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

Ladies and gentlemen, welcome to the Santhera Financing and Preliminary First Half Year 2021 Results Conference Call. I am Alice, the Chorus Call operator. [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, Alice, and good afternoon and good morning, everyone. Thanks for joining today's call, which follows Monday's announcement of the strengthening of Santhera's capital structure and our preliminary financial results for the first half of 2021. I'd like to start by saying how incredibly pleased I am to have secured funding, and I'm grateful to our existing and new investors for their engagement and support. For the first time in 1.5 years, we are at a stable state with regards to finances. Going forward, the team can finally devote all its efforts towards advancing our pipeline without the uncertainty of not knowing whether our cash would be sufficient to reach our goals. In the near term, these new funds allow us to properly advance development of vamorolone to its full potential, do the necessary work for a successful NDA submission in Q1 '22 and initiate U.S. prelaunch activities in view of planned launch in early '23. At the same time, we now plan to advance our second pipeline drug, lonodelestat into a Phase IIa trial in cystic fibrosis by next summer. Obviously, we had hoped to raise money in this round with less dilution, but the lack of share price appreciation even after the phenomenal pivotal 6-month results from the VISION-DMD study didn't allow for that. Therefore, we opted for this mixed equity debt financing, which fulfills 2 purposes. It provides us with the necessary funds up to the achievement of upcoming milestones and at the same time allowed us to somewhat curb dilution compared to other options thanks to the debt component of this financing structure. It also addressed concerns about legacy debt, which especially new investors saw as a barrier to financial commitment. I'll now give you an overview of the new threefold funding followed by a brief summary of the preliminary half year financial results. So first, Santhera has entered into financing commitments in the gross amount of CHF 45 million via an oversubscribed equity financing of CHF 20 million, a placement of private convertible bonds of CHF 15 million and upsizing of an existing financing arrangement of up to CHF 10 million. Now taking the equity component first. CHF 20 million have been allocated in a private placement to existing investors, including Idorsia, certain funds managed by Highbridge Capital management as well as a number of new international institutional investors at a price of CHF 1.60 per share. Next, I will speak about the placement of the private convertible bond. This has been agreed with the existing investor, Highbridge, to whom Santhera will issue senior unsecured private convertible bonds worth CHF 15 million. These private convertible bonds can be converted by Highbridge into Santhera shares at a conversion price of CHF 1.76, a 10% premium on the issue price of the Santhera shares in the private placement. Santhera has agreed to use the net proceeds from the private convertible bonds to redeem its senior unsecured convertible bond in 2021 with CHF 15.2 million due for repayment in February of '22. And then finally, we have arranged an increased financing arrangement with Highbridge, and this will provide up to CHF 10 million in the form of new senior secured exchangeable notes with a maturity of May 2024. It allows for periodic drawdowns at Santhera's discretion and subject to certain conditions and can be exchanged by Highbridge for shares. A first tranche of CHF 2 million may be drawn after closing. A further tranche of CHF 5 million may be drawn if and when the FDA supports an NDA filing for vamorolone in Duchenne muscular dystrophy in the U.S., which will trigger a CHF 5 million milestone repayment or payment to ReveraGen. In addition to the above, in light of Highbridge's financing commitments regarding the private convertible bonds and the exchangeable notes, we have issued them an aggregate 2.5 million warrants, each of which is exercisable for 1 Santhera share at an exercise price of CHF 2 at any time upon issuance for a period of up to 5 years. As mentioned at the start of the call, the full funding package, representing CHF 42 million after expenses and fees, is set to ensure Santhera's liquidity until mid-next year and through the upcoming inflection points, which I'll speak about next. Operationally, we are on track to meet the key near-term milestones with a focus on the completion and readout of the 48-week vamorolone VISION-DMD study expected in Q4 of this year as well as an NDA filing in the U.S. of vamorolone in DMD expected in the first quarter of next year. If successful, these achievements will represent major advances in bringing vamorolone closer to patients with Duchenne, who are in great need of a steroid that's better tolerated and hence more suitable for chronic use. We do recognize that vamorolone has been developed under the radar, so to speak, for most investors by ReveraGen, and as a privately held company, ReveraGen has been funded by charitable organizations, patient advocacy groups, the NIH, et cetera, and we have only had the rights for this drug exactly a year now. It's still early days, and we believe that the pivotal data for the primary efficacy analysis announced in June hasn't really been fully appreciated by the broader investor and clinical patient community yet, and we will, of course, continue to work to enhance the awareness of the vamorolone story, which we are convinced is a compelling proposition. With this, let me turn to our preliminary financial results for the first half year 2021, which we announced in connection with the new financing arrangements. Total revenue for the half year decreased to CHF 4.4 million from CHF 7.7 million in the same period last year. This is mainly attributable to a CHF 2 million adjustment to deferred revenues recorded in the first half of 2021 due to uncertainties around pricing and reimbursement in France. As communicated previously, we are supplying Raxone free of charge in France from August of this year, while reimbursement negotiations are ongoing. We expect the recently announced positive results from the post-marketing study, LEROS, to significantly support these discussions in France. Operating expenses decreased by 30% year-on-year to CHF 22.4 million due to the reduced expenses across the board following the termination of the Puldysa program and the now completed restructuring. Bottom line, the company recorded a net loss of CHF 19.7 million in the first half of the year compared to CHF 31.8 million in the same period last year. We report cash and cash equivalents of CHF 8 million as of the end of June 2021 compared to CHF 12.4 million as of December 31, 2020. Together with the new funding available of about CHF 42 million net after fees and expenses, we have significantly strengthened our capital structure. We expect to have sufficient liquidity towards supporting operating activities, including milestone payable to ReveraGen and repayment of the remaining 2017-2022 convertible bond which, again, is maturing in February of '22. The full half year report of 2021 with operational highlights will be released later this month. This remains an important time for the company, and our new funding package gives us a strong footing to head towards NDA filing in Q1 '22 and beyond. While more capital will be required until breakeven, we are confident that we will be able to raise additional funds on the back of product successes, which will also allow for a higher valuation and less dilution. Vamorolone is a paradigm-changing drug that will change the lives of so many individuals with DMD and potentially patients in other conditions where chronic use of steroids is indicated in the future, and we are laser-focused on making that happen as soon as possible. This financing allows us to take a huge step in the right direction, and we now look to progress vamorolone towards commercialization. With this, I'll close my summary remarks and hand over to the operator for the Q&A session.

