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

Ladies and gentlemen, welcome to the Santhera Pharmaceuticals conference call on the company's agreement with Catalyst. I am Sandra, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. The presentation will be followed by a Q&A session. [Operator Instructions] The conference must not be recorded for publication or webcast. This conference call may contain certain forward-looking statements based on the current assumptions and forecasts made by Santhera Pharmaceuticals. Such statements involve certain risks, uncertainties and other factors, which could cause the actual results, financial conditions, performance and achievement of Santhera Pharmaceuticals to be materially different from those expressed or implied by the statements. These factors include those discussed in the comprehensive risk factor disclosure of the company's website, www.santhera.com. Santhera disclaim 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, Sandra, and good afternoon, everyone, and good morning to those joining us from the U.S., and thank you for joining us here today. I want to thank you all for attending this call and for your interest in Santhera today. Today is a big day for our company, and I'm very excited to be able to tell you more about it. I'm here today with our CFO, Andrew Smith; our Chief Medical Officer, Shabir Hasham; as well as our Chief Business Officer, Günther Metz, who was the quarterback on this deal. There will be an opportunity to ask questions at the end of today's call. This morning, we announced a licensing and collaboration transaction with Catalyst Pharmaceuticals for vamorolone in North America. The deal will ensure vamorolone can reach patients as quickly as possible once approved, both in the U.S. and beyond. By way of reminder, the agreement is worth up to $231 million. Santhera will receive an initial $90 million upfront, which are due at closing. Upon FDA approval of vamorolone, Santhera will receive an additional $10 million, plus $26 million, which will be used to pay agreed upon regulatory milestones. Catalyst has also agreed to sales milestones of up to USD 105 million plus royalties. As noted in the announcement, the agreement covers commercialization of vamorolone in DMD, Duchenne muscular dystrophy, in North America as well as rights to all potential future indications in North America. Vamorolone has the potential to significantly improve the lives of patients living with DMD while overcoming some of the significant burdens associated with traditional steroid treatments. Despite gene therapies emerging for the treatment of DMD, steroid treatments will remain standard of care in DMD treatment plans as foundational therapy with or without gene therapy. The need for a steroid that could overcome current patient burdens remains as pressing as ever. Today's deal is the result of many months of strategic discussions on how to bring vamorolone to the market as efficiently as possible. These discussions were prompted by an awareness of the significant financial and infrastructure resources we would need in order to launch in both U.S. and Europe, coupled with the currently difficult funding environment for biotech companies. Following a competitive process, we are very pleased to have finalized this agreement with Catalyst, a fantastic partner, given their expertise in rare diseases, their solid financial footing as well as their well-established commercial infrastructure, which will enable vamorolone to reach the patients who need it the most. We're looking forward to working closely with Catalyst over the coming months and years, and this will include the development in new potential indications for vamorolone beyond DMD and potential collaborations in Japan and smaller European countries where we have granted Catalyst a right of first negotiation. Out-licensing vamorolone in North America also enables Santhera to have a more targeted focus for commercialization in the big 5 in Europe, with Germany, U.K. and France being the first markets to launch. Preparations for European commercialization, subject to EMA approval, are already underway. As you will be aware, the key financial step -- sorry, the key final step to vamorolone entering the market is regulatory approval. An NDA for vamorolone is under review by the FDA, with a PDUFA date set for the 26th of October of this year. In Europe, an MAA application is under review with EMA approval in the fourth quarter of this year expected. An MAA is also under review in the U.K. by the MHRA. It's clearly been a challenging period for the biotech industry as a whole, from which Santhera has not been exempted. The agreement with Catalyst extends our cash reach into Q1 of 2025, providing a strong financial footing for the commercialization of vamorolone in Europe, reducing debt and strengthening Santhera's balance sheet and cash position. I'm really proud of all the team has achieved in the past year to prepare the company for regulatory approval and launch of vamorolone for a truly underserved patient group. Catalyst was a natural choice, given their deep understanding of rare and orphan indications and extensive in-house commercialization expertise. The agreement is good news for Santhera and the thousands of patients worldwide who could benefit from vamorolone. So thanks for listening. I would now like to hand over to the operator for any questions you may have.

[Operator Instructions] The first question comes from Boobalan Pachaiyappan from H.C. Wainwright.

This is Boobalan. Can you hear me, okay?

Yes, Boobalan, we can. Thank you.

All right, great. A few from us. So firstly, with respect to vamorolone NDA, so has a mid-cycle review meeting with the FDA has already occurred? If yes, what was the outcome? And if no, when do you expect this to occur?

Shabir, why don't you take that question?

Boobalan, thank you for that question. So yes, it occurred. And we actually, in our last press release, commented that at this time, no significant issues have been identified by the FDA.

Okay. And then does the FDA need to conduct any additional pre-approval inspections prior to granting approval?

