Xbrane Biopharma AB (publ) (XBRANE) Earnings Call Transcript & Summary

Hello, everybody, and welcome to Xbrane's phone conference in relation to the interim report of the first quarter 2020. My name is Martin. I am the CEO of Xbrane, and I will be presenting the most recent events during this past quarter. And with me, I also have Susanna Helgesen, our CFO, who will go through some of the financial highlights of the quarter. And there will be a Q&A session towards the end. [Operator Instructions] And we will answer them as good as possible at the end of the conference. Okay. So first of all, this quarter has for us, as for many others out there, been dictated a lot by the COVID-19 pandemic. And let me first spend some time on talking through how that has impacted us and what kind of response we have taken with regards to COVID-19. If we start with our internal development activities, we have, as many other companies, gone towards a model of working from home, essentially for the ones who can do it. But as many of you know, we also have quite a lot of laboratory activities, which is impossible to conduct at home. So we kind of followed the policy where the ones who can work from home shall work from home, but laboratory activities are being performed at our laboratory space here in Stockholm. And I think that from a development perspective, we've managed it pretty well, and we haven't faced significant delays in our development programs concerning what we're doing internally here related to COVID-19. Then if we kind of expand the scope and look beyond our internal activities to what we do together with certain development partners, from a manufacturing perspective, we are also producing continuously batches of Xlucane at commercial scale together with our respective CMOs in preparation for filing. These batches we produce take part of the comparative package, which goes into the ultimate regulatory file. And this has been continuing without delays, I would say, despite the COVID-19 pandemic. All our CMOs have taken, I would be saying, adequate measures in relation to the pandemic, and they have been able to uphold their operations and been able to stick to the manufacturing schedules that we had set out together with them before the COVID-19 pandemic hit us. So I think also from that perspective, we've been able to manage. Then, of course, it comes to our global Phase III trial, Xplore, the equivalence trial we are conducting with our ranibizumab biosimilar, Xlucane. And here, we sent out an update earlier, a month ago or so, in relation to the impact on Xplore trial due to COVID-19. And I think, on the positive end, we have been able to continue recruitment of new patients into this study despite the current situation. And I think we've been fortunate with regards to, on the one hand, the geographical mix; and on the other hand, the fact that over 50% of the clinics that are participating in the trial are independent eye clinics. And therefore, visits by the patients to these clinics are attached to a more limited risk of contamination. And also the fact that this is treatment of a very severe eye disease, which, if not treated, leads to blindness. And I think we've seen very high willingness amongst the patient population to continue this kind of a treatment. And participating in a clinical trial like Xplore does not lead to significantly more visits at the eye clinic than if you were to go with standard treatment. So this has also contributed to a high willingness amongst the patients to participate in a trial like this. But we've seen a reduction in the recruitment, and I think we have a more detailed page on this a little bit later. So that's kind of the impact so far with regards to COVID-19 pandemic. And I will be saying that main impact actually has been related to the slowdown in recruitment in Xplore trial. And -- but if you look at what that means for us, we still believe that we shall be able to finalize the recruitment of this trial third quarter this year, which shall take us to submission of Marketing Authorization Application in Europe and the U.S., well in time to be able to get the approval at the time of patent expiration of the originator product in Europe, which is July 2022. So I think we still are on track towards an approval ahead of the patent expiration of the originator. Then we have advanced our preclinical portfolio. Mainly we're putting efforts into the biosimilars to Cimzia and Opdivos, Xcimzane and Xdivane, as we call these programs or products. And this is moving along very nicely in preclinical mode. And we're also doing some preparations with regards to taking this product into the clinic. We have started to design the clinical programs, and we are going to engage with the regulatory authorities later this year, particularly on our Xcimzane program, the Cimzia biosimilar, to discuss and ultimately agree upon the design of the clinical trial that we believe is going to be required to get the marketing authorization of this product. So very exciting development on this front. And particularly, Cimzia biosimilar, we are very excited about this program as also the originator product continues to grow, recorded EUR 1.7 billion sales last year and growing quite strongly. And we see no other biosimilar programs actually targeting this product. So I think this can become a very good position for us and a very good program, which we can make something successfully from a commercial perspective. Then coming to the cash position. We came out of the quarter with SEK 84 million cash position. And actually what's a highlight here, and I'm going to talk more about that on next page, the Bausch deal -- Bausch + Lomb deal we did a couple of weeks ago involved an upfront payment, which, of course, is coming after the closure of the first quarter. So this is not accounted for but a payment that is shared between us and STADA, and it's coming after the end of the first quarter, contributing in a good way to our capital. Okay, so that was kind of highlights. If I move to the next page. So let me then spend some time on the recently entered partnership with Bausch + Lomb, which had happened after the end of first quarter, so a few weeks ago. We're very happy to have closed this deal together with STADA