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

Ladies and gentlemen, welcome to the Santhera Pharmaceuticals 2023 Financial Results and Corporate Update Conference Call. I am Sandra, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. This conference call may contain several 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 condition, performance or achievement 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 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.

Thank you, Sandra. Good afternoon and good morning all. Thanks for joining us today. I'm very pleased to provide an update on Santhera's performance and give you a glimpse into the developments on the horizon. As always, you will have the opportunity to ask questions at the end. I'm joined today by Andrew Smith, our CFO; and Dr. Shabir Hasham, who's our Chief Medical Officer. Let me start with an overview of what Santhera has achieved in 2023 and since the start of this year, 2024. The past 15 months were clearly a transformative phase for our company in which we made huge strides in bringing AGAMREE for Duchenne muscular dystrophy to market. At the same time and under difficult market conditions, we strengthened our financial position and extended cash reach beyond important milestones. Our top priority during the year 2023 and into 2024 was to obtain regulatory approval and press ahead with commercial launches. First came U.S. approval in October 2023 followed in quick succession by approval by the European EMA and the U.K.'s MHRA. Notably, European regulators have recognized the improved safety profile of AGAMREE, especially with regard to preserving bone health compared to standard corticosteroids while offering equivalent efficacy. In China, we supported our partner, Sperogenix, with the regulatory filing for AGAMREE, which has been granted priority review, setting the stage for a potential launch already in Q1 of 2025. Then at the beginning of this year, our vision became reality, and we were ready to begin to bring AGAMREE to patients. We were delighted to launch AGAMREE in Germany as the first market globally this January and then in Austria starting February. This was followed by a U.S. launch by our partner, Catalyst Pharmaceuticals, in March. We are encouraged by the initial market response to AGAMREE in Germany, which was overwhelmingly positive. Our German team tells me that the trend is continuing, and by now, AGAMREE is already prescribed to roughly 150 patients in Germany and Austria. There is clearly an unmet need that AGAMREE can address thanks to the combination of its anti-inflammatory capabilities while being able to preserve bone health and maintain normal growth. A key strategic decision during 2023 was the out-licensing of AGAMREE in North America to Catalyst Pharmaceuticals. The deal, which closed in July 2023, provided important capital to the business, enabling to reduce our debt and strengthen balance sheet as well as to prepare for the European launch. It also opened opportunities to further develop AGAMREE beyond Duchenne and exploit its full potential. With a focus on AGAMREE, we have taken a targeted approach to our pipeline and disposed noncore assets. After settlement of the reimbursement dispute with the French government, we completed the sale of the Raxone business to the Chiesi Group. Last month, we have returned rights to the pulmonary drug candidate, lonodelestat, to Spexis after reassessing its medical and commercial potential. More detail on all these initiatives will be described in the annual report, which will be published in May. Let me now turn to the months ahead of us where there is, of course, much work to be done towards achieving our goals. First priority is on pan-European rollouts. We plan to make AGAMREE available to patients in additional key geographies in Europe through our own organization. This includes France, U.K., Italy, Spain, Benelux and Switzerland. Activities surrounding market access, stakeholder and key opinion leader engagement and the buildup of a core commercial organization is well underway. Negotiations for pricing and reimbursement are underway in Germany, the U.K. and France, and we expect to finalize an agreement with NICE in the U.K. during this summer. Agreements in Germany and France are expected early next year as the review period in these markets typically has a duration of a year. The next commercial objective is ensuring availability of AGAMREE across Europe in those markets where we don't launch ourselves. Presently, we are in the late stages of negotiations with distribution partners for commercialization across European EU and non-EU markets. You can expect us to make announcements in the near future in this respect. We have also started discussions with potential partners in other regions, where there is also a significant partnering interest; but our immediate focus is ensuring availability of AGAMREE across Europe and supporting our existing partners, Catalyst in North America and Sperogenix in China. A pipeline priority is the development of AGAMREE in additional indications. Here, we are targeting rare pediatric indications with high unmet medical need. The discussions with our partner, Catalyst, are well advanced in terms of prioritizing the indications we want to pursue beyond Duchenne, and we have already started the design of the next study for joint development and funding. We are very pleased with this collaboration and hope to share more about these joint plans in the second half of this year. Another corporate priority is financing. Currently, our operations are financed into 2025, excluding repayment of the convertible bond. We are in active discussions with a number of providers to extend our cash reach, including the remaining debt repayment up to sustainable profitability, which we expect to reach in the first half of 2026. And I'll let Andrew explain more about that. With this, let me hand over to Andrew for comments on the financial results and our financing initiatives.

