Chronos Therapeutics Ltd. (TCF) Earnings Call Transcript & Summary

Good morning, and welcome to the Evgen Pharma plc Investor Presentation. [Operator Instructions] Given the acquisition and the respective fundraising are subject to approval at a general meeting for shareholders, there will be no Q&A in today's session. Before we begin, I would like to submit the following poll. And I would now like to hand you over to CEO, Dr. Huw Jones. Good morning.

Good morning, and thank you, everybody, for attending our Investor Meet presentation ahead of a Bookbuild exercise, which starts immediately. We're here at Evgen proposing to acquire a private U.K. company, Chronos Therapeutics Limited. We announced the placing yesterday, and this webinar is really about the accompanying retail offer that comes with that activity. With me here is Toni Haenninen, our Chief Financial Officer; and Dr. Helen Kuhlman, our Chief Business Officer. And of course, we're AIM-listed as a public company, so the usual disclaimers apply. So the mission here of this entire exercise and which has been in our strategic plan for some time is to build a mini drug development powerhouse in what we call profitable segments. That's areas where a small biotech can make a difference, a difference therapeutically and a difference for our shareholders. And these profitable segments we've, in our strategic planning exercise, identified are oncology, where we're already resident; and in behavioral brain disorders, where we have one transaction already on SFX-01,our lead clinical asset. And now we're adding behavioral brain disorders through the proposed acquisition of Chronos. So here's really the graphical description of the strategic plan we defined well over a year ago, nearly 2 years ago, in fact. And we call them imperatives. We don't like objectives. Imperatives imply much more drive and passion. The first one was to conserve cash and indeed limit dilution, but that's not the job. The job is actually to continue generating data while extending cash runway, of course. And we've done that with a number of preclinical collaborations on SFX-01. And we generated clinical data, too, with our own Phase Ib study in volunteers with our market-ready formulation of SFX-01, and that was completed in quarter 3 of last year. We've got some external validation of the technology, top-right hexagon there, through academic collaborations and a transaction which could be worth as much as $160.5 million. So that also covers our early partnering opportunities imperative. So the last part of the strategic plan comes together in the last couple of days, and that is to look for attractive M&A opportunities, to broaden the portfolio, to reduce the risk in the portfolio and to create more shots at goal in simple terms. So I'll hand over to Toni now to tell you a little bit more about the acquisition we're proposing.

Thank you, Huw, and good morning, everybody, also from my side. So we're going to talk about 3 things here today. So the proposed acquisition of Chronos Therapeutics in an all-share transaction. We will come to the details of the transaction in a couple of slides and explain them to you in a detail. Also, the accompanying capital raise as we yesterday announced, GBP 850,000, where we had all of C-suite, directors as well as management participating. And we are very excited and thankful of our existing investors, meaning Evgen investors as well as Chronos investors also participating in the capital raise. This happened at a 5% premium to the market. And with this cash -- with this additional cash, it gives us a cash runway into early 2026 and puts us in a position of being roughly in plus 20 -- top 20% of European-listed biotechs in terms of how many months of cash runway. And we can also propose to rename the company to TheraCryf, which reflects the combined asset portfolio in a much better way. TheraCryf is a combination of Welsh and Greek and means strong healing. So with that, I'll hand over to Helen, please.

Thanks. So within Evgen and SFX-01, we are addressing both oncology and neuropsychiatry, the autism partnership. But actually, the area of CNS and in particular, neuropsychiatry is a resurgent one. And that was borne out by a large amount of deal activity that was concluding towards the end of 2023. As you may have seen, AbbVie acquired Cerevel, which led with a psychiatry asset in schizophrenia for $8.7 billion. And that was a late-stage asset. And also Karuna was acquired by BMS. Well, there was a deal with BMS for $14 billion. And both of those deals happened towards the end of last year. Coalescing with that, Johnson & Johnson, who had really been out of neuroscience or not focused on neuroscience for quite some time, led with a strategy which brought neuro -- its neuroscience capability to front and center and would be a focus for them commercially in the upcoming years. So there has been an upswell in neuropsychiatry in both deal activity, development focus, research focus and market focus. There is real patient need still there, and that compromises alongside it a great commercial opportunity. The bottom of this slide also highlights a couple of deals, which are highlighted because they are focused on assets that were or are within the Chronos portfolio and will come into Evgen. And I can talk a little bit about Orexin further on in this presentation.