[Operator Instructions] The first question comes from the line of Bob Pooler with valuationLAB.

Congratulations to you and the team for extending your cash reach until mid-next year. A few questions from my side. First, on the capital increase, when do you expect that to close? And can you also name some of the new U.S. and other international investors who participated in the capital increase?

Sure, Bob. I forgot to mention at the beginning that I'm joined today by -- obviously, by Andrew Smith, who's our CFO; and by Dr. Shabir Hasham, who is our Head of the global program for vamorolone as well as Head of Medical Affairs. They're both online. So this first question of yours, I'll pass on to Andrew.

Bob, so in terms of the close, we expect that to close later this week. In terms of naming other investors, we're not in a position to do that. But what I would say is that they're regular healthcare, institutional funds. Just the disclosure requirements don't permit us to do that.

Okay. That's good. In June, you announced positive and highly statistically significant top line results of the pivotal VISION-DMD trial on vamorolone in DMD. What was the feedback from key opinion leaders in DMD patients on these results? And also, have you had additional findings after further analysis of the data?

Bob, I think I'll pass that one to Dr. Hasham. Shabir, can you pick that up?

Sure. Bob, thanks for the question. Well, the feedback from both key opinion leaders and patient groups has been very positive regarding vamorolone. And that's really the appreciation that although steroids are efficacious, of course, the biggest problem is tolerability and side effects. And so they really face the weight of the burden of dealing with these. Steroids, our foundational treatment, as just monotherapy or in combination with the mutation-specific therapies and probably even with gene therapies going forward, and so they're here to stay. And so really, the unmet need remains and is really the central focus of both physicians and clinicians. I think what they're really most excited about is that vamorolone is unique in having demonstrated efficacy at 2 doses at a wide range, right? And that gives physicians really for the first time the option to tailor treatment to the individual to really try to maximize time on drug and reduce the side effect and tolerability seen with corticosteroids. I think the other thing they're excited about, of course, is that we've demonstrated in the IIb study, but also in the IIa program that we have no stunting of growth [Technical Difficulty] compared to the other corticosteroids and really talks to the mechanism of action and the dissociation between efficacy and safety. We've also seen a marked significant reduction in behavioral issues, which is often the first biomarker [indiscernible] in steroid use in young children, but it's a huge burden in terms of schooling and home and often a reason for discontinuation. And thirdly, of course, at the moment, we have biomarker data indicating that vamorolone doesn't have a negative or adverse effect on bone biomarkers. And hopefully, as data mature, we want to see what that means in terms of bone health. So I think they're very justified in the excitement. And of course, they're waiting to see how the data mature. In terms of the second part of your question, the plan that we have in place is obviously differentiation on safety. I think the efficacy versus placebo is very clear. We have no surprises in terms of safety signals. So that aside, our focus really is to make sure that we have the optimal competitive positioning for this product. And the key strategy we have with that is that, of course, we have the 24-week data set. We have the 48-week data set coming towards the end of this year, and we have the 30-month open-label long-term extension study data. And we've agreed a predefined analysis with both U.S. and EU regulators to compare our data with an external control data set for both prednisone and deflazacort. And so that is something we'll be working on towards the end of this year, and we're making some announcement about what that looks like in time lines, probably in the last quarter of this year.