with Bausch + Lomb. And as many of you probably know, Bausch + Lomb is an eye care product and a pharmaceutical specialist founded in the U.S. some 150 years ago and have been specialized in eye care since then. So very strong brand name across the globe, particular probably in North America. Currently, Bausch + Lomb, 2019 recorded sales of USD 4.7 billion, is a very sizable company. And also, what we believe is very beneficial when it comes to sales and marketing of Xlucane is that this is a company specialized in eye care and eye pharmaceuticals. And they have, of course, a sales force which is established in North America. They have relationships with approximately 2,500 eye clinics in the U.S. that currently are prescribing Lucentis and the other VEGF alpha inhibitor for ophthalmic use. So I think it's -- this is a perfect plug-and-play situation for us where they were able to leverage that sales force, those relationships and their brand to maximize the commercial potential of Xlucane. And I think Xlucane is a product that fits very well into their portfolio. So we're very happy of this partnership. And the partnership as such, as we communicated, involves a license payment. There was an upfront payment of a mid-single-digit million U.S. dollar payment, which then according to the codevelopment agreement with STADA, is then shared 50-50 between STADA and Xbrane. I think we're a little bit reluctant to share further details with regards to the exact terms in this agreement. But of course, it then involves milestone payments, which are due up on regulatory approval in the U.S., and ultimate launch in the U.S. of Xlucane. And then there is a profit split agreed upon. And all proceeds coming from Bausch + Lomb commercialization of Xlucane in North America are then shared 50-50 between Xbrane and STADA. So this is a very good partnership. And this, in relation to our previously communicated target with regards to income generation from Xlucane, it only strengthens our strong belief that we shall be able to generate EUR 100 million at least from Xlucane in income, so income after deduction of production costs and related profit sharings with our partners, 3 years after launch. So EUR 100 million 3 years after launch in net income generated to Xbrane. This is our strong, firm belief that we shall be able to do, and it has only strengthened with the partnership with Bausch + Lomb. And also, I think that these deals shall bring further comfort to all of you out there with regards to the quality of this program. We're fully confident, all of us working with this day-to-day within Xbrane. But if you look at it from the outside, now we have had 2 large pharmaceutical companies in STADA and Bausch + Lomb doing their detailed due diligence on this program and decided affirmative, entering into partnerships with us. And in doing such a deal, you really turn on every stone all the way from the clinical program to the manufacturing of the product. And this also included, from Bausch + Lomb side, visit of our respective contract manufacturers over here in Europe. So I think this also shall bring further comfort to all of you out there with regards to the high quality of the program of Xlucane. Okay. Excellent. So let me move from there to Page 5. So this is going a little bit more into detail on the Phase III trial, Xplore, what I talked about here initially with regards to the COVID-19 impact on the recruitment. So you can see here on this graph, on the one hand, the cumulative recruited patients into this trial. As many of you know, we're targeting 580 patients. And we have, by the beginning of May, 381 recruited into Xplore. Now if we would have followed the recruitment rate we observed during the first quarter this year throughout -- up until summer, we would have finalized recruitment in June this year. But there has been a reduction in the recruitment rate due to COVID-19 and roughly reduced by 50% compared to pre-COVID-19 situation. But we're still confident that despite this situation, we shall be able to finalize the recruitment during Q3 this year. As I said initially, I think we're fortunate with regards to the geographical mix where quite a significant portion of the patients are recruited in regions not so severely impacted by COVID-19 pandemic and also that over 50% of the clinics are separate eye clinics, so separate from hospitals, which facilitates for a patient's perspective in terms of fear of contamination in connection with the visit to eye clinic, and then also that this is a very severe eye disease, which leads to very high willingness amongst the patients to continue this kind of treatment and also initiate this treatment in case you're diagnosed with the disease. And then it's, of course, hard to predict how the COVID-19 pandemic situation will unravel globally and particularly in these regions. We see, from where we're sitting, signs of reduced restrictions in quite a few of these countries in which we are recruiting, which we believe will make us going back sort of towards the recruitment rates we have before the pandemic or somewhere in between there. So we're pretty confident at least to be able to finalize the recruitment Q3 this year. Okay. If I go to next page, what that then means for our overall time line for Xlucane is that we shall be able to communicate on top line data first quarter 2021 from the study and being able to file to the regulatory authorities in Europe and the U.S. And we do that in the back of 6 months treatment data from all patients in Xplore. And then counting on a 12-month regulatory process takes us to approval ahead of the patent expiration of the originator product, which is -- in Europe, which is July 2022. And also, I think that this time line on our lead product, Xlucane, also provides a healthy list of triggers for the share with last patient into the trial, top line data, submission of the MAA and BLA, respectively, and then ultimately, of course, approval. So I think we have quite a few significant triggers for the share in our continued development of Xlucane towards the coming months and beyond. Okay. So that was a brief update on the development and operations. So with that said, I leave over to Susanna to go through some of the details on the financial side.