Thank you, Dario. Today, as you saw, we released the preliminary unaudited 2023 annual results with full P&L, balance sheet and cash flow statements, together with a comprehensive update on our business. The audit of the results will be completed in due course and will allow us to publish the full audited report during May. I'll start with comments on the financial performance followed by a status update on our financing activities. So let me first turn to the full year 2023 results. All amounts I will mention in summary will refer to Swiss francs even if not stated explicitly for verbal simplification. Revenue amounted to CHF 103.4 million. By far, the biggest contributor to this was the CHF 99.9 million from the U.S. license agreement with Catalyst, an additional CHF 1.9 million consisted of regulatory milestones from our partner, Sperogenix, in China. Net product sales to licensing partners amounted to CHF 2.9 million, and this included sale of Raxone to Chiesi as well as AGAMREE to Catalyst and in addition, the CHF 0.8 million sales of Raxone in France prior to the transfer to Chiesi. Operating expenses amounted to CHF 32 million, 43% lower than last year. The main factors contributing to this reduction were lower development expenses and a net gain on the sale of the Raxone business to Chiesi in the amount of CHF 17.7 million. Development expenses decreased by 39% year-on-year to CHF 18.7 million, and this reduction was primarily related to lower third-party clinical and regulatory services as well as the transition of CMC activities from a development to commercial stage following completion of the approval processes. On a comparable basis, marketing and sales expenses slightly increased to CHF 9.8 million in relation to the higher pre-commercialization activities in preparation for launches in Europe as well as incurring expenses in the U.S. prior to the Catalyst license. G&A expenses increased by 45% to CHF 21.2 million, primarily related to the costs in the context of financing and licensing activities as well as the addition of personnel and infrastructure in order to support European commercial activities whilst, at the same time, supporting U.S. activities in the period after the Catalyst license. The net financial expense amounted to CHF 14 million, which reflects a 25% reduction year-on-year. The difference for the most part is related to the settlement of exchangeable notes during the year. At the bottom line, the company recorded a net profit of CHF 54.8 million for the year 2023 comparing to a net loss of CHF 71.1 million for the year 2022. Net cash inflow from operating activities amounted to CHF 47.6 million, mainly driven by out-licensing income compared to an outflow of CHF 29.8 million for 2022. In the same time period, net cash outflow used in investing activities rose to CHF 18 million compared to CHF 3.9 million in the prior year. The largest component thereof were regulatory-based milestone payments for AGAMREE, which were capitalized to intangibles. Net cash flow used in financing activities was CHF 0.1 million as proceeds from financing transaction and cash used for financing balanced each other out compared to an inflow of CHF 14 million for 2022. In summary, this resulted in a 12-month increase in cash and cash equivalents by CHF 29 million or from CHF 1.4 million at the start of 2022 to CHF 30.4 million at the end of the year 2023. Now let me move on to the financing. Coming into '23 with a very limited cash runway, we largely addressed this and our debt profile during the year through an equity transaction with Idorsia, restructuring finance with Highbridge and a license and equity investment from Catalyst. Additionally, through the resolution of France clawback negotiations and the sale of the remaining Raxone business to Chiesi, we further reduced our debt obligations. Financially, by the end of 2023, we were on firmer ground for the first time in a long time with a reduction in financial obligations under debt instruments and clawback claims in total reducing by around CHF 47 million as well as ending the year with CHF 30 million cash on hand. While the cash on hand, together with projected income is sufficient to fund operations into '25, we also have both public and private convertible bonds with a nominal value of CHF 24.5 million maturing in August this year. So these results have been prepared on a going concern basis. While with the upcoming debt maturity, there remains some material uncertainties, we are confident that we will address them shortly. We're in active discussions with several parties to address the near-term debt obligations as well as help provide the additional funding required to bridge through to cash breakeven anticipated by mid-'26. In summary and as Dario had already mentioned, '23 was a transformational year as we gained approvals and improved the financial foundation to now following recent product launches being the next step to raise the additional funding required to bridge through to sustained profitability. Further detailed financial information can be seen in the published press announcement released earlier today and in the annual report to be published during the month. So this concludes my summary of the detailed information on the financial information today, and I thank you for your attention. I'll now pass back to Dario.