No. So all the inspections that have taken place at the moment haven't resulted any findings. So no pre-approval inspections are required.

Okay. I know you mentioned application is processing in U.K. Do you have any expected timeline for approval?

At the moment, we're in discussions with the MHRA. We know there's a bit of a resource constraint. But at the moment, they're communicating that the timelines will be similar or just after the EU approval.

Okay. And then with respect to vamorolone commercialization in Europe, so what kind of commercial infrastructure does Santhera expect to require in order to launch vamorolone in Europe? And what are your plans with respect to optimizing the value of the drug in noncore territories outside the scope of Catalyst agreement?

So if you recall, Boobalan, the company was a commercial stage company at one point where we launched Raxone, ultra-rare orphan disease drug in the market in Europe. So we have the commercial infrastructure and the commercial experience in-house with the only caveat that we still need to hire people -- additional people. With the restructuring that we had in 2020, we had to let the majority of our commercial teams in the various countries go, but we retained the leadership of that commercial organization back then. They're still with us now, and that team is now rebuilding our commercial infrastructure in Europe in terms of people. The first country to launch will be Germany, where we have already hired a general manager and we have also a Head of European Medical Affairs. And we're continuing to build that organization. The second country to launch in Europe will be the U.K. about a quarter later. And then we have the third country will be France. Having said that, though, in France and in the U.K., we have already submitted early access program applications to the respective authorities and expect to start these early access programs this summer. In the U.K., those early access programs will wholly run for about a year until mid-next year, and then those patients will be converted to commercial patients, whereas in France, the early access program actually allows for commercial revenue during the early access program. And so we're expecting maybe the first commercial patient worldwide to be coming from France in the second half of this year. With regards to Italy and Spain, which are the last 2 of the 5 big ones in Europe, we will be building the infrastructure there a little bit later than we do in the first 3 simply because the launch sequence in Europe requires a dedicated launch order, if you will, to maximize the market access and pricing across Europe. Sorry, there was another question. I forgot the other question you had, Boobalan.

Yes. So the other question was how do you propose to optimize the value of vamorolone in noncore territories outside the Catalyst agreement?

Yes, I got it. So in the noncore territories outside the Catalyst agreement, we are going to be working with partners. We will approach those partners as we move along, so to speak. Some of those markets are looking for an FDA approval. And once the FDA approval is achieved, the access in those markets is much faster, much easier. Other markets, smaller markets, we may be pulling in under regional agreements such as Southeast Asia, Middle East, North Africa, et cetera. We're not going to be looking for a partner in every geography. We're going to try to have 1 partner, who can cover a multitude of countries in those regions.

Okay. And then can you please remind us your financial obligations to ReveraGen and Idorsia in the wake of the Catalyst agreement?

Yes, I'll pass that on to Andrew.

Yes. I mean there's a $26 million approval milestone that's due, which will be covered as part of this agreement. And then going on, there are the various sales milestones and royalties again, which will be more than covered in this agreement. So we will still receive a net royalty after settling our outgoing obligations.

Okay. And maybe one last question. Given the Catalyst agreement, so what are your thoughts regarding the development of the remainder of your pipeline programs? And would you consider the upfront payment sufficient to fund any or all of those activities?

Well, the lonodelestat program is on hold, as we've communicated before, and we're going to have to evaluate how to -- how and if to move that forward. The focus of the company right now is really on vamorolone, initially DMD, but also very soon looking at other indications to be developed for vamorolone. As you probably know, Boobalan, there's a number of rare and orphan diseases, both for children as well as for adults, where patients are getting chronic doses of prednisone over longer periods of time with the side effects as well -- that are well known. And so an asset like vamorolone or a drug like vamorolone that reduces the osteoporotic events, the fractures and the growth stunting could be very interesting in many of these other indications. And so when we're talking about clinical pipeline development, we're really talking about additional indications for vamorolone, and we will be developing those in close collaboration with Catalyst Pharmaceuticals, who have agreed to work with us on these additional indications.

The next question comes from Bob Pooler from ValuationLAB.

Congratulations on the deal. I think the deal sort of -- yes, solves a lot of issues out there. You have a solid rare disease player in the U.S. now. It reduces your cash burn, I think, significantly. You'd have to build the U.S. sales force. It also reduces the potential share dilution to pay for that and it increases your cash run rate significantly. And what I see actually in the deal, you have actually quite high upfront payments and -- but also a decent royalty rate there. So that seems like it was a very competitive negotiations going on. Were there more parties that you were discussing this agreement with or vamorolone in the U.S?

