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

Hello, and welcome to Xbrane Biopharma's presentation regarding first quarter report of 2023. So really to start with, this was a transformational quarter for Xbrane. It was the quarter when our first pharmaceutical product, Ximluci, was launched in Europe, and we started to generate revenue from this product. And that puts us on the trajectory towards becoming cash flow positive in 12 months' time and then going towards generating EUR 100 million from this product annually in 3 years' time. That's our ambition stated since a couple of years back and ambition, which we stick firmly to. Looking at the quarter, we could deliver what we set out to do. We had an approval in U.K., for Ximluci in January that came in addition to the approval we received from EMA for EU in November 2022. Then the product Ximluci was launched in March and by our partner, STADA. We'll talk more about that during the presentation. I think that launch went well, and we were able to announce 1 big framework agreement, which STADA won with NHS in England. And then we also submitted our biological license application to the FDA in April. We also, in May, arranged financing of about SEK 250 million, in terms of the convertible and the directed share issue. And that is really capital, which now will take us all the way to cash flow positive stage in 12 months' time. So just as a reminder, the portfolio of Ximluci candidates we have under development, of course, for Ximluci, our Lucentis biosimilar, which now is launched in Europe, and we're seeking approval in the U.S. Here, we have a partnership with STADA and Bausch + Lomb from a commercialization perspective. Then coming to our Xcimzane biosimilar candidate, which goes under the name BIIB801. We have a global license agreement with Biogen, and then our 3 oncology biosimilar candidates to Opdivo, KEYTRUDA and DARZALEX. Just a brief update here because we're going to spend majority of the call on Ximluci, but just to mention a couple of points on our Xcimzane and Opdivo biosimilar candidates. I think people made good progress here. For the Xcimzane biosimilar candidate, we are in the process of scaling up and producing a clinical material which we're doing -- during the course of this year. And that is then going to result between, I believe, significant revenue generation during the course of next year in terms of selling the clinical material to buy and as per our license agreement with them and also collect first milestones. As you might recall, the deal we have with Biogen, it consists of expert having the responsibility of the preclinical development and then Biogen is responsible for the clinical development. So we have to, of course, been able to complete the preclinical development during the course of this year and then turning this program to a positive cash flow generating program during the course of next year. And we're quite excited about our Opdivo biosimilar candidate, Xdivane. Here, we have now signed up a contract manufacturer for scale-up and production of clinical material. It's a process which will be going on during the course of this year and next year in order to be able to take this product into clinic in the beginning of 2025. What we have to do in order to get to approval and launch in December '28, which is when the U.S. patent lapses. And we have a stated ambition of signing a license deal with suitable commercialization partner during the course of this year and we're confident in being able to deliver on that as we have a couple of ongoing discussions with interested parties. That's something we're looking forward to be able to get back to you all during the course of this year. But back to Ximluci. Here is the development time line. And as I mentioned, launch is taking place in Europe and we hope that we're going to get an approval in the U.S. in approximate 12 months' time and then being able to support the launch by Bausch + Lomb over there in parallel. We're expanding geographically beyond Europe and the U.S. We've submitted a file to the regulatory authority in Saudi Arabia. I'm going to submit the file to additional countries in Middle East and then going beyond that, a process which we do together with STADA. And in parallel, here we are also working on scale up of the production process for Ximluci which significantly is going to increase our capacity and also further reduce our production costs. This is very important, because we believe that during the course of this year, actually, our production capacity was going to put a limit to the sales, we're going to be able to generate. But -- next year, we expect to be able to go on to a 10-fold increase of production capacity, working at larger scale on drug substance process. And I'm convinced with that scale, we're going to have the best capacity in the industry amongst the Lucentis biosimilar. So very important investment for us. And also in parallel, we're working on in addition to the now approved and launched vial, the prefilled syringe, which we hope we're going to be able to launch towards the end of '24. But now getting back to progress on the launch of Ximluci in Europe. Europe alone is a very significant market opportunity, EUR 4 billion market. Looking at it as VEGF inhibitors for ophthalmic purposes, and launch took place, as I said, in March, by STADA. And the 2 most important countries right now is the U.K. and Germany. In U.K. STADA's U.K. affiliate won a framework agreement with NHS England. And this is an agreement with supply of ranibizumab to value up to GBP 70 million, and this was awarded together with 1 other supplier of ranibizumab. But it's a very big and important win for STADA and a very important opportunity for us together with STADA to be able to generate, of course, significant early sales for the product but also to be able to contribute in a positive way to patients in the U.K. and realize savings to the health care systems. So this once -- during the course of 12 months really, but with an opportunity to prolongation beyond that as well. Then beyond the U.K., Germany, of course, is a very important market. That's really the home turf of STADA and they're working very actively here in participation at different conferences, participating in tenders, which are kind of more fragmented, if you will, compared to the U.K. on hospital or classes of hospital levels and then working with dedicated field sales force to talk to the different stakeholders and ensure an adoption amongst prescribers to the benefit for biosimilars, generally speaking, for the centers, but then specifically for Ximluci. Apart from U.K. and Germany, the product has been launched in select small countries, and it will be continue to be launched across multiple countries during the course of the year as well. And it's really about now with the volume we have a product allocate that to the best possible opportunities gradually over time. That's really what we're working towards during the course of this year. And looking at the revenue generation from Ximluci is to clear this, so everybody understands then our P&L in a correct way. We're really generating revenue from Ximluci in 3 different ways. According to the agreement structures we have in place with our 2 partners, STADA and Bausch + Lomb. First, we are under these agreements responsible for supply of finished goods to our partners. And we do that at cost really under these supply agreements. So that's 1 revenue stream. Then we're getting profit sharing from our partners with STADA, we're getting 50% of the profits generated, calculated as really start-up net sales of the product, minus the production cost, minus their sales and marketing expenses. And from Bausch + Lomb later, it's a percentage of gross profits generated, which we take part of. And then the third bucket is really license proceeds, which are relevant on the Bausch + Lomb agreement where there are milestones to be collected on FDA approval and the U.S. launch. Really, these 3 sources of revenue. And -- if I look at the Q1 numbers, we had SEK 47 million coming from supply of finished goods to STADA. I think what's important to note here is that we're going to deliver product to STADA throughout the year, probably delivers with 2 to 3 months frequency. And we really see that STADA is not going to build up significant safety stock on the finished goods level during the course of the year. So we expect that what we deliver will actually be sold during the course of the year. And then profit sharing during the course of this quarter was SEK 1 million, but I think what is very important to note here and actually one of the key takeaways from our reporting here is that the product is actually profitable already from day 1 at this rather relatively small volumes, which we had during the weeks in March when the product was actually launched. And if you think about the sales and marketing expenses, a large portion of that is actually fixed cost in terms of the sales force, which STADA has established, which is a dedicated sales force specifically for this product. So with this relatively low volumes, we're already generating profit from the product. I think that's very important to note here. So that's, I hope, is explaining the numbers a little bit better here. And if I then turn into coming 12 months, what we are targeting to deliver upon are the following things: of course, to continue to work with STADA to establish Ximluci as a leading biosimilar to Lucentis in Europe, and then to navigate the process with the FDA and obtain an approval in the U.S. in 12 months' time or so. That's the second thing. And then the overall further geographical expansion of Ximluci together with STADA in the Middle East region and then beyond as also a very important component here. And then as I said, in relation to our other programs, for Ximluci biosimilar candidate. It's really about producing the clinical material and hand over this development program to buy and for continued clinical development and actually this is going to be very important for us for 2024 from a revenue generation perspective as we're selling this clinical material and also collecting milestones from Biogen during that year. And then to sign a deal with suitable commercialization partner for Xdivane and Opdivo biosimilar candidate. It's also a very important deliverable for us. And all this together shall bring us to cash flow positive stage first half of 2024. And then our clear expectation and ambition is that this from that point and onward, shall be a profit-generating company with positive cash flows. So that's probably all from me and I hand over, therefore, to Anette, our CFO, to go through the numbers in a little bit more detail.