Thank you, Martin. Let's move over to Page 7 and the update on the Q1 financials. In the financial summary for Q1, you can see that Xbrane did not report any revenue. R&D expenses amounted to SEK 44.6 million, which is an increase compared to same period last year. This is primarily due to the ongoing Xplore study, regulatory preparation for filing as well as the establishment of manufacturing and supply chain. Also, we are advancing our R&D efforts for our preclinical biosimilars. Out of total operating expenses, R&D represented 86%. Operating loss amounted to SEK 48.7 million. The greater loss compared to last year is primarily due to increased R&D expenses. EBITDA amounted to minus SEK 47 million, and the net result amounted to minus SEK 48.9 million. Xbrane ended the quarter with SEK 84.5 million in cash, and the equity ratio amounted to 45% and has decreased since beginning of the quarter due to losses for the period. Earnings per share amounted to minus SEK 3.17. Let's move forward to next page to look more in details on the financials. On Page 8, you'll see a table to the left for the total income quarter-by-quarter. And here, we have added both revenue and operational income. In Q1, we had a total income of SEK 4.9 million that is -- primarily consists of exchange rate gains on derivatives and operational receivables and payables. If we look at the net result to the right, it amounted to minus SEK 48.9 million. The loss has increased since last year, which is primarily due to increased R&D spending but also increased G&A spending. Let's move forward to Page 9. Looking at SG&A in the table to the left, we had total expenses of SEK 7 million in Q1, which has more than doubled since last year. The increase can be explained by Xbrane being a growing company, and the large part of the increase is related to transactions. Some of the expenses during the last year has been related to transaction, capital raise and main market listing, and we have adjusted for those nonrecurring in the adjusted SG&A. If we move further to R&D expenses to the right, we had expenses amounting to SEK 44.6 million in Q1. This is an increase from the same period last year. As I mentioned earlier, this is primarily due to the ongoing Xplore study, regulatory preparation for filing as well as establishment of manufacturing and supply chain. We have also increased our R&D spending for our preclinical biosimilars. That amounted to SEK 7 million compared to just SEK 0.5 million for the same period last year. In the bar to the right, we have presented the R&D expenses for biosimilars, which is everything except Spherotide. Let's move forward to Page 10. In Q1, we had cash flow from current operations before changes in working capital of minus SEK 51.4 million. Moving further down to changes in working capital, we did not have any changes in inventory as this has been written down to payroll. For changes in trade and other receivables and payables, we usually have quite big fluctuations due to the reinvoicing structure that we have with our partner, STADA. And this was also the case this quarter. Operating cash flow amounted to minus SEK 83.3 million. Cash flow from investing activities amounted to 0. Cash flow from financing activities amounted to minus SEK 0.8 million and refers primarily to amortization of lease liabilities. Total cash flow for Q1 amounted to minus SEK 84.5 million. Let's move forward to Page 11. On the left, you can see the variations in operating cash flow quarter-by-quarter. And for Q1, the amount was negative SEK 83.3 million. Looking at the cash balance to the right, we ended the quarter with a cash position of SEK 84.4 million. Cash balances decreased since year-end due to losses and negative changes in working capital. Let's move forward to Page 12. Looking at summarized figure on the balance sheet in blue, you can see that it has decreased to SEK 311.4 million compared to year-end in orange where it amounted to SEK 338.9 million. Starting up on the asset side. We had noncurrent assets of SEK 94.3 million, which is in line with the year-end. The changes here are smaller investments and leases as well as currency-related changes. We have current assets of SEK 132.6 million in Q1. And out of these, SEK 42.9 million is a receivable from our partner STADA that was later received in early April. But this one pretty much explains the difference compared to the year-end. In current assets, we also signed purchase and packaging costs of reference drug that are used in the Xplore study, amounting to SEK 45.1 million. Prepayments to our CRO for the clinical trial amounted to SEK 17.9 million. Cash amounted to SEK 84.5 million, a decrease due to operational spending. Moving over to the other side of the balance sheet. We have shareholders' equity amounted to SEK 139.5 million. And also here, a decrease is due to losses for the period. Noncurrent liabilities amounted to SEK 15.1 million, whereof SEK 4.4 million relates to STADA's part of the long-term deposits to our CRO. Noncurrent leases amounted to SEK 5.6 million. Current liabilities amounted to SEK 156.8 million, and that includes deferred income and accrued expenses of SEK 108.7 million, whereof SEK 84.4 million is deferred income from STADA. Furthermore, trade and payables amounted to SEK 43.7 million. And that was all on the financials. Back over to you, Martin.

Thank you very much. So then I just wanted to finalize this conference with an overview of the investor conferences in which we're going to participate during the coming months. On the one hand, we will be participating at the ABG Life Science Day, which is due 26th of May; and the Redeye Growth Day in June; and then Pareto Securities' Health Care Conference in September. So these are the 3 upcoming Capital Markets Days or investor conferences in which we're going to participate. We were supposed to be participating in a few, more or less a month or 2, but then we canceled due to the COVID-19 pandemic. But you can always reach out to us in case you have any questions. If you -- you can ask the questions at the end of this call but going forward also. And please come and see us. I think that all of these conferences will be sent also as webcast. So you can also be seeing our presentations over the Internet. Okay. With that said, I want to thank everybody for listening in to this call. And I want to open up for potential questions. And as you can see, no -- yes?

[Operator Instructions] At this point, we don't seem to have any questions over the phone. So please continue.

Okay. In case no questions over the phone and we see no questions either that has been submitted to the system, so in case no questions, then I think we can conclude today's call.

Thank you. That does conclude our conference for today. I want to thank you all for participating, and you may now disconnect. Thank you.