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

Hello, everybody, and welcome to the webcast connected to the Q2 2025 report of Xbrane Biopharma. My name is Martin Amark. I'm the CEO, and I have with me our CFO, Jane also online. We will, as usually, go through the operational activities and an update for the quarter. I will start with that, and then Jane will take over and go through the financials for the quarter. Then we will have a Q&A session afterwards, in which you can, if you've called in, ask questions via audio or otherwise write questions in the chat. So let's start. I'm shifting here to the first slide. We will start to talk a little bit about Ximluci, our Lucentis biosimilar, then I will shift over and talk a little bit about Xdivane, our Opdivo biosimilar candidate. As most of you that follow us knows, we have one product which is being commercialized, that is Ximluci, biosimilar to Lucentis, an eye drug used in treatment of several severe eye diseases, mainly age-related macular degeneration. We have, since 2018, a co-development agreement with STADA, a German generics and biosimilar company. We had about 11,000 employees or so. We have co-developed the product, and they are commercializing the product since March 2023 when we got an approval in Europe from EMA. The arrangement is that we are essentially sharing the profit contribution from sales and marketing of the product 50-50 between the parties. Ximluci is now launched by STADA in 24 countries, out of which 20 in Europe and 4 in the Middle East. And so we are gradually getting to cover the majority of the countries in Europe, and we are also together with STADA expanding in the Middle East and broader Asia. And we'll go through a little bit where we're at. We -- looking at Europe only, Ximluci had a volume market share of 8% in the quarter, and that is looking at the ranibizumab market. So ranibizumab is the active ingredient in Lucentis. So when we say the ranibizumab market, it consists of Lucentis, the originated product, commercialized by Novartis and the Lucentis biosimilars on the market in Europe, out of which then Ximluci is one. So in that ranibizumab market, Ximluci had an 8% volume market share. Looking at this from a growth perspective, we have historically been trending at about 20% to 25% quarterly volume growth. It was a little bit lower this quarter compared to first quarter of 2025. If we only focus on Europe, we had an 11% growth in Q2 versus Q1 2025. If we look at all markets, including Middle East and Asia, it was a negative growth of 8%, and that is due to a high shipment, which was done by STADA in Q1 for launch volumes in some Middle East countries. So it will be a little bit -- the shipments will be varying a bit in that region in the launch phase. So thereby, it can cause some variability when we look at the growth from a quarter-to-quarter perspective, including all markets. And then if we look at the profit generation by Xbrane since the launch of Ximluci, it has accumulated to SEK 116 million. And I shall now take the opportunity also to go through a little bit how we work with revenue recognition of Ximluci because I do understand it might cause some confusion. We are shipping Ximluci finished goods to STADA under supply agreement under which we get paid a supply price, which equals our production cost. Then STADA are selling the product to end customers and generating a profit contribution after subtracting the production cost and sales and marketing expenses, and that profit contribution is split 50-50. Now we do revenue recognition of the income stream coming from supply of finished goods and the expected profit share that, that shipment is expected to result in when we do the shipment. So for example, if in a given quarter, we make a shipment to STADA of 100 units, just to make it easy, and we have a supply price of 100, and we do expect to get profit sharing of additional 100. Now when we make the shipment, we get paid 100, but we make a revenue recognition of EUR 200 per unit. So if we make no shipment and if there is no adjustment needed to be made in relation to our expectations of the profit sharing to come from that shipment we did, there's going to be no revenue recognition in that given quarter. So looking at Q2 specifically, we did no shipments to STADA and hence, there was practically no revenue recognition. But we had a cash profit sharing coming in during Q2 at about SEK 10 million. So profit contribution from a cash perspective is still coming, but it's coming from shipments that was made a couple of quarters ago. Now looking ahead, we are going to resume shipments as of this quarter, and I foresee that we are going to make shipments to STADA all the quarters in our forecasting period essentially. So looking ahead 6, 8 quarters essentially. So then, of course, we will then make revenue recognition the value of the shipment in addition to the expected profit sharing it will ultimately result in. So you have to clear that out, and this is also described in our accounting principles in our annual report for those of you interested and wanted to read more. And Jane is also available to describe this further should this not have been sufficiently clarified. Okay. And good news also due to now shipments being resumed is that we have a quite significant inventory built up on Xbrane side of Ximluci, particularly drug substance. This was built up during the course of particularly 2023, but also to some extent, 2024, as we -- essentially, sales were progressing slower than anticipated, and we had quite some capacity booked with our contract manufacturers. So we ended up producing more than what we shipped to STADA. But now as shipments are being resumed, we're also starting to convert that inventory into cash as of start of this quarter and onwards. So that's good news. And net of prepayments that has been done from STADA, the value of that inventory is at about SEK 170 million, which we foresee to convert into cash essentially from now up until end of '27. So that was an update on Ximluci in Europe. And then, of course, we're shifting over to the U.S. So this is the big milestone we have ahead of us during the remainder of this year, I would say. We have regulatory process ongoing for Ximluci or the brand name of the Lucentis biosimilar is going to be Lucamzi in the U.S., that's writing Lucamzi in the tag line. We had the BLA submitted December '24. Formally, the regulatory process was initiated in April by the FDA, and we now have a BsUFA date 21st of October. We have an ongoing reinspection of our drug product site or