructured all of it. And all of this, we've done while keeping the company funded throughout a pandemic. So I'm right now eagerly looking forward to this last step of our restructuring, which is the readout of the VISION DMD study is still in Q2 of this year. And assuming that we have a positive readout there, we would, as I mentioned to Henrietta earlier embark on a financing exercise which would, which has already been quite. We've already had some quite interesting discussions with investors who are in the case of a positive readout, very willing to invest in the company and then building a company towards a first launch of vamorolone in the U.S. So feeling really good about where we stand today. You can't control biology completely. But the positive readout of the Phase 2a study even after two and half years gives me additional comfort that things are going in the right direction also there. So I want to thank you all for your interest and being on the call today and for your ongoing support and look forward to speaking to you soon.