Thanks, Andrew. With this, I'll close the summary remarks, and I'll hand over back to Sandra, the operator, for the Q&A session.

[Operator Instructions] Our first question comes from Laura Pfeifer from Octavian.

Congratulations on the very good start of AGAMREE in Europe. So according to the trading update, you said, I think, that end of Q1, you already had some 150 patients in Germany and Austria being treated, which suggests that you already have quite decent market share. Please, could you comment on what type of patients they are? So are these all switches from standard steroids? Or does it also include treatment-naive patients? And also, what is your expectation regarding the number of AGAMREE-treated patients in Europe for the full year? So that's the first question. Maybe then the second one is more on the funding side. Here, we understand that you are guiding for a cash burn operationally of around CHF 30 million this year, which more or less uses up your current cash, and then on top, you have the upcoming bond maturities. But I also understand that you have some milestone payment obligations further down the road. I think it was in '25. So how much money in total do you think you need to raise to bring you through to the profitability that you expect to reach in '26?

Well, thanks for the question, Laura, and I'll pass the second part of the question to Andrew, and I'll address the first part of the question. So first, a correction to the assumption. So when we talk about the 150 patients plus/minus that we have in -- mainly in Germany, there's 4 or 5 patients in Austria. That's the number of patients we estimate today. So that's not the Q1 end of March number. That's the estimate of patients today. The -- in Germany, you have about 1,500 to 2,000 Duchenne patients who are on steroids at any given point in time. So the 150 patients represents almost a 10% share of the patients who are on steroids today after just a little bit more than 3 months. Now we -- to your question on what type of patients these are, we don't know that. We don't have a distribution of that yet. We're going to be digging into that further, but right now, I don't have an answer for you. But I would caution you to not necessarily extrapolate from that number on a full year basis because, typically, what you have in these types of situations is you have some pent-up demand. You have some naive patients who have been waiting for vamorolone and have not been put on other steroids. And you may have some patients who are switchers, who have been very unhappy with the side effect profile of the other steroids and who have been -- who are the so-called low-hanging fruit if you will. So typically, what you see is a bolus in the beginning of warehouse patients, if you will, and then you'll start to see a more steady state growth. So given that it's only been a little over 3 months from our launch, I would not want to say that this is something that you can extrapolate. We should probably wait a little longer before we start seeing the trend. Did you -- was there another question on -- before I hand over to Andrew. I forgot, sorry.

No, no. I think this one is well understood. I'm just wondering, do you think still it will probably grow, but it will just not like double every quarter. I guess that's what you are seeing. But you're not able to give us a more precise indication of what share you expect by the end of the year in Germany.

No, no, it's too soon to do that. The -- and on your other question on how many patients do we expect to have by the -- in Europe by the end of the year, it's also too soon to say that because the only market really that will have a -- almost a full year of sales is going to be Germany. In the U.K., we are in discussions with NICE. We hope to have a final price agreement somewhere towards the second half of the summer or late summer where we can then launch after the summer. But how many patients we will get there is obviously an unknown. The only thing I can say, though, is that Germany surprised us a bit because Germany was a market that -- where we didn't have any clinical trial sites in our pivotal trial. So there was no previous experience with vamorolone in Germany, whereas for instance in the U.K., we had 6 clinical trial sites and there's a significant buzz in the market in the U.K. already, which we didn't really expect to see in Germany. But still, we had this very strong uptick from the very beginning, which is clearly very encouraging. Andrew?

