Wave Life Sciences Ltd. (WVE) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Wave Life Sciences business update. [Operator Instructions] I would now like to turn the call over to your host, [indiscernible], you may begin.

Thank you, operator. Good morning, and thank you for joining us today. I will be covering for Kate Rausch, while she's on maternity leave. This morning, Wade issued a news release announcing a strategic collaboration between Wave and GSK, focused on discovery and development of oligonucleotide therapeutics. The slide presentation to accompany this webcast is available at the Investors section of our website at www.Wavelifesciences.com. A replay of this call will also be available on the website following the call. Joining me on the call today with prepared remarks is Dr. Paul Bolno, Wave's President and Chief Executive Officer; Chris Francis, Wave’s SVP of Corporate Development, is also on the call and will be available for questions. Following the prepared remarks, we will take questions on the call. Before we begin, I would like to remind you that discussions during this conference call will include forward-looking statements. These statements are subject to a number of risks and uncertainties that could cause our actual results to differ materially from those described in these forward-looking statements. The factors that could cause actual results to differ are discussed in the press release issued today and SEC filings including our annual report on Form 10-K for the year ended December 31, 2021, and our quarterly report on Form 10-Q for the quarter ended September 30, 2022. We undertake no obligation to update or revise any forward-looking statements for any reason. Now I'd like to call -- I would like to turn the call over to Paul.

Thanks, Kia. This morning, we announced that Wave and GSK have entered into a strategic collaboration that leverages Wave's PRISM platform and GSK's novel genetic insights and leadership in human genetics. With the combined strength of our organizations, we are well-positioned to accelerate discovery, development and commercialization of transformative RNA therapeutics for patients living with genetically defined diseases. For Wave and our shareholders, this deal creates significant value in multiple ways, including: one, substantially extending cash runway with an upfront payment of $170 million with additional research support funding; two, setting up potential for meaningful milestone payments from GSK to Wave of up to $3.3 billion; and three, expanding Wave's wholly-owned pipeline with genetically validated targets identified by GSK's novel insights. GSK is receiving an exclusive global license to WVE-006, our first-in-class RNA editing candidate for AATD as well as access to our PRISM platform to advance up to 8 programs. We recognize GSK as an ideal partner for Wave because of our shared vision for the potential of oligonucleotide therapeutics and GSK's appreciation of the value of our unique platform. GSK's R&D strategy is focused on using human genetics to develop best-in-class medicines, and they have several partnerships providing them with deep insights into genetic diseases. With these in hand, GSK recognized a need for complementary drug discovery capability to translate these insights into medicines. GSK is also a leader in respiratory medicine, and I'll speak more about our WVE-006 candidate in a moment. GSK has substantial experience in oligonucleotide and determine the best strategic fit to unlock these unique genetic insights would be with Wave. PRISM is the only oligonucleotide platform offering editing, splicing and silencing modalities, the ability to control backbone stereochemistry as well as novel chemistry modifications such as PM. Over the past decade, we have built a disruptive platform capable of targeting diverse biology to address the underlying genetic drivers of disease with redoseable and non-DNA modifying therapeutics. We have pioneered new chemistry modifications, including our PM back modifications in stereo pure design to deliver a step change in pharmacology without the use of delivery vehicles, such as viral particles and liposomes. This year, we've delivered the first data set supporting the clinical translation of our next-generation oligonucleotides. As part of the collaboration, GSK is able to leverage PRISM, using any of our available modalities, including RNA editing, splicing and silencing inclusive of siRNA. Exclusivity obligations between GSK and Wave are limited to name targets within the collaboration, thus, keeping the door open to additional collaborations in the future. Turning to WVE-006, our RNA editing or AMR development candidate for alpha-1 antitrypsin deficiency, 006 offers the potential for one therapy to address both liver and lung manifestations of AATD without permanent genetic alterations. GSK is a leader in respiratory medicine with a proven track record of success. After we achieved proof of concept for AATD, we believe that GSK is in the position to rapidly advance and maximize the commercial potential of this program. Meanwhile, Wave retains the ability to benefit from development, launch and commercial milestones as well as royalties. I'll now walk you to the specific terms of the collaboration. Upon close of the transaction, we will receive $170 million upfront consisting of $120 million cash payment and $50 million equity investment from GSK. This equity investment represents a 15% premium over the 30-day VA. In addition, we will receive research support funding from GSK over the duration of the 4-year research term. With this upfront cash, we expect our existing cash and cash equivalents to fund operations into 2025. This does not include potential milestone payments and committed research support, which we anticipate receiving over the next 12 months. In aggregate, Wave is eligible to receive up to $3.3 billion in initiation, development, launch and sales-related milestone payments for programs advanced during the initial 4-year research term of the collaboration proximately $525 million in milestones related to WVE-006. Wave is also eligible for double-digit tier royalties as a percentage of net sales of WVE-006 up to the high teens. For WVE-006, development and commercialization responsibilities transferred to GSK at their sole cost after we complete our first in-patient study. As a reminder, we expect to submit CTAs for 006 in 2023. Assuming GSK advances all 8 collaboration programs, Wave is eligible for up to approximately $2.8 billion of milestones. For GSK collaboration programs, Wave is also eligible for tiered royalty payments as a percentage of net sales into the low teens. Overall, these 2 pillars of the collaboration offer Wave the ability to benefit from potential cash flow from both near-term development milestones and longer-term commercial milestones and royalties. The last pillar of the collaboration allows Wave to leverage GSK's genetically validated targets to advance up to 3 programs or potentially more pending agreement with GSK. We are very excited by the unique structure of this collaboration, which unlocks substantial value for both Wave and GSK. This deal reflects the value of our PRISM platform and our first-in-class RNA editing platform and program WB-006. With an extended cash runway, we are well capitalized to execute on upcoming milestones, including in the very short term. We expect to share the data from our Phase I open-label study of WV N531 in patients with DMD this quarter. We will now open up the call for questions. And as a reminder, joining the question-and-answer portion of this call is Chris Francis, our SVP of Corporate Development, who is substantially involved in the execution of this transaction. Apologies for the challenges in the early part of this call, and we look forward to questions. Operator?

