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

Hello, everybody, and welcome to this webcast. We are going to spend some time to talk about the license deal, which we have entered with Biogen concerning our Xcimzane program. And it's a brief presentation of 15 minutes or so to be followed by Q&A. And my name is Martin, I'm the CEO of Xbrane Biopharma. And with me, I've also Siavash Bashiri, who is heading up our biosimilar programs. Okay. So Xcimzane is a biosimilar candidate to a drug called Cimzia. And Cimzia is a TNF-alpha inhibitor used in treatment mainly of rheumatoid arthritis and also psoriasis. And it is a differentiated product in that market. So we're talking about the market of some EUR 40 billion, looking at the TNF-alpha inhibitors. And Cimzia has some 5% of that market, EUR 1.8 billion of annual sales. But it's a differentiated product, which has allowed the product to take that position and also grew continuously throughout the years. It is the only product in this market that has been clinical approval to be safe for use for pregnant and breast-feeding women. And the reason for that is that it's a so-called pegylated molecule, which makes it not able to find its way into the fetus. So therefore, it's safe for use for pregnant and breast-feeding women, which is a substantial part of this market and making that differentiation. And as you can see on the right hand side here is a product which generated some EUR 1.8 billion of sales in 2020, mainly coming from the indication of rheumatoid arthritis. Xcimzane, that is a biosimilar candidate to Cimzia. As many of you know, it's our second biosimilar candidate. The first biosimilar candidate we have under development is Xlucane, which is under registration process with EMA. But it's the second program and a biosimilar candidate to Cimzia. So first, a few words where we are in the development process. So we have spent quite some time, last couple of years, to establish the production process in pilot scale, which we do here internally in our lab in Solna. We signed a deal with AGC Biologics in September last year to scale up the process at their facility to commercial scale and to be able to supply material to the upcoming clinical trials. So that process is ongoing. And to our knowledge, this program is the only biosimilar candidate under development globally referencing Cimzia. So it's quite unique development program actually. And the reason, I believe, why we have been able to do what no one else has been able to do globally is our platform technology. We have been talking a lot about this platform technology in the past, but I think this is really a program where we're able to show what we can do with it. It really enables us to develop a biosimilar candidate in a situation where no one else has been able to do it. Our platform technology gives us essentially higher so-called yield compared to standard system in expression of the target proteins. So what is then gene, you all know that producing these biological drugs is a fermentation process. We gene-modified host cell to express or produce the protein we're interested in, put it into a large fermentation tank. And then we talk about yield, which is essentially the grams of protein we get out per liter of fermentation media. And that is important because in production, more or less, you have a fixed cost for occupying a fermentation tank at a certain scale. So if we can get 10 instead of 1 gram per liter fermentation media, it has a massive impact on the unit cost per syringe or vial or whatever is the final ferment. And that is particularly important in a situation like this where production cost constitutes a rather high share of the pricing of the product, that becomes very important to have high yield, low cost to be able to have a commercially viable biosimilar candidate. And I think that is what we've been able to do, whereas others have failed. So that's that with regards to the program. And now we have, since a year or so, been in a process of trying to tie up a commercialization partner for this program. And we are very happy to now announce that we partner up with Biogen to take this program further in its development and later commercialization. So Biogen, many of you probably know about the company, one of the pioneers in the biotech business and focused mainly on novel drug development in the neurological space, but also having a substantial biosimilar business, and particularly in the field of TNF-alpha inhibitors, and that's where I think that Biogen fits very well. They really have the experience with regards to development and commercialization of TNF-alpha inhibitors. And a big company, of course, with some USD 13 billion of annual sales in 2020 and some 9,000 employees. So I think it's a very good partner for us for this program from kind of a competence, complementary perspective. And I think also this is a deal which fits us very well, given where we are in the company's development. Just to walk through the key terms here. So we have out-licensed, in this agreement, the global rights to Xcimzane to Biogen. We are going to be responsible for the preclinical development and then Biogen is going to take on the development and assume responsibility for the clinical development and the regulatory development globally and also fund all those activities. The economics are the following, that we'll get an upfront payment of USD 8 million upon signing and then there are USD 80 million in milestones and then royalties on eventual net sales of the product. So I think this is a particular good deal for us since -- if you think about it from a return on investment perspective, we focus on what we really are doing the best, the preclinical development. We get leverage for our platform technology and our competencies within the preclinical development. And then we can allow for our partner to assume and fund the other activities. And as you know, from what we're discussing before, it's a limited investment that goes into the preclinical development. And the majority of development budget really comes in the clinical phase. So if you would look at this from a return on investment perspective, it's an astonishingly good deal. It's extraordinarily good, I would say. We'll pay off the investment multiple times throughout the development from the upfront and the milestone payments. And then multiple times, yearly most likely, when the product is on the market. So it's a very good deal. And it then allows us to focus our resources into expanding our pipeline and doing same kind of deals with future products. So very good terms, I would say. And just to finish off with our broader pipeline. As you know, of course, you were familiar with our Xlucane program, our Lucentis biosimilar, which we are partnering up with STADA in Barcelona. And this is in the regulatory phase with EMA and BLA soon to be submitted. And then the Xcimzane program is our second program. Then, really, and we announced this the latter part of last year, we introduced 2 new biosimilars in combination with our previous biosimilar candidate, Xdivane, so that we now have an oncology portfolio constituted of biosimilar candidates to Opdivo, KEYTRUDA and DARZALEX. So 3 very interesting products here. And this deal with Biogen now allows us to gradually focus more on this oncology pipeline, which is addressing a very significant market and products which goes off patent in 2028 and onwards. And it also allows us now to, as we've said, introduce at least 1 new biosimilar development program annually. So again, I think this is a great deal for us, and it really is a deal we would like to -- a type of deal we would like to do with future programs as well to really allow us to focus on doing what we believe we are best at, the preclinical development and applying our platform technology to get to the highest possible yield and lowest possible cost of our biosimilar candidates. So I think that kind of concludes this brief presentation about this license deal with Biogen, and I think we can open up for potential questions.