So on the overall funding requirements, we started the year with CHF 30 million in cash. We had CHF 26 million at the end of Q1. So you can see that our net cash spend has started to reduce already as we've started to see some income coming through. The CHF 24 million nominal value bonds maturing in August are split between some public and private, and they have different conversion rates. Part of those are in the money or nearly at the money, and the split of those bonds is available on our website and updated on a regular basis. As to the overall funding requirement, again, now as we start to see income coming through this year from various sources, our own direct markets, some milestones, royalties as others come along, our overall funding requirements including the debt repayment, we look to be somewhere between CHF 50 million to CHF 60 million over that time period. And that's what we look to address.

Okay. That's clear. No, I think -- yes, that's clear. Then maybe just as a follow-up, and then I'll jump back into the queue. So you mentioned in your press release a couple of funding options. I think it included like royalty financing or debt funding or also equity. So how do you prioritize these options? And I guess is it probably rather likely that it will be a combination?

Yes. I think as you see, we've been through a number of financing activities over the last few years in very difficult environments with unapproved products. Now that we have product approved on market with revenue, I think our options have expanded. We do see royalty-type options as well as debt-type options. They're obviously all open to us. We still would like to minimize the dilution, especially with the valuation where it is, but we consider all options. But priority-wise, we think of royalty and debt funding.

Probably a combination of both.

The next question comes from Bob Pooler from ValuationLAB.

Also congratulations on the progress you made last year and already in this first quarter. Just on the overall funding requirement, is that CHF 50 million to CHF 60 million? Or is it CHF 15 million to CHF 16 million? Just a clarification.

CHF 50 million, 5-0.

5-0. Okay. Okay. I was just thinking -- yes, just on Germany, it was actually a surprise there. U.K. is coming there. And as you said, this is already buzz. Do you think you will see a similar ramp-up of patient uptake in your other European markets?

I think so. I mean vamorolone is very well established in the patient advocacy groups. There's been a lot of buzz around it for several years now and now being the first Duchenne drug that's available approved in Europe -- fully approved in Europe and also approved in the U.S. Clearly, this community is very much aware of the drug and its benefits. So I don't think that we'll see any different type of uptick in the other markets than what we've seen in Germany, potentially, I would even expect the U.K. maybe to be slightly better once we get on the market there. Yes.

Okay. And then in France, you're going to go for the early access program. Do you expect some sales maybe already this year for France?

Well, we have applied for the early access program in France, and we'll hear back from them latest late June or early July, potentially even earlier than that. But our expectations are a bit tempered because the -- what we're hearing is that the French government has become much more restrictive with these early access programs. In the past, when we had Raxone, we had an early access program in France. But that was under different times and different circumstances. So currently, we're not planning on one. We've applied for it, but it's not in our assumptions or in our cash forecast that we would have any early access sales in France. So it will be an upside if we get it.

Okay. Great. Just regarding your 150 million peak sales guidance for AGAMREE in Europe, is this for some territories only? Or it's the entire European Union, including Switzerland?

No, the peak sales guidance, which is actually EUR 150 million or above.

Euros, sorry.

Yes, it's for the Santhera market that we commercialize ourselves in. In addition to that, we'll then have distributor markets across Europe for the smaller EU and non-EU countries, which will add to that revenue.

Okay. And there, you expect to announce some agreements soon. Are you preferring distributors or partnerships where you have upfront milestones and royalties?

No, the discussions that we're having right now are distribution arrangements where we are selling the product to a distributor, leaving margin for them then to commercialize it in the market. And so we don't expect in those -- typically, in those kind of distributor agreements, you don't have big upfronts like you have in licensing agreements. I mean you may -- depending on the negotiation, there might be a smaller upfront, but it's not going to be of the magnitude that you see in licensing agreements.