Okay. Then just on the U.S. NDA filing, I see that's on track for Q1 2022. When do you expect its approval and launch? And also when do you expect EU filing?

In the U.S., we're looking to get approval towards the very end of next year, end of '22, and then a launch in early '23 following that. And in Europe, we're going to be filing in the second quarter of this year and then launching somewhere in mid to late '23.

Okay. So that's nice, on track as well. Just on the discussions with potential partners for non-DMD indications for vamorolone. Are they ongoing? And do you expect announcements soon?

As I've stated before, we're not going to be getting a running commentary on our BD activities. I mean, we're obviously having discussions with partners for the DMD indication in geographies where we don't plan to launch ourselves as well as some discussions around new indications. All I can say is that the discussions around DMD are more advanced -- DMD partnerships are more advanced than the new indications. Both are ongoing, but that's all I'm going to say at this point.

Okay. Just then on Raxone in France, when do you expect to conclude the reimbursement discussions there? And as you also stated, the Aleris trial should probably help there on the reimbursement and pricing. And also then, how long do you expect [indiscernible] sales of Raxone in France?

So the sales of Raxone in France ended in August this year because we've -- as part of the negotiations and as a gesture of goodwill, we've agreed to give away free goods during the negotiations. So as of August of this year, there's not been revenue for Raxone anymore from France. We don't know how long the negotiations will last. I mean, the best guestimate would be sometime into the spring of next year, maybe even summer of next year. France is a little bit unpredictable because administration changes may delay things, strikes may delay things and so on. So our best guestimate would be that it's somewhere early to -- early summer to mid-summer next year, probably.

Okay. And then my final question, which I think is probably the most intriguing one. If you look at your current market cap, it's a fraction of your peers' when they were close to filing their DMD drugs. And you have highly statistically significant results already shown in the VISION-DMD. What do you think the market is actually missing?

I think -- it's a difficult question, obviously, and it's not a question where there's one simple answer. I think there's multiple components to it, and they're all cumulative. In my mind, there's really 3 major buckets, right? And I'm not going to speculate on the decline in share price over the last couple of days. There's many theories of what's going on there. And we will, of course, with our advisers, analyze very carefully what has happened there. But if you look at it from a helicopter view, a 10,000-foot view or 10,000-meter view, the 3 buckets are: the first one is being listed on the Swiss stock exchange compared to our peers who are listed on the NASDAQ, we don't get the volumes or the investor exposure that you would typically get on the NASDAQ. And as a result of that, you also end up being inefficiently priced. I mean, I think that's reason #1. Reason #2 is just the history of the company. I mean, the discontinuation of the Puldysa program, which had a long period of ups and downs. When that program was discontinued, we lost a number of institutional investors. We also lost some sell-side research coverage. And many of those institutional investors turned their back towards the story and never looked back. And they're not really familiar with what we colloquially call Santhera 2.0. I mean, we're a new company for all but the name. We kept the same name, but we have new management, we have a new pipeline, we have a new, much leaner organizational structure. We've also restructured our balance sheet and got rid of a lot of the debt as well as postponed much of the debt. And now we're properly funded. But I think that story still needs to be told and the awareness needs to increase around the fact that this is a very different company than the company that many people were invested in in the past and we're "traumatized" by it. So I think time will heal a lot of those wounds. And when we start coming out with data and more supportive evidence to our compelling story, I think people will start paying attention again. And then the third bucket really is that -- I don't think that our lead asset, vamorolone, is properly -- its value and its potential is appropriately appreciated by the market yet. And the reason for that is simple. I mean, I mentioned it in my opening remarks that vamorolone was developed under the radar, for traditional investors, by ReveraGen. I mean, Eric Hoffman, the founder of ReveraGen, and his team have done a phenomenal job in doing a real solid development from preclinical to the pivotal readout. And it hasn't been really recognized because many of these traditional developments in pipeline from preclinical through Phase I and II are on the radar of investors because venture capital firms and other investors have invested in them, they come out with regular press releases, people are following the advancement of it. Here, the company was funded by charities, patient advocacy groups, the NIH and private investors, and it wasn't on the radar of a lot of investors. It was quietly developed in the background. And we only brought it in almost exactly a year ago now in September. So we kind of leapfrogged into a successful pivotal data readout, and it's taking many stakeholders and investors by surprise. The challenge area that we still need time to communicate the value and the data to key opinion leaders, patient advocacy groups and investors and kind of catch up on the 5 to 6 years of time that we've lost where other assets like this have been in the spotlight of investors. So the team is really passionate about what we do here, and we strongly believe that if we focus on the drug and the patients -- George Merck, maybe 3/4 of a century ago said that if you focus on the drug and the patients, the profits will follow. And that's kind of the philosophy that we can now take on here because now we have the financing to take us through these next milestones, and we believe strongly that this drug has a unique position and a real medical need, which will be recognized. But it's a communication challenge that requires more time. So those are the 3 buckets that I would highlight. Sorry for the long answer, but there is no simple answer to your question.