[Operator Instructions] We have a first question from Mattias Häggblom from Handelsbanken.

Mattias Häggblom, Handelsbanken. Two questions, please. Firstly, can you talk about the process a bit more in detail? Maybe how many interested parties did you have? Did you have multiple term sheets out? Or was this an exclusive dialogue with Biogen? And then I have a follow-up.

No, it was a process where we had a couple of interested parties, not more than a handful but a couple of interested parties. And yes, we conducted a dialogue with few of them in parallel, but then we felt that this proposed arrangement with Biogen was the best one for us and proceeded with that.

Good. And in terms of the tiered royalties, can you talk about whether it starts at high single digit and peaks at low double digit? Or any way to help us think about this structure?

Yes. No, I cannot reveal anything further with regards to the royalties. And this is due to agreement that we have with Biogen, what we shall and shall not reveal with regards to the terms. So there are royalties. I cannot state the exact figures, but I would be saying that they are customary to what one could expect in out-licensing of preclinical program. I don't know if that helps, but that's probably as much as I can say right now.

We have a following question from [indiscernible] Securities.

Hello, can you hear me?

Yes, please go ahead.

Dan Akschuti here from Pareto Securities. Congratulations, Martin and the whole Xbrane team, for this great deal. Just a few questions from my side. If you could share some more light on how the Biogen discussions were going, how long they took. And if Biogen, in the process, showed interest in your platform technology or were they always very specifically interested only in Xcimzane?

Sure. So it was a process which lasted for approximately 12 months, which is, to our experience, roughly the time it takes to conclude such a deal. And we were then running commercial discussions in parallel with due diligence activities, where, of course, Biogen looked into the development and what we've been doing so far and making sure that it held the required quality. So yes, roughly 12 months period, I would say, it took -- yes.

And did Biogen show an interest in the platform technology? Or were they mainly focused on Xcimzane?

Yes. So this was the discussion exclusively regarding Xcimzane. But I do think and I do hope that we can be working with Biogen going forward also on some of our pipeline products. I think we've had a very good discussion with them and I think that the teams got along very well. So I hope that we could be doing more things together in the future.

Okay. And the last question, where is the drug substance manufacturing occurring? Is that in the -- on the -- at the Lithuania side?

No. We signed a deal with AGC Biologics for scaling up the drug substance manufacturing. So it's done in their site in Seattle.

We have a new question from Christophe Beghin from Kempen.