So to remind you on Evgen, and then Helen will cover some detail on the company we're proposing to acquire, Evgen Pharma plc is clinical stage, where -- based on this massively biologically active agent that originated in nature called sulforaphane. Sulforaphane doesn't really exist. You have to store it at minus 20 as an oily liquid. So it's no use as a druggable agent at all. So the real achievement of Evgen historically has been to turn what is a deep frozen storage agent, which exists transiently in nature, into a little yellow tablet. And an enormous amount of very clever work has been done by others in getting us to this stage where we are today. And that tablet was tested in our Phase I study starting about a year ago and writing up later. And this is a platform technology. So it's covered by 3 patent families. So it's a patented, not copyable formulation, stabilizing this massively active agent. It's now a fully chemical process. There's no natural product in there at all. And indeed, we successfully achieved orphan drug designation in the United States a couple of years ago for our brain cancer program or glioblastoma program. Orphan drug just demonstrates a couple of things really. One, we can work well with the FDA and getting approvals for additional IP protection like easier ride through the regulatory system. And even when the drugs are on the market, a tax break on sales into orphan conditions in the United States. And that was a significant number of reasons why we chose glioblastoma or malignant brain cancer as our lead internal program. We were pleased to say last year that getting to the clinic, that administering these tablets that are patented to patients in the next 2 years is funded by the Dutch Cancer Society. We have money coming from the Dutch government. So it's nondilutive funding, which is a theme, I think, that we can demonstrate that we can -- we've been quite successful at. We've also demonstrated we can out-license our technology with our Swiss partner, Stalicla, in neurodevelopmental disorders, starting with autism. I mentioned earlier, this is $160.5 million milestone deal through the lifetime of it and a double-digit royalty if and when the asset succeeds in the clinic and gets to the market. We've done our own clinical study where we're still doing genetic analysis. We're analyzing the whole genome of these subjects, these volunteers who came into our study. Three things, which we reminded the market about last year, happened. One, our enteric coat, that's a coating around the tablet designed to get past the acid environment of the stomach into the small bowel, worked. From the time scale of when we see drug and metabolites in the blood, it's clear that this tablet is getting past the acid of the stomach. And we're getting drug levels in the blood in what's called the micromolar range. So if you're a sort of pharmacology nerd like me, micromolar range is quite high, but it's also the range that we see effectiveness in the lab. So we can get drug levels in blood in the range of effectiveness in the laboratory that we've seen in many, many preclinical experiments and the literature is rife with. We're looking at what that drug did to the genome expression of all those volunteers, and that work is ongoing. So thanks to the Dutch Cancer Society and a very talented and motivated investigator in the Erasmus Medical Center in Rotterdam, we expect our first patient in glioblastoma study in 2026. That's an important date for us, our extension of cash runway as a result of the placing and this retail offer, make sure that we're still around to see that clinical readout. And that really is what we call the deal window. That is when we think we can do a larger partnership with SFX-01 in brain cancer. I'll hand over to Helen now to describe a little bit about the assets that we're acquiring.