Yes. No, I'm just looking [indiscernible] if you look at like Emflaza sales, which would be the steroid that's approved in the U.S., it's generated, I think, over CHF 140 million. But if you look at the side effects, facial puffiness, 1/3 of the patients have that; weight gain increase, 20%; appetite and so on are 15%. So it has a lot of side effects there, but still despite that -- and actually it's generically available outside the U.S., it generated CHF 144 million. Now you have a drug that doesn't have these side effects, what we're seeing in the 24-week trial. And in the open label, 2.5 years, you clearly don't see it as well. So I'm just surprised that, yes, the value is not appreciated by the market. But thank you for the answers.

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

I have a bit of an understanding problem with the capital increase. So I mean, maybe you've just sort of said something you didn't want to say. But in the beginning, you said you couldn't raise more. So would you like to have raised more money actually? And if you couldn't raise more, was that due to some reluctance on the side of the existing shareholders not to dilute their shares even more? Also, in the same vein, so you decided on some kind of construct and different ways to get your hands on more cash. Was that also due to the fact that the existing shareholders said they will only participate to a certain degree in another round of financing? And finally, when it comes to the share price, I mean, you're quite right. Shares dropped quite a bit during the past few days. But then again, they also skyrocketed in June, and there's still no explanation really for what went on then. So I mean, would you say this is mainly due to the fact that what we call in German one of the [Foreign Language]?

Henrietta, I'll start and then I'll pass on to Andrew because this is really his domain. When we set out for the fundraising, we put ourselves a target of CHF 20 million equity. We didn't want to raise more equity than CHF 20 million just because -- we had originally hoped that the share price would be at a much higher level after our pivotal readout. And with the share price hovering in the CHF 210, CHF 220 range, we thought we only want to raise as much equity as we think we need at this point. We had 28 million shares available from the annual shareholder meeting, but CHF 20 million in equity was kind of the target in order not to dilute shareholders more than absolutely necessary. So we did have a book -- when we started together with our bank and advisers building the book, as it's called, there was demand for much more than CHF 20 million, but we decided to cap it at CHF 20 million. I think that answers your first question. And then, Andrew, maybe you take the other questions.

Yes. I think also it's worth putting in perspective when -- after the positive readout and as we've spoken about the reaction to that. But we signaled previously we've had a cash runway through to the end of Q3, which is end of September. We had share approvals that would lapse after September 22. And so we did consider a number of alternatives. But for both practical and overall interest of the shareholders, this was the solution that we found that meets our goals. And in that, I'd say that we've continued to have the support through the last year, both with the licensing of vamorolone with the support for vamorolone and the financial support through the company through a difficult period of restructuring following the termination of Puldysa from both Idorsia and Highbridge through this process. And they've both been an integral part of helping to find the right solution to help us go through the next steps.

And the share price?

I mean, in terms of the share price, the reaction now, as Dario said, we'll look at. Clearly, that's disappointing. I think where you see an element of dilution coming in at an issue price of CHF 1.60, there's some sort of market gravity a bit towards that. We'll look at that, and we hope to see that is short-lived. As Dario said, as we move forward now with a good runway of financing to get us through inflection points, we can concentrate on the real value proposition and starting to increase awareness of that.

Sorry to sort of jump in there. But if I remember correctly, I mean, there has been a bit of concern or talk about the jump of your share price a few weeks ago that people couldn't really explain. So are you in contact with any authorities on this matter?

Not on this particular matter, and we would not comment related to individual matters. We are not aware of any situation. We saw the articles also, and we commented on them. I think if people have any evidence around such thing they should report them to the authorities. We don't see that. If anything, there was a spike around the article itself rather than anything untoward that we could see in the trading.

[Operator Instructions] Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Dario Eklund for any closing remarks. Mr. Eklund, back to you.

Yes. Thanks, Alice. Well, thanks, all, for joining today and your interest in Santhera. We really believe that we have a unique drug that addresses a very large unmet medical need in medicine and also have the potential of being a paradigm shift in the quality of life for many patient populations and boys with DMD in particular. We're very proud of our efforts and the progress we are making and can now finally focus purely on delivering on our 2 innovative compounds, vamorolone and lonodelestat and bringing vamorolone to patients in the near future. Please stay tuned for updates on our progress on this exciting journey. And thanks again, everybody, for joining today. Have a good day.

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