So thank you, Martin. And as Martin just said, we can today celebrate the first commercial sale in the history of Xbrane with the revenue stream from Ximluci of SEK 48 million versus 0 last year. We also have some licensing money, as also Martin mentioned, that's SEK 40 million, but that's solely an accrued income coming from the Biogen deal for BIIB801. And this accrual will remain until Q2 this year. And then the next milestone from Bausch + Lomb will happen at the FDA approval. So looking at our expenses. Those of you who listened in a couple of times, you are familiar with this slide. It shows our total operating expenses with also the capitalization element, which tend to impact kind of announced the reading of our expense development. So comparing a like-for-like year-on-year, our total operating costs have increased by roughly 3%. That is -- and you can also see the red area, the capitalization element has significantly decreased. We started to capitalize Ximluci as of July 2021 when Ximluci met the [ antivirus ] criteria. So the total revenue, including capitalization is SEK 76 million or about 84% of our total spend. The G&A build is really set up the organization to enable growth of the company for the future. And last, Ximluci is now worth SEK 108 million sitting on the balance sheet. And this for also with the first quarter where we started to amortize on that element. So what you see in the P&L as reported, then you see, of course, a very different picture, then you see a 60% growth of the expenses at a very different picture, and that is due, as I said, for Ximluci then moving into a more commercial phase. The remaining R&D costs are mainly out -- outside Ximluci is really the production of the clinic material for BIIB801 and also advancing the development -- the preclinical development for our remaining oncology portfolio. Looking at the cash position. We left the quarter with SEK 119 million in cash. This now, however, combined with our financing solutions of SEK 350 million roughly. We deem enough to take us to cash flow positive position in the first half of 2024. We also see an interesting diagram to the right. We can see kind of the operating cash flow. And we see that we almost leveled out in Q4 2022 as we have paid significant amounts in prepayments to CMOs. We have prepayment of CMOs for total SEK 123 million, another SEK 55 million in raw material. So it's too early to talk about a trend, but clearly, that is what we expect to happen for the next coming quarters. Then a few details also around the bond. The first one is around the numbers, SEK 350 million. It's SEK 225 million roughly net proceeds from the convertible and SEK 125 million from the directed share issue. The counterparty CVI investments, an affiliate of Susquehanna International. The principal amount is SEK 250 million. It's maturity is 4 years from closing. Interest rate is 6% per annum, but noticeable that following the FDA approval expected next year, it will be 0. It will be paid in 24 equal installments. It's up to us explain to choose if we want to pay in cash or equity. And also the investor has the right to accelerate the amortization. So with this, we would like to really express a big thank you to all our shareholders, new and already existing for -- and express our trust and express our thank you for your trust and support of the company, and we will do surely, we'll do our best to spend that money in the best sensible way in executing on our business plan. Looking at the team. We have grown the team significantly over the last couple of years to set up the company for future growth and also moving into a more commercial phase. Now we expect this to flatten and to reach almost a steady state at around about 90 to 100 employees. We feel that's an organization that is -- that could sustain the growth of the company as we now stand. And the last 1 is also looking at our the team from a different standpoint from equity and diversity. It's really a reflection of our values, which are really important to us. The gender distribution of employees is 58% women and 42% men and the leadership team is 50-50. We have a Ph.D of 36 people -- 36% of the team has a Ph.D. as we are a research-focused organization and also the last one in terms of diversity, as described here as a country of both descriptions. So 41% of the team has is born somewhere else than Sweden. That is something that we are also very proud about. So with that, I think that was the last slide. So over -- back to you, Martin.