So just to put our process into a little bit of context before I jump in with Chronos. About 18 months ago, we started -- as well as going out and talking about partnering SFX-01, we started looking at other opportunities that were out in the market that might align with us as a business and contribute value -- potential value to the business. So we underwent quite an extensive search and evaluation process. We looked at broad depth of oncology opportunities and also of CNS opportunities. We met with just over 200 businesses and looking at their technologies. We did light-touch due diligence on a proportion of them. We went to CDA with around 60 to 70 of them. And we did a full diligence exercise on 3 assets or 3 business opportunities. And that concluded with the transaction that we're presenting to you today, the Chronos Therapeutics opportunity. So what is Chronos Therapeutics? They were originally a spin out of Oxford University. They had a lifetime raise of around GBP 15 million. And of that GBP 15 million, they've potentially spent around half on developing the assets that are of real interest to us in Evgen. And these 3 assets or the 2 later-stage assets actually originated from an acquisition from Shire that are now Takeda. So they have a very good data set and very high provenance with them. They are both what's called NCE, so novel chemical entities. So they are directed against a single target and selective for that target. And they have patents granted on them in most major territories at the moment with some still pending and with good lifetime on those patents to enable us to conduct the development, both clinical development and commercial development of them. The first program is an Orexin 1 antagonist. Now the Orexin pathway is -- has been found to be linked with anxious behavior, anxiety behavior and aberrant reward. And that's implicated in substance use and addictive disorders. There are a couple of Orexin 1 antagonists in development at the moment. And these programs are approximately Phase I stage. We believe we have a class-leading profile here in the Orexin 1 antagonist that we are acquiring. And it's very important to note that Orexin 1 is very similar to Orexin 2, and Orexin 2 is involved in sleep. So there's a product on the market called suvorexant or BELSOMRA. That is a dual Orexin antagonist. That's primarily targeted towards Orexin 2 to help with sleep. But what is very important is that we don't hit Orexin 2. We're very limited in hitting Orexin 2 because we actually want to help people in their anxious behavior or to reduce their addictive behavior. But we don't want to do that by sending them to sleep. So this is why we believe this product has a class, what's called a class-leading profile, and it's highly selective. Secondary to that is the dopamine transport reuptake inhibitor. Now dopamine is an alerting compound. So if you ever suffer with fatigue or apathy, then you would probably benefit from a little bit more dopamine hanging around in your brain. Now we're not talking about the kind of fatigue where you've gone out on a long run or you've spent consecutive days in the gym and just feeling a bit knackered. This is a real central nervous system fatigue. So those with long COVID will be very aware of this. Also, it's a high comorbidity in multiple sclerosis. And that you just can't even get yourself out of it. You can't participate in everyday functioning or go to work. And that's the kind of fatigue that I'm talking about here. Now the inhibitor will prevent the reuptake of dopamine, without getting too technical, in the synapse. So it will create a gradual increase in dopamine and therefore, create a gradual alertness. And what's very exciting about this program and is why the word atypical is highlighted here is what it doesn't do is cause a flushing out or release of dopamine. Now that's very important because things like amphetamines cause their high by flushing dopamine into the synapse. And that's what we don't want to do. We want this gradual increase of dopamine to create an alertness without having any addictive potential itself. I think I've mentioned that these are late preclinical stage programs. So we have already a large amount of animal proof-of-concept data in these areas, so in both binge eating and also fatigue and particularly MS or cytokine-induced fatigue. And we have what's called a short-term toxicology study, so 7-day tox. So as far as we are concerned, these are -- have very good quality data around them and potentially taking them forward are derisked in terms of their tox liabilities and also the efficacy potential.

Over to Toni to describe the transaction. I should disclose at this point, I have no part in this transaction. The Board and Toni, who closed the deal, did it to make sure that true independence was seen and observed throughout the negotiation. So Toni?

Thanks, Huw. So transaction details. So basically, we are acquiring the whole share capital of Chronos Therapeutics and integrating that company into Evgen. The upfront payment, we paid about GBP 100,000 in exclusivity fees prior to the takeover mainly to fund the IP portfolio as Chronos has been more in the dormant stage the last 10, 18 months or so. And the rest, the GBP 900,000 balance, is paid in Evgen shares. Now the shares are calculated with 90-day VWAP, which is 1.44p. So it's about a 40% premium to the market price, leading to a 40% less dilution on our end for the Evgen shareholders. So we think this is a very good deal, very derisked. So this first GBP 1 million is the only one that is definite. Then additionally, another GBP 1 million in shares or loan notes at the start of Phase I clinical trial of one of the assets as well as GBP 1.5 million in shares or loan at our discretion at the end of successful Phase I. And on top of that, there's a 10% for first 3 milestones of any out-licensing transaction. And this whole is capped at GBP 10 million. So literally, as Helen mentioned, Chronos has raised about GBP 15 million during its lifetime. And roughly half of that has been invested into these assets, which we are now acquiring in essence for GBP 1 million. So we think this is a very derisked deal, and we think this is a very good deal for our shareholders.