Indeed, Martin and team, congrats. A question from my end. I might have missed it, but can you maybe elaborate a bit more on how do you see the market for Cimzia and Xcimzane, the potential in terms of market share at the time of, of course, launching and commercializing when it comes off patent? Is it also -- Xcimzane is still the only biosimilar candidate in the space as far as we know. So how do you see the potential on this EUR 2 billion and even on the peak sales is expected to reach EUR 2.5 billion sales? Can you elaborate a bit more how do you see that?

Yes. Indeed, we're targeting an originated product with roughly EUR 2 billion of annual sales and Xcimzane is the only biosimilar candidate going for that product. And under those assumptions, I think, again, we can look at what the history tells us with regards to market share gain over time or the penetration curves where we've been seeing that biosimilars can take 50% volume share in 12 months or so and at a price discount of anything from 20% to 40%. And I do think that the price discount is mainly driven by the number of biosimilars on the market. So I think that if it's only 1 biosimilar, it would probably be more like 20% down and 40% down. So then you can do the math, and this is just, let's call it, the extrapolation from what we know, historically speaking, what typically happens. It could be a product with annual sales of some EUR 700 million if you use those assumptions. So that is probably kind of speculation from our end, but it's not unrealistic way of looking at the potential of the product.

Okay. That's clear. And then I have maybe out-of-the-box question, but can you tell us -- did you have a better negotiation position given there is only 1 biosimilar candidate to, let's say, parties like Biogen?

Yes, yes, I think so. I mean it's the way it goes, right? How many sellers do you have, so to say, and how many interested buyers do you have and that dictates the negotiation position that you have. So yes, the fact that we are alone definitely put us in a better situation in this out-licensing process than should it be more competition, should it have been more competition. Yes, definitely.

And one last question. Can you confirm there was a lot of interest from other parties as well in, in-licensing this?

We conducted a discussion with a handful of potential partners, but one should remember a few things. We have an interest in doing a global deal. And then in terms of partners that can undertake a global program kind of limited the number of companies you could be working with. And also, you should remember that this is a rather early stage deal, preclinical phase. And that also limits the number of partners who are willing to enter into a deal at such a stage. And I think it's full credit to the team over here in being able to actually strike a deal like this in a preclinical phase. It's not that common actually. But that's what we wanted to do because I think it fits well into where we are from a company perspective. And as I said, it really allows us to then, well, get the -- get some co-funding of the program early on, which, of course, is helpful but also to be focusing on building our further pipeline.

We have no further questions over the phone for the moment. [Operator Instructions] We have a new question from Christophe Beghin from Kempen.

Yes. Maybe given there are no other questions on this deal, are we allowed to ask a question on other topics?

Sure. Go ahead.

Yes? Okay. I've simply a very short question. Can you -- I've noted in the presentation that you still foresee the approval of Xlucane in both the European Union and U.S. to be in H2. We haven't seen yet the submission at FDA. How do you look at that for the U.S. knowing that it is typically 10 months on average before...

Sure. With regards to filing for Xlucane in the U.S., we still stick to our previous communication that we're going to submit during the first quarter, so during this quarter. Now the regulatory process in the U.S. can be anything from 8 to 12 months. So we hope that it can be speedily processed and we can get into place towards the end of the year. That's what we hope for.

Yes. I fully agree and I fully support the case. Of course, I think it does make sense. But of course, the longer it takes, the -- there is always a first-mover advantage in this market. So it's very crucial to have this finalized as soon as possible, I think. But I think we are on the same line on this. No further questions from my end then.

No, I agree with you.

We have a new question from Mattias Häggblom from Handelsbanken.

Just a quick follow-up in terms of the milestones of $80 million. Curious to hear if they're all regulatory? Or are there also part of it that is sales-related milestones? And when is the more material first milestone due? Is that first demand? Or any color on that would be helpful.

Yes. So these are both regulatory and commercial milestones, but the majority of it is regulatory related. And it is related to the continued development of the product, so scale up -- successful scale up, let's say, and initiation of the -- expected to different clinical trials, Phase I and Phase III, and then a regulatory approval across different important territories, let's say. So roughly speaking, along such important milestones over the course of the development.

No other questions for the moment.

Excellent. Okay. If no further questions, we shall thank everybody who called in and listened, and we shall conclude the call. But we are always available via phone or e-mail and -- should you have further questions with regard to this or other things of our business.