[Operator Instructions] the first question comes from [ June ] [indiscernible].

Is it safe to assume that the targets you will be working on for GSK exclude DMD, ALS and Huntington's disease? And are the targets that GSK is interested in fall in the orphan disease space or larger indications more aligned with indications like hep B and NASH? And I have a follow-up.

Yes, it's a great question, June, and thank you for asking. So one, it does not encompass the per current program in Waste portfolio nor does it encompass programs that, as we had mentioned in the earlier part of our exploration of ADAR that we had begun working on inside Wave. So these would be new programs other than WVE-006, obviously, that GSK is bringing to us through a lot of their novel insights. As we know, GSK has done substantial partnerships in identifying novel genetically validated targets. And so they would be bringing these to Wave to work on across multiple modalities. And as I said earlier, including silencing. So I think if we were to talk about range of targets, which we can't share, and this is early days in the process, but they would range from large indications as we've seen targets that others have been publishing on recently to rare genetics. So I think there is a full compendium of targets that we're excited to unlock with our partner, GSK. Chris, I don't know if you have anything else you want to add to that?

No.

All right. And then in the press release, you mentioned that the cash is sufficient to fund operations into 2025, what's baked into that assumption?

So obviously, the cash on hand, if you still have, as you recall, this deal with additional cash inflows. And I think it was important to note that we also reminded folks that as programs continue, we have additional research funding support. So as these new programs get brought on to GSK, they wouldn't be anticipated that while the burn in terms of Wave spend would increase, they are offset by the additional research support funding coming in. So it enables us to continue to fund it with the cash on hand, research payments. And as we mentioned, milestones too, that we could potentially expect in 2023.