So what this deal provides for us by way of pipeline, standard biotech pipeline chart there. You've seen that SFX as of 2022 is now in a deal with Stalicla in neurodevelopmental disorders, starting with autism spectrum disorder. Our internal program, next one down, glioblastoma or malignant glioma is an orphan condition. As I said, we have orphan designation in the United States already for that disease, and that's our internal key program, which will enter the patient in 2026. We have also very interesting data in the rare childhood cancer called rhabdomyosarcoma. We'd like to develop that, but that's outside of the current plan because we need a whole new pediatric development plan for it. But now we get to the interesting addition to our pipeline, and that's the Orexin 1 antagonist, as Helen mentioned, in addiction and anxiety. A psychiatrist will describe to you an anxious, impulsive type of patient. That's precisely what blocking this Orexin 1 system seeks to treat and with very long patent cover and then the dopamine active transport inhibitor in fatigue and narcolepsy through that slow, gentle increase in brain dopamine as has been described. Now also on this slide is a large number of the collaborators we're in, more or less, constant contact with. Glioblastoma, for example, is being investigated in the lab and then in the clinic by the Erasmus Medical Center in Rotterdam. We have a relationship with the University La Sapienza in Rome; on psychiatry where we've got an emerging relationship with King's College London, who have a very, very adept neuropsychiatry group. And of course, the assets that we're proposing to acquire with Chronos originated, at least the know-how originated in Shire, which is now part of Takeda. So what does this do? It triples the size of the portfolio and therefore, reduces the risk on the portfolio by 2/3. That's a key part of doing it. We are going to seek nondilutive funding to develop initially the Orexin 1 antagonist in addiction, impulsivity and anxiety, nondilutive funding through grants and other methods, collaborations and take it through to clinic readiness. That's the key part of the plan there. So the rationale for the combination then, which we've said, but to summarize, we're tripling the size of the portfolio. We're capitalizing on a massive resurgence in the interest in neuroscience by big pharma largely because of 2 things: A, a better way to measure behavioral brain disease; two, better understanding in research of some of these targets within the brain that we can block or activate in order to create improvement in mental health and the deals that Helen mentioned, $20 billion spent in December last year alone by big pharma on late-stage neuroscience companies. We believe we have the talent internally to develop these assets and within our virtual company model and indeed, the hub-and-spoke model that has a bunch of providers, CROs and consultants advising us. So we've got a complementarity here of the 2 companies. We believe we have the ability to exploit the acquired portfolio. And of course, we've created a lot more potential inflection points. And we're grateful to both our own investors, who invested in the placing; and indeed, Chronos investors, who invested in the placing yesterday. We hope to include them in -- going forward, certainly a good quality investor base. And this retail offer is really to encourage our existing retail investors to participate as well. The Board, you know, has not changed except that under the terms of the transaction that Toni closed, Chronos can nominate one nonexecutive director to our existing Board, and the management is shown there. And as you've heard, Board and management are contributing just over 10% of this placing. So between us, we're putting in GBP 86,000 into the placing, which was signed yesterday. So our individual agreements to put into this placing are already signed. The total is GBP 86,000. So I'll hand back to Toni now to tell you a little bit about this retail offer. Over to you, Toni, and then I'll conclude.

Sure. Thanks, Huw. So retail offer, as Huw mentioned, so yesterday, we closed the conditional GBP 850,000 of ABB. And today, really the purpose is that we present this opportunity to you, our retail shareholders. We have retail offer, which is open until the 3rd of April, so roughly about 2 weeks from now, starting today via the Bookbuild Platform. It is EIS qualifying. Should you have headroom and wish to take a tax advantage of about 30%, we will welcome your investment. The whole retail offer is capped at GBP 1 million. So we really welcome your participation. And as Huw and Helen mentioned on the pipeline side, I mean, of course, the more money you get, the faster we can get to those interesting data points and milestones and hopefully create additional value to the shareholders.

So that's the end of the formal part of the presentation. I'm afraid we can't take questions for regulatory reasons. But that's it for the formal part. We do encourage your participation. I'll hand back to Investor Meet.

Perfect. Thank you very much indeed for updating investors today. Could I please ask investors not to close this session as you will now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of Evgen Pharma plc, we'd like to thank you for attending today's presentation, and good morning to you all.