our contract manufacturers drug product site as we speak. It's going to be concluded this week, and we have a reinspection by the FDA starting mid-September or so on the drug substance side, also owned and run by a contract manufacturer. So of course, an approval is contingent upon successful reinspections. I think we, on our end, are cautiously optimistic. Those of you who have followed us know that these sites were inspected as a result of our application in the first quarter of '24. And there were some observations, particularly on the drug product side, which led to a required reconstruction of the site. That has now been done as far as we can tell successfully. And hence, we do believe that the observations that the FDA had has been successfully resolved. And hence, we are cautiously optimistic that this time we will get an approval. We will not communicate anything immediately post the reinspections as is natural in such an inspection is that you get some observations from the FDA and then you have a 30-day time frame to resolve those or respond to those observations to the FDA. It is though going to be a little bit of a guessing game to judge whether any of those observations potentially can be of approvability nature or could be an issue for probability of the product. So we're not going to go into that guessing game and communicate in relation to the reinspections, but rather await the actual decision date, which again is on the 31st of October and then communicate as we receive communication from the FDA. And we have our partner, Valorum Biologics, who are going to commercialize the product in the U.S., and we are working with them to make the appropriate preparations to get the product launched post approval. And after an approval, what needs to be done is to get the so-called Q code, which essentially allows the eye clinics to get paid from Medicare immediately up on receiving the product. So that's going to be crucial ahead of a launch, and it's a 6-month time frame to get the Q code. There's no risk in getting the Q code or no or not, it's just a bureaucratic process, but it needs to be done. So a launch can happen 6 months post approval. So we have the timing of that cleared. Now looking at the U.S., we are still very optimistic about the opportunities for Lucamzi in the U.S. It's a very sizable market, about 8 million units of VEGF inhibitors for retinal disorders being shipped each year. From a value perspective, about USD 10 billion market. It's a very sizable market. It's a dynamic marketplace. A lot of things are happening. As I think we talked about last time, Sandoz with their Lucentis biosimilar withdraw from the market, and we'll see if they're getting back during the course of '26 or what is happening. But we think that this has left a void when it comes to Lucentis biosimilars, and we're very optimistic in being able to fill that void with Lucamzi. Together with Valorum, we've been calculating on some scenarios, what different volume market shares could mean as you see in the table in the bottom corner there. But we do believe that this could result in somewhere between SEK 120 million to SEK 220 million in annual profit sharing to Xbrane, a little bit dependent on what you choose to believe from a volume market share perspective, then again, volume market share in the ranibizumab market and the average selling price. So we're optimistic, but first things first, of course, the approval by FDA is absolutely critical 21st of October. So we'll get back then with the communication, of course. Okay. Moving over to Xdivane. I think this program -- so this is a biosimilar candidate to cancer drug, Opdivo, very sizable, originated product, about USD 8 billion of annual sales expected to reach some USD 13 billion by time of patent expiration in the U.S., which is end of 2028. We partnered this program up with Intas last year, and we are working according to the development time line. And now the clinical trial is being initiated. The clinical trial is being run by our partner, Intas. And it's a trial in which about 340 patients with melanoma are going to be recruited. And it's a streamlined trial in comparison to existing biosimilar development guidelines. We're very happy to be successful in dialogues with both EMA and FDA to achieve this, where as a primary endpoint, we're looking at comparative pharmacokinetics. And we are very confident in that this trial can be concluded in time. We have -- or Intas has and we have supported them to submit a clinical trial application across a handful of countries. We have approval in first country already, which is triggering a development milestone of EUR 2 million according to our agreement with Intas, and that is then going to be recognized as a revenue in Q3 and also being paid hopefully in Q3. So this is going according to plan, and we're all very much focused on getting to a submission Q4 '27 in the U.S. to get an approval towards end of '28 and then being able to launch at the time of expected patent expiration of the originator. And we are still very optimistic about the prospects of Xdivane. We still see, what I would say, limited competition from other biosimilar developers given the size of the originator product. Our base case assumption is that Xdivane will be 1 out of 4 biosimilars by patent expiration. And if you look at how biosimilars in oncology field has developed in the U.S., 3 years post launch, they've had an average of 75% volume market share together. And we see nothing that would change the situation with Xdivane or Opdivo biosimilars generally compared to the historics when it comes to oncology biosimilars. So looking at -- counting on that and the expected competition, a fair volume market share would be up to 19%. We've also, in this scenario calculations in the table, been calculating with up to 6 biosimilar competitors, which could lead to 30% volume market share. And then, of course, one would have to model different discounts on the pricing side compared to the originator. One can see also how average sales price is trending downwards from launch of the first biosimilar and the years thereafter. But even if we calculate with a 70% discount to the originator and 30% volume market share for Xdivane, it could result in SEK 1 billion of annual profit sharing coming into expense. This is really the big upside, I would say, for the company. So we're very much focused now on getting this product together with Intas approved in time first in the U.S. So that's a brief operational update. And with that, I will hand over to Jane to go through the financials.