Bob, thanks for the question. In fact, yes, the answer is yes. It was a very competitive process. We started the process already end of last year. And initially, we had over a dozen suitors for this. And over time, we have started to reduce and narrow down the scope of the negotiations. Back when we started, we hadn't submitted our U.S. file yet. We had the delay with the contract manufacturer. And so then we submitted that in -- early this year. And as the negotiations progressed, we're getting closer and closer to the FDA mid-cycle meeting that Shabir was referring to earlier. And after that, it really -- the negotiations really accelerated in intensity and we had to reduce the number of players down to 3. And so at the very end, until only a few days ago, we had 3 contenders in the race. And we took those to our Strategic Committee and to the Board, together with our financial advisers, for review. We looked at the net present values that the various options offer. We looked at the qualitative aspects, the strategic aspects of it and came to the conclusion that this offer that we have now accepted from Catalyst Pharmaceuticals, which is significantly -- has a significantly higher net present value than our current enterprise value was by far the most attractive, and that's why we decided to agree to this deal. The additional point I would want to make, maybe if I may, is that some of the parties that we dropped out earlier in the process were parties that were very interested in Duchenne and Duchenne only. And given that we have a patent protection in the U.S. until 2040, we see the potential of this drug going well beyond Duchenne. And so we were really looking for a partner who can commit to jointly develop with us the additional indications to maximize the asset value. And I personally believe that when you look at peak sales many years down the road of this -- of vamorolone, the Duchenne indication may not even be the biggest indication in terms of revenue. And so for us, this was a very important aspect of this partnership.

Great. I'm just seeing you got $90 million upfront that will be at closing, so that's going to be early Q3, I believe. So that's ahead of actually the U.S. approval. So then it seems that also Catalyst is also very, very confident for U.S. approval.

I can't speak for Catalyst. But what I -- with regards to the closing, what we are waiting for is the Hart-Scott-Rodino Act clearance. This is -- HSR clearance, which is an anticompetitive review. That file has been submitted. Typically, the review takes a month. So we're expecting this to close somewhere in mid-July, well before the PDUFA date.

Okay. Then just for me a clarification. I think in press release you said Catalyst will pay for most of the third-party milestone obligations. And I think they're the largest ones, the regulatory milestone payment, which you just alluded to for Idorsia and ReveraGen. And then you will -- they will also pay for all third-party royalty obligations. I believe that's something like a payment to ReveraGen, a tiered mid-single-digit royalty payment. So basically, you receive a gross mid- to high teen royalties on [ net ] sales. It will be net low, but basically, the deal you've signed, you'll receive basically mid- to high teens royalty. Am I correct there?

Yes. Let me just walk you through the agreement. So the royalties and the milestones that are paid by Catalyst are for North American sales, sales in their territory. The royalties and the sale -- and the milestones that we pay to Idorsia and ReveraGen are on global sales and -- global revenues. Essentially, the way the deal has been structured with Catalyst is that they pay for the North American share of it. So basically, you can assume that it's a pro rata -- on a pro rata basis. So on the revenue that we have to pay to ReveraGen and Idorsia -- sorry, on the royalty that we have to pay on the revenue to Idorsia and ReveraGen, the exact percentage for North American revenue is paid to us by Catalyst. So it's essentially a pass-through. In addition to that, we then have royalties from Catalyst to us that are net to us that do not go as pass-through to Idorsia and ReveraGen. And those 2 categories of royalties are from the mid-single digits into the low teens -- low to mid-teens. And so if you look at the gross combined, they start in the mid-teens and with very much higher revenue than the first couple of hundred million. If we go beyond $0.5 billion in revenue, they go into the early 20s in percent.

Okay, okay. Then you also state that the cash runway has now been increased to and lengthen to Q1 2025. What is a little bit in that calculation? So it's including, of course, the rollout of the vamorolone in EU top 5 and Benelux. But what else is sort of in that calculation that you come to a cash runway of first quarter 2025?

Sure, Bob. This is Andrew. We obviously based this on our current plan. So we've obviously got estimates of the start-up of revenue and so on coming through '24. We have the building of the European infrastructure. We have some continuing and ongoing development programs related to approval. One thing with the new partner. In Catalyst, we will need to agree on this what we -- how we progress the new indications. So that could bring some changes as well. But I think planning towards the -- into '25 is quite reasonable. There may be somewhat a move on that, but not a large move. And if we did require a change, we certainly have time and no pressure to do that. We can certainly do that -- address that under our own timing as we develop the plans rather than where we've come from over the -- at least over the last couple of years in a very, should I say, stressed situation, trying to bridge short-term funding all the time, which has also been quite dilutive. So with this transaction, looking at it, it significantly reduces what could have been potential future dilution, and we're very much more in the driving seat of when and how much we need to raise, knowing that we can bridge to a much longer time period and then maybe even through '25 as well, depending on the number of factors.

And probably also easy to retain quality people on the upcoming launches as well, having sufficient cash.