Our next question comes from Paul Matteis with Stifel.

This is James on for Paul. And congrats on the deal. One specifically, I guess, as you're moving forward, I guess, how will you prioritize independent programs and efforts versus those that are part of this GSK deal? And I guess going forward, can we expect the next few INDs to be independent programs versus those from GSK or a mix? And then just quickly, separately, it'd be great to get any update or any specifics that you can provide around the timing of the DMD data. And would just be curious how those data played into the factor and decisions to do this deal at this time.

I'll take your second question first, which is, obviously, the only update I can provide the timing is in this quarter. I think, as you will recall, as we think about the timing of this deal and data, we've said this year that we do anticipate doing a business development transaction in 2022. And to do the right deal for Wave takes time and to find the right partner. So in a competitive process, I think it was important for us that GSK on so many different levels aligned to be the right partner on the deal and the deal was announced at the appropriate time when it was complete. Moving to the second answer to your question, which is how do we think about prioritization of program? I think one of the factors in the field that was extraordinarily important to our team at Wave was that we are building an internal capability and an internal portfolio. And a key component of this transaction was obviously that third pillar, which is way of being able to access genetically validated targets with which we can continue to build our portfolio. And we would do that in parallel to the resource work that GSK is supporting for work on targets that they've identified. So we do anticipate working on both GSK programs as well as Wave collaboration programs as it advances in parallel, such that we continue to build a clinical pipeline for way. I don't know, Chris, if there's anything you want to add around the timing of the transaction?

No, I was just going to add that one of the nice features of the collaboration is that the targets that we get, the one Wave benefits from GSK genetic insights, we don't have any economic -- don't have any milestone payments until we're making money. And so there's -- to Paul's point, we can assess them on their narrates against the things that we would be doing outside of the collaboration.

And just to reiterate, as a follow-up and just to be sure clear, as we said before, there are programs that we have been working on at Wave, particularly as we have a focus on [ ADAR ] RNA editing as well as upregulation. And those programs are clearly still in Wave's portfolio and not part of the GSK collaboration.

Our next question comes from Salim Syed with Mizuho.

Congrats on the deal, Paul. Paul, I guess a couple of questions. With GSK now as a partner to you and it sounds like there's already a pretty good idea of what these 8 collaboration programs might be if they're spending targets over to you. What is the speed of development here in terms of how quickly can we see if you can characterize for this, like how many programs will be in the clinic in '23 or '24 with this collaboration? I'm trying to understand what the speed of development is now. And then secondly, go ahead, and then I'll follow up also.

Yes. No, less than 12 hours into [indiscernible], I can't yet give the catalyst of timing for ‘24.

I'm just trying to understand generally speaking. I take it that was a big part of this deal that you can substantially build your pipeline much quicker now.

Yes. I think there's 2 parts to that. One, and from the previous question, I think it's important to highlight is we are already making progress on a number of programs that we've been working on. So I don't want to diminish that. Those are programs that are important to us and are continuing to move forward. And obviously, as we said earlier this year, before we announced the deal, we would give more updates on ADAR and direction of travel in 2023. I think your point is spot on, which is we are working in a collaboration where a lot of work has been done to identify programs. And to your point, to be able to accelerate a number of programs upon fund, we have to get into that period. But I would be remiss at this point to start putting timelines associated with those. But I think your assessment is fair, that there's a number of things that we're working on, and we do view this as pipeline accelerating, both in collaboration programs, but also for Wave's wholly-owned pipeline.

Does Wave have any right of refuse? If GSK wants to collaborate on a target, who’s to say that this is the way it's going to be? Is it specifically up to GSK to nominate that? And then I guess, tangent to that, is the additional research support that they're providing enough where it honestly doesn't matter to you for them to nominate as many of these targets they want to develop those?

