Zealand Pharma A/S (ZEAL) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Zealand Pharma management update. [Operator Instructions] I must also advise you, the conference is being recorded today, Monday, the 10th of February 2020. I would now like to hand over to your first speaker today, Lani Morvan. Please go ahead.

Thank you, Summer, and thank you, everybody. Welcome to the special update with Zealand Pharma management. Leading today's call is our CEO, Emmanuel Dulac. Emmanuel will walk through key aspects of Zealand's bid to acquire Valeritas. [Operator Instructions] For the Q&A, we will be joined by Chief Financial Officer, Matt Dallas; and Marino Garcia, Senior Vice President of Corporate and Business Development. A replay of this call and the slides presented will be posted on our website, zealandpharma.com. Please check our website for additional information, including the announcement of the bid that was published earlier today. A quick pause on Page 2, noting that we will be making forward-looking statements that are subject to risks and uncertainties. These statements are valid only as of today, and the company assumes no obligation to update them, except as required by law. Please refer to recent filings for a more complete picture of risks and other factors. Information conveyed in this webcast concerning Valeritas Holdings, Inc. is taken from reports filed by such company with the U.S. Securities and Exchange Commission and has not been independently verified by Zealand Pharma. So now we advance to Page 3, and I'm very happy to turn the call over to CEO, Emmanuel Dulac.

Thank you, Lani. And thanks to everyone for joining the call today on such a short notice, which is intended to be business update call. Zealand is on a journey to transform into a fully integrated biotech company, including commercial operations. We have been on this path for many years with a strategic shift in 2015 to enable Zealand to commercialize fully owned products. Since then, Zealand put in phases some late-stage clinical developments while maintaining our strength in discovery and research. And last year, as we approached commercialization, we took the decision to accelerate activities driving our transformation and prepare to independently launch the dasiglucagon HypoPal rescue pen. As a result, we began building U.S. operations to ensure our organization and infrastructure will be launch-ready by early 2021. Now we turn to Page 4 and the topic of the announcement earlier today. Valeritas is a U.S.-based commercial-stage medical technology company focused on improving health and simplifying life for people with diabetes. Valeritas products, the V-Go wearable insulin device, is a simple, affordable, all-in-1 basal-bolus insulin delivery device option for adult patients requiring insulin that is worn like a patch and can eliminate the need for taking multiple daily shots. Valeritas reported revenue of $22.4 million and loss before income taxes of $41.9 million for the 9 months ended September 30, 2019. Valeritas also reported having 142 full-time employees as of September 30, 2019, with around 90 comprising the field organization. The opportunity arose to potentially acquire selected assets from Valeritas. We view this exciting opportunity as a way to accelerate our own commercialization plan by adding a revenue-generating business and existing infrastructure that includes sales, medical affairs, regulatory, distribution, relationships, systems and people. We believe there is a strong alignment between Valeritas' experience and customer focus in the U.S. diabetes market and our anticipated need for our own launch of the rescue pen in 2021 as well as the other potential dasiglucagon launch to follow. Moving to Page 5. I will try to clarify the bankruptcy sale process in which we are taking part. I cannot comment on the reasons why, but Valeritas has filed for Chapter 11 bankruptcy. As part of this process, we submitted a bid to acquire substantially all assets and became what is referenced as the stalking horse. There is a period during which competing bids may be submitted to be reviewed by Valeritas and their advisers. If our bid is ultimately selected, the potential acquisition will be subject to approval by the bankruptcy court and other closing conditions. At closing, Zealand will pay a total cash consideration of $23 million to acquire the business. In addition to acquiring an existing business infrastructure, we will expect to hire the majority of Valeritas' existing U.S.-based employees. Due to the nature of this process and that we are in the process of closing 2019, we are not able to comment on the financial impact or guidance. We will have further updates on Zealand's 2019 performance when we publish our annual results in March -- on March 12. Given the steps remaining in this bankruptcy sale process, there can be no certainty that the transaction will be completed. We are optimistic as a stalking horse bidder and await the continued process. To conclude on Page 6, this acquisition is a unique and compelling opportunity for Zealand to accelerate its efforts to become a commercial-stage company in the U.S. diabetes market and do so with a revenue-generating experienced infrastructure at a very attractive price. We are enthusiastic and hopeful with this -- about this opportunity. If the contemplated acquisition does not happen, then we will continue our only activities to build our U.S. operations from scratch and ensure we are ready to launch the dasiglucagon HypoPal rescue pen in 2021 on time and successfully. This ends the prepared remarks. Now I am joined by our CFO, Matt Dallas; and Senior Vice President of Corporate and Business Development, Marino Garcia. And we look forward to taking your questions.