Okay. Okay. Then just approval in China could be coming in the first quarter of 2025. Does this trigger milestone for Sperogenix? And do you know what kind of peak sales Sperogenix is targeting for their areas of Greater China in DMD then?

Yes. So we haven't disclosed the milestones. There will be milestones on both submission -- or have been milestones on both submission and approval. But we haven't disclosed those, but you can assume that between now and approval in China, we'll get high single digits in millions in terms of milestones, regulatory milestones. And in terms of the sales, we -- Sperogenix has not guided towards any sales and neither have we in China. Obviously, the price in China will be likely much lower than it is in the U.S. or Europe. But on the other hand, China has somewhere between 50,000 and 70,000 Duchenne patients. So that -- there's a significant potential volume in China.

And then just like Catalyst, I think they're reporting in May. Do you expect some sales milestone from Catalyst in this year?

No sales milestones from Catalyst this year. No, just royalties.

Okay. And then just on your pipeline. I think the next step for AGAMREE has been the proof-of-concept trial results for Becker muscular dystrophy. When do you expect that? And do you also expect off-label use in BMD?

That's a question that I would pass over to Shabir if you're on the line.

Yes. Bob, thanks for the question. Bob, you'll remember that ReveraGen are actually running the study. So the latest information we have is that they're in the final stages of recruitment, very final. And so we have to wait and see what the top line results are probably late quarter 3, early quarter 4 to be able to comment more on that.

Okay. Okay. And then you mentioned that probably soon you'll announce additional rare disease indications there. Are these development costs included in your guidance, also in the longer-term guidance? And then also just, are you looking to expand your pipeline with external projects? Or is now the focus really on expanding the number of indicators for AGAMREE?

So the first question is -- or answer is, yes, they are -- the costs are included in our forecast and our projections for these additional indications. We have done a lot of work with Catalyst on this. They were here a few weeks ago with their leadership team where we also started really closely holding in on the indication and already starting to work on clinical trial designs. There are still some work to be done around this. We want to have dialogue with both the FDA and EMA on the feasibility of those trial designs. And we also want to file some additional intellectual property around these indications. So we're not quite ready yet to disclose the details. You should expect to hear more about our plans then in the second half of the year. And what was the other question? The pipeline. The focus for the coming year or so is certainly to get these additional indication or potentially 2 indications off the ground for AGAMREE beyond Duchenne. But then beyond that, we will start looking at either partnering, licensing or even M&A activity to fill our pipeline with external innovation as well to -- so that's something that we plan to do in '25 and onwards much more aggressively. But for the next year or so, it's really -- focuses on AGAMREE and getting that off the ground.

Okay. And then just the final question, you announced, which is quite great, that you're going to reach breakeven in first half 2026. I see you have some detailed modeling there, still some moving parts there. But what are the underlying assumptions for that?

I'll pass that to Andrew. He's Mr. financial modeling.

Thanks, Bob. No. As you can appreciate, there are a number of moving parts, especially as we navigate the pricing reimbursement across Europe in the different countries. But the base assumptions and touching on the new indications, you just mentioned with Dario there, we don't see costs really starting to increase until '25 just because '24 is more the development, regulators getting sites selected and so on, which is the lower cost phase of the program. But looking further forward, on the cost side, we see the sales and marketing incrementally adding around 10 million to 15 million on where we are now up to 20 million to 25 million marketing area. And that should support substantial growth, would be pretty fixed as we grow revenue in the markets there. That would lead our overall cost base somewhere around the 55 million or so plus minus, including some development expenses. On the revenue side, by '26 or during'26, we expect to reach around 50% of our peak revenue target. So that's in the direct and some of the indirect markets. So we'll have a mix of income of both product royalty, sales milestones start to come through from U.S., China and some of our distributor markets as well. And obviously, as we go through and we start to see the revenues develop, then we can give a bit more granular guidance for the near term and for the next couple of years, but that's broadly where we're headed.