Yes. Hello. So the revenue for the second quarter amounted to SEK 39.9 million with a gross margin of 100%. This revenue is 100% attributable to the license agreement with Intas with regards to the Xdivane program. So there were no revenue recognized from any shipments or any profit sharing, as mentioned by Martin, due to our revenue recognition model. The profit from the discontinued operations, the divestment to Alvotech amounted to SEK 185 million, and the EBITDA from the discontinued operations amounted to SEK 210 million. The expenses for the quarter, one must remember that 2 months were normal operations, including the R&D and the full organizations with more employees. So the total administration expenses for the second quarter amounted to SEK 18.3 million, including SEK 9 million from nonrecurring items with connection to the transaction with Alvotech. The R&D expenses amounted to SEK 26.3 million and SEK 48.9 million were capitalized in different programs that we are working on. So the transaction with Alvotech was finalized in the beginning of June, and we are now looking at fixed costs of approximately SEK 12.5 million quarterly from the third quarter and onwards. This is a small chart of the cash effect from the transactions with Alvotech, just to try to explain a little bit. So we had an opening balance of SEK 25 million. The proceeds from the Alvotech transaction was SEK 275 million and SEK 5 million were retained by Alvotech for a later payment. The convertible bond was settled fully by Alvotech with SEK 153 million, and built-up accounts payables connected to our main CMOs for SEK 90 million were settled as well. And other operating accounts payables amounted to SEK 47 million, which leads to a closing balance of SEK 6 million more or less. And we had a directed share issue, which was conducted in the third quarter, beginning of July, which amounted to SEK 240 million prior to transaction costs. But as I mentioned, it was settled in the third quarter. That's why it's not included in our books here. So as I mentioned, the cash equivalent was amounting to SEK 6 million at the end of the quarter, and the operating cash flow amounted to SEK 65 million.

Thanks, Jane. So to summarize, takeaways from Q2, Ximluci launched in 24 countries, 11% volume growth in Europe Q2 versus Q1 '25. Xdivane is progressing according to plan. We have a EUR 2 million development milestone being triggered due to clinical trial application being approved in first country and the clinical trial is then underway according to plan. And as Jane described, the transaction with Alvotech was concluded, and we were able to reduce our debt position in a quite significant way as a result of that. And then we executed a directed share issue of SEK 240 million, but closed in July, as Jane mentioned. Now looking ahead, the priorities coming up here, of course, Ximluci U.S. FDA approval on October 21. So that's what we're very much focused on now. And then the preparations leading to a launch by our partner, Valorum in the U.S. So a big, big priority. Then to continue to support STADA in the continued penetration of European and Middle East market. And we have a couple of important initiatives together with STADA to continue to drive down the production cost of Ximluci to stay competitive in the long-term perspective for this product as well as the prefilled syringe, which we are working on actively. And then, of course, on the Xdivane side, apart from the clinical trial, which now is being run by our partner, Intas, Xbrane has the development responsibility related to process characterization and validation, which we are actively working on now to get that development activity also concluded well in time for a Q4 '27 submission to U.S. FDA. So those are our ongoing priorities here. So with that said, I think we can stop the formal presentation and open up for questions. So I guess we start to see if there are any questions from people calling in.

So we have -- I'm sorry.

[Operator Instructions] The next question comes from Filip Einarsson from Redeye.

So I thought I could start on the volume sold out in Europe compared to previous quarters. Could you just elaborate a little bit more on that, please?

Yes. If we look at volumes being sold by our partner STADA to end customers in Europe, we had a growth of 11% compared to Q1 this year. But if we look at total markets in which the product is launched, including Middle East, it was a negative growth of 8%. And again, result that was due to a pretty sizable shipment they did in the Middle East in Q1, considered as launch volumes, if you will. So thereby some variability and also to be expected going forward from these recently launched countries in the Middle East.

Okay. So it's not, would you say, primarily demand related?

No. It was related to, call it, discrete initial shipment in Middle East, which was not repeated in Q2, but are probably going to be resumed, but at different levels in different countries, Q3, Q4, so it's a little bit hard to predict exactly at what levels.

Okay. Good. And I'm also curious on the -- if you could expand on the initiatives to improve production costs.