Yes, I'll break it to 2 points. As it relates to the funding piece, and Chris, you can jump in as well. From a runway piece, so to your point, if they name a number of programs at the beginning and obviously, that has an increase in spend. It was very important to us should not be spending Wave cost of capital on those new programs as they come in. So there's a research support funding that comes in to get to a program. Once the program is identified as I listed the number of milestones, there's initiation milestones, development milestones, commercial milestones that then support work continuing. So there's a number of mechanisms in place that as programs come into the collaboration, the financial support parallel set to accelerate that. So it's not a piece where Wave becomes overwhelmed with programs. I think I'll pause there for a second, Chris, if there's anything mechanistically you want to add to that.

No.

So with that coming forward, then to your point, Salim, then we are poised to be able to advance those in tandem with programs that, as we've said earlier, are in our pipeline, and we are independently putting our resources behind to advance. So there is a mechanism by which they both come. As it relates to how programs get nominated, there is -- they are programs excluded. So there is a, as I said, a mechanism for protecting the programs that we've been working on so that they stay within the Wave portfolio, and we continue to build, develop and execute on those programs as well.

Okay. And just broadly speaking here, should we be thinking about Wave on the long-term debt most of this business model is now just going to get converted to out-licensing programs and Wave collecting royalties? Or is there still any real intention to fully commercially integrate, build your own sales force, et cetera, for any of the candidates?

Yes. No. I think we still have a commitment to developing and commercializing programs. We have a wholly-owned DMD franchise. And as we said, we'll have data on those programs, too. So I think what we're realistic on is we have a number of programs that are partnered, that are collaborative. So we have an option that, again, on the 50-50 R&D split, profit split on the CNS franchise, and we have wholly-owned programs in the pipeline. So I think our view is we'll always, as we said from the beginning, have a mix of partner programs and wholly owned programs as we continue to advance Wave into the future. The important thing is to make sure we have the resources to bring meaningful medicines to patients. And so we've got an array now to do that across editing and upregulation across a whole variety of targets that are going to be both Wave programs, but also will fall into the GSK collaborative programs as well.

I think the other thing that I would highlight, Salim, is one of the areas that we said would be interesting to us in a partnership is one that brings wholly owned programs into Wave with unique genetic insights. So we know that one of the questions is, are there -- what are -- what is the unique target space that we could be privy to access on to advance the unique program and pipeline. That is a rebate program. And so I think this collaboration, in addition to thinking about it to your question of giving and delivering on programs to GSK, it was an important part of this collaboration that we bring programs into Wave that also benefit from those unique genetic insights that give us unique differentiation. And we've seen that play out with a number of programs who've used resources like U.K. Biobank. We've seen companies leverage those genetic data sets to have unique insights and accelerating medicine. So I think what we want to give Wave is that same opportunity to get access to unique insights into target so that we can continue to build a pipeline in that space.

Next question comes from Luca Issi with RBC.

Congrats on the deal. Maybe 2 quick ones. One, maybe on the terms of the deal, can you maybe expand a little bit more on the negotiation here of the deal? Why you think it was struck unfavorable economics? We obviously have seen other deals in the space, including Roche and Shape and Eli Lilly. Wondering how would you comp this deal versus others that we see in the space. So any thoughts there, much appreciate it. And then maybe one on the deal extension. Can you just maybe talk about the mechanics of the deal extension beyond the 4 years? What are some of the key milestones that you need to achieve in order to get there? And maybe what are the potential economics at that time?