Okay. Yes. Probably in May 9 with Catalyst, we'll know a little bit more about the U.S. market as well.

Yes. We look forward to hearing that also.

Keep in mind that Catalyst launched mid-March, so the first quarter sales are not going to be that much. Yes.

Yes. That was more the indication, I think, yes, the initial indication, yes.

We have a follow-up question from Laura Pfeifer from Octavian.

I'm just wondering if you could update us what is the current status and your plans of the Phase IV development of AGAMREE in DMD. I guess you still have some clinical trials or registries running. And I'm just wondering when we can expect some new data announcements. And also related to that, could this potentially lead to the filing of a label extension in the U.S.?

Shabir, why don't you take that one?

Yes. Thanks, Laura. I'll answer to the extent I can. Of course, for Catalyst's intention, Laura, you may be better asking them directly. So in terms of the Phase IV plan, the key strategy is to continue collecting long-term data. We believe that the differentiated safety profile we've seen so far, it's really just the tip of the iceberg. It's the short-term side effects that you would expect to see with steroids where we see the differences of vamorolone. The things that we're hoping to collect data for in ongoing Phase IV studies are the longer term, more impactful complications. So particularly, we're still focused on fracture risk. We're looking at glaucoma, cataracts, delayed puberty. We're wanting to confirm no stunted growth over a longer time period, diabetes, hypertension. Those are the things that obviously are more serious complications that normally appear on steroid use after about 4 to 5 years. So that's the focus of the data collection. As you know, we have a number of children globally, about 140 kids, who've been on drug already for 7 years. So these are the data that are basically being collected. The patients have already been exposed to the drug. So it's a very simple process that Catalyst are partnering with us -- doing, is to create registries to bring these kids into a more formal data collection. So I'm hoping to have data available that we will announce at relevant congresses in the first half of next year. In terms of the label with the U.S., of course, Catalyst would have to comment on their intentions on that. But for Europe, many of these are already included in the label either as absences of warnings or we've got a commentary in the label already where we see reduced risks. So I think there will be minimal impact in the European label. But of course, for physicians, these are the things that become every day, very important issues. When considering which product to use. So it's much more important in the clinical setting.

We have another follow-up question from Bob Pooler from ValuationLAB.

Just one quick one on AGAMREE. As said, you're looking into the rare pediatric areas for AGAMREE. But are talks ongoing? Are you still looking at also indications, the large indications where steroids are used?

Currently, we're not looking at large indications where steroids are used. The highest unmet medical need, short term, is in pediatric indications where children are getting very high doses of steroids over longer periods of time and where the -- particularly the growth stunting and the bone turnover, mood and behavioral disorders is really a crisis. Not in all indications do patients have a shorter lifespan like having Duchenne, where they live into their 20s or 30s. In many of these indications, other indications, pediatric indications, these patients end up having quite a long normal life and having that growth stunting caused by early steroid use is obviously harmful for life. And so that's where we're going initially. We also have currently a formulation, which is an oral suspension, a pediatrically appropriate form. We are working with Catalyst on a fixed-dose tablet. And once that fixed-dose tablet is available to the market, then it's going to be the right time to start looking at larger -- potentially larger indications, certainly adult rare and orphan disease indications. But for the time being, we're focusing on pediatrics.

And that fixed dose tablet, so that will probably also have extended patent life as well?

That's our goal. But obviously, we can't commit to that at this point.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Mr. Eklund any closing remarks.

Thanks, Sandra. So in the past 15 months, Santhera has reached some critical turning points. We've seen significant successes and hit key milestones. As we look to the future, we geared up to -- we are geared up to keep this momentum going. Our goal is clear, to enhance care for DMD community and improve our patients' quality of life. I'm truly proud of our team. Everyone's dedication and creativity has been absolutely outstanding. I'm really optimistic about what lies ahead. We're on track for profitability, and we're looking to broaden AGAMREE's therapeutic impact. Thanks again, everyone, for joining today, and I look forward to updating you 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.