Yes. So that was the formal presentation and we therefore open up for potential questions.

[Operator Instructions] The next question comes from Sebastiaan van der Schoot from Van Lanschot Kempen.

And thank you very much for taking my questions. Correction on the sales, first, sales. I'm wondering on the Cimzia sales, can you give us a little bit of what your vision is on how the sales trajectory will be over the remainder of the year? And how many regions is Cimzia currently available? And what countries are anticipated to be added over the course of 2023? And then if I may ask another question on that topic. You just mentioned that the production capacity will be increased by 10-fold, is that expected to be a single step or that be more gradually be done over the course of the year? And can we then also expect that the deliveries to STADA will be also increased with every single delivery over the course of the year?

Okay. So I'll try to answer to that question. With regards to specific guidance on revenue generation for Ximluci. We put up the target of EUR 100 million in 3 years' time, but we haven't provided any guidance for the years in between. We feel confident to get there in 3 years' time. And I think probably the best one could do is to assume a linear progression towards that overall goal. Looking at Europe, as I talked about main countries now are U.K. and Germany, but also and also smaller countries the product has been launched in but this is not going to be broadened to the majority of the European countries during the course of 2023. And we don't want to get back to specifically launches in, let's say, the remaining 3 major European countries. And second part of your question, which was related to deliveries to STADA. I think you can expect that this will increase over time as we are delivering increasing volumes of products, I would say, to support the market. And as I said, we expect that deliveries will be taking place every 2 to 3 months or so. So with that frequency.

Great. And then a single question on Cimzia. Can you give some color on how the scaling up activities are going and whether there's also a milestone associated with creating the first clinical batch for clinical development and whether there's -- that such a milestone isn't this better to still fall in 2023?

Yes. So we're working intensively together with Biogen, of course, but also with our contract manufacturer, AGC Biologics in Seattle for the scale-up and we're doing the first so-called engineering batch here in just a couple of months and then post that GP batches, which then are going to be used for clinic. So, so far, everything is going well. And I think we've demonstrated with Ximluci that our platform indeed is scalable. And we also gained experience, of course, with scale-ups of this sort from Ximluci. So we're confident that this will go well, and we'll be able to deliver clinical material in time. And yes, there is a milestone triggered by successful scale up, if you will, or production of clinical material where we also can demonstrate similar analytical similarity to the originator as we demonstrated with material from our internal pilot scale process.

The next question comes from Filip Einarsson from Redeye.

I want to start with if you could more elaborately give us a walk-through of the expected growth between Xbrane and STADA. I mean you touched upon this earlier, but I mean, even more elaborately, how would this look over the course of the year? I mean, considering this initial deliveries to STADA?

Yes. No, I think, as I said before, we're not going to provide more specific guidance at this point in time. I think really one will have to point the eyes towards this EUR 100 million revenue generation in 3 years' time and then really I think the best possible assumption to make is a linear progression towards that level. It's also a question which we are going to get back to during the fall, whether we're going to be able to provide year-by-year guidance on the sales, but it's something we'll need to get back to. But I think that's the best assumption one can make. And what I said also is that it's really now about using the volume which we're producing with the capacity we have and direct that to the best possible opportunities in the market, something which we are 100% confident in that startup can do and is doing in the best interest of a startup, but also explains shareholders.

Okay. Got it. Will you also -- so will you report any sort of KPI related to like the multiple patients treated or those sold or anything in the future? Fixed price, for example?