Yes. I think as we think about deals that are done in the RNA editing space. I think this is one of the strongest deals that are done in the space. And that doesn't come by accident. I think the team worked extraordinarily hard, and I say team, that's just the business development team at Wave but the entire research discovery and development team at Wave to build a capability that could deliver a deal of this magnitude. I think it's important because the deal not only provides an upfront payment, but can provide continued research support to continue the work that we're doing in building a pipeline for ways. And that comes from extensive discussions with a partner who sees the value in what we're doing collaboratively. And I think that was one of the important parts of the negotiation over this year has been really building a bridge with our partner, GSK. I think strategic collaborations work when both partners see strategic value in the collaboration. And I think we have strong relationships that we've been building with GSK, where they see the contribution of what our team can do and deliver and vice versa, these work well when we see the value of what the partner can offer. And so we spent a lot of time talking about leveraging the value and insights that they've been building and investing in, in genetic targets. I think the other piece is we recognize for the Alpha-1 antitrypsin program, that expediency post-transition, delivering data and what do we do after we deliver that first inpatient data. We want to work with a partner who's poised not to be thinking about the data, but to rapidly accelerate it and who really understands how to run respiratory endpoints so that we can have not just a first-in-class program, but a program that sustained best-in-class status potentially. And so when we put the pieces in aggregate together, I think overall, this partner, GSK, rose to the top of the collaboration partners that we've been evaluating for this particular transaction, and we're excited about it.

Great. Maybe on the deal extension. Any color on that front? What are the mechanics of that?

So after the 4-year research term and I'll let Chris add in because I don't know if you want to go into it, but has an option to extend that comes with remuneration and a limited number of programs. Chris, is there anything else you want to add to that?

Yes. I mean just at a high level, so the initial 4-year term GSK can initiate up to 24 validation programs where they're paying 100%. And then they can initiate up to 8 programs in the first 4 years, they come with payments to the initiation of those where we're delivering a candidate. At the end of that 4-year term, GSK can elect to extend the term by another 2 years and they can add an opportunity to initiate another 4 programs in doing so. There's a payment associated with that extension. In the final year, there is -- they can add another year, but that's by mutual agreement. So it's basically a 4-year term with a 2-year addition, whether it's a payment associated with that extension.

Got it. Super clear. Maybe last one, I promise. Have you or GSK ever considered to include DMD as part of the deal?

I think we're very focused, and I think the earlier question is important that we are very focused on building out a potential commercial pipeline. So as we think about advancing the program, that program was not on the table.

Our next question comes from Mani Foroohar with SVB Securities.

Congratulations on the deal, which is quite broad and impressive. So I'm going to go down to perhaps a more narrow question initially. Can you give us a little bit of detail on how exactly you be recognizing the initial upfront, the milestones, et cetera, to large deals go off and introduce some modeling challenges that make it tough on a quarter-to-quarter basis. So just broadly, how you're treating it from an accounting perspective would be really helpful to us. And secondarily, as you look at this partnership outside of some of these narrow traditional inherited disease, strategically defined indications, other opportunities in infectious disease and in targeting other tissue types? Or are those not contemplated within the context of this partnership?

Great question on the second, and then I will have Kyle and Chris answer your question on the modeling of the cash inflows. But I think your last point is exactly why we're excited about the breadth and the genetic validated targets. They are broad. They span not just rare genetic. We see genetic insights that they found into large indications as well, recognizing that the capabilities that we have beyond siRNA and silencing. On gain of function diseases, we're excited to explore what we've talked about in terms of upregulation, disruption of protein-protein interaction and thinking about alternative ways to get into some of those larger indications as well against targets that have been identified. And this collaboration targets, both in those that Wave has access to as well as those that GSK will have us work against also span a broad range of therapeutic areas. So these are areas that are -- have been historically interrogated, but they also include areas that have been not historically interrogated in terms of immunology and other approaches. So I think it's going to be really unique insight. I think we're both really excited to roll up our space and start working against the program and to be able to share more as we get into 2023. I don't know, Chris, Kyle, if you want to share more on the modeling.

Yes, I'm happy to address the accounting question. So Mani, as you can imagine, we're just getting into the initial assessment of the accounting and understanding that you guys need to model it out. We're working through all of that, but we suspect that this is going to fall within 606, and we recognized it in a similar way that we recognized Takeda.

And I'm not showing any further questions at this time. I'd like to turn the call back to Paul Bolno for any closing remarks.

Thank you, everyone, for joining the call this morning, and we look forward to connecting with many of you after this call. Have a great day. Thanks again.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.