We haven't had any problems attracting high-quality people in the past and currently either. But we also have many of our team members that we, unfortunately, had to lay off in 2020 have signaled that they will be very happy to come back. So they're a very, very experienced commercial team that successfully launched Raxone would be happy to come back to a large extent.

Okay. And then just -- yes, the check out's a little bit [ later ] in the call, but yes, just how the regulatory review is proceeding in the U.S. and U.K. and EU? I assume everything is on track because you had a positive mid-cycle update. And how are the early access programs in France and the U.K. proceeding, which I believe France might even -- you might even some sales coming up for vamorolone and for DMD?

Bob, it's Shabir. So yes, at the moment, the regulatory reviews are absolutely on track and proceeding well. And in terms of the early access, we've actually made the submission to the MHRA for the EAMS and for the French early access. And so we're really looking forward to kicking them off in the second half of this year.

[Operator Instructions] The next question comes from Henrietta Rumberger from awp.

Two questions. One is, in the U.S., was it always your plan to look out for a partner to license vamorolone, the drug? And secondly, how about the EU, I mean, when do you expect the EMA to decide on the application -- sorry, yes, that's it.

On that first question, our plans until we announced differently today have always been that we would launch ourselves in the U.S. We have built a U.S. team, a very small, but strong U.S. team that have done a phenomenal job in doing all the prelaunch preparations in terms of processes and procedures and infrastructure and contracts and evaluating a lot of market research, working with payers, key opinion leaders, et cetera. However, as we get closer to launch, the costs of expanding that organization and really putting together a professional launch execution starts to require exponentially more money. That continues after launch because it will take some time after launch to then get to breakeven. And that money would, in the current funding environment, will not only be difficult to access because the biotech funding environment is extremely dry at the moment. But if it were to be accessed, it will be very expensive money and very dilutive money to our shareholders. So we then initiated together with the Board and Strategic Committee an evaluation of what are our options here. Can we find a royalty financing arrangement? Can we place a pipe to fund our own operations? We even explored a potential joint venture with a party to see if we could keep the team and launch it ourselves. But at the end of the day, when all these evaluations were made and the net present values were compared to each other, with the strategic and the qualitative components of pros and cons, the conclusion was very clear that the best thing for the shareholders is to find a partner in the U.S. that has not only the commercial infrastructure in place but a specific knowledge in the space of neurology, pediatric neurology, a company that has aggressive growth plans, a company that is willing to participate with us in global joint development for additional indications. And when you put all of that together in a bucket, it becomes an overwhelming proposition compared to trying to do it yourself with very expensive money if you can get it and not being able to do what's really best for the drug itself or for the shareholders. There are many patients waiting for this drug already across U.S. and Europe. Patient advocacy groups are very vocal about the excitement that they have about getting their hands on vamorolone. To not launch it properly and do not have the infrastructure in place to -- for patients to have access to the drug as soon as it's approved, would really be a shame. And that, coupled with the fact that the financials supported this deal, made it a relatively easy decision at the end of the day. The second question was on the EU approval. We're expecting an EMA approval in the fourth quarter of this year. So the first market to launch would be Germany, that may be very end of this year or in January of next year as a consequence.

There are no more questions from the phone.

Well, if there are no more questions, maybe just a quick summary of today's announcement and how I view it as the CEO of the company. I think what we have achieved with this deal is that we have massively derisked our balance sheet, which had significant debt on it before and was also preventing some of the equity investments from investors who were wary of investing in a company that had a "very, very unproportional balance sheet." So that's now massively derisked. The NPV of this deal is significantly higher than our company's enterprise value. An enterprise value is our market cap plus our debt minus cash. So from that perspective, it's a very attractive deal. We're getting a sizable upfront, and we're getting a partner with whom to develop vamorolone across multiple indications. And in this deal, we still retain all the rights for the rest of the world and Europe, and all the additional indications that will be developed jointly with Catalyst, we can then leverage in other geographies. And finally, we will have capital to invest in our own business and to maximize the asset value. So any way you look at this, this is a very attractive deal for us, and I'm extremely proud of the team's work over the last 6 months to run this competitive process, bring it to a successful conclusion. And I want to say finally before we go that I'm very grateful for our U.S. team as well who have done a phenomenal job in building a great market opportunity in the U.S., which has facilitated us closing this deal. So with Catalyst as our partner, I really look forward to our collaboration. As soon as this deal closes, we will be able to start working on it together. They have sent every signal that they will be an ideal partner for us, given the size of the company, the focus of the company, the growth of the company and the commercial infrastructure they have in place. They understand the vamorolone asset perfectly well, and we're completely aligned with them. So we -- when I say we, the whole team here at Santhera, are really looking forward to working with them going forward for many years to come. So thanks, everybody, for your attention today and for dialing in and look forward to speaking to you all soon.

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.