Thank you, Emmanuel. Summer, we are ready to take questions, so please open the lines.

[Operator Instructions] We'll now take our first question from the line of David Lebowitz from Morgan Stanley.

Could you tell us a little bit about the V-Go wearable insulin delivery device? What exactly is the product? And I guess why -- I guess it has revenues at this point. Why is the company filing for bankruptcy?

Yes. On the bankruptcy, we cannot comment on the bankruptcy process and steps. I think this is something that we will let you know the process goal and run through. The V-Go is actually a technical device. It is sold and distributed and reimbursed like a drug in the United States. That's -- it's a product which is mainly directed to managing type 2 diabetes patients to date.

And do you know at this point how competitive the bidding process will be?

Competitive it is to existing -- what did you say?

How competitive the bidding process will be?

No. We have no information on that, but it will be public information in the process of bankruptcy support. So as soon as bidders will come through, I mean, it will be publicly known.

Our next question comes from the line of Etzer Darout from Guggenheim Securities.

Thank you for the update. Just first, I wondered if you could talk a little bit more about the sales force organization at Valeritas relative to what you see as the right size sales organization for dasi as you get ready for the severe hypoglycemia filing and potential launch. And then maybe based, I guess, on the press release, I mean, we can assume that the next update on this would be in April of this year on whether or not the bid was accepted and finalized.

Yes. I think you can refer to the filed documents before, but the end of the bidding process will be on March 20, and the closing of the bid will be April 2. So that's -- so I think that's the information. In terms of -- your first question was around the bidding process?

The sales force organization at Valeritas relative to what you see moving forward for dasi.

So Valeritas' sales force is calling on all high insulin prescribers, which is highly relevant for the HypoPal rescue pen target as well. There is a huge overlap between the 2 targets. But of course, if we were successful in the bidding process, we will work with the team -- existing field team to see -- to refine the -- grow target and calling plans to make sure that we have a fully covered organization. And then we will see if we need to complement or not this existing organization, but that's actually looking speculative at this point because we're still in the bidding process.

And the next question comes from the line of Alan Carr from Needham.

What comes along with this acquisition? Is it to have other assets, too? It looks like there's some -- certain element of a pipeline at the company. Or are you just acquiring the commercial organization in V-Go? And then also, can you give us a sense of -- well, I guess, the first part of my question sort of informed the second here. I'm trying to get a sense of the expected spend going -- how much of this OpEx you'll inherit and what sort of liabilities will be passed on to you from Valeritas?

I think I will -- I would love to pass this question to Marino maybe who has been very, very close in this due diligence and -- Marino Garcia, our Head of Business Development.

Sure. Thank you, Emmanuel. So to answer your question, obviously, V-Go is the product they have in the market right now creating revenues and supporting the company and the infrastructure. And certainly, as part of the value proposition, what we're acquiring, there is a pipeline. There are other life cycle opportunities and other assets in their pipeline. Right now, that's something that post-closing we would reassess with the team at Valeritas and put into context with our own pipeline and then see which ones we want to continue to invest in or maybe which ones we might want to think about alternatives for. But again, the main value proposition here is the acquisition of an organization that pretty much reflects what we would be building and what we are in the process of building anyway in the U.S. and gives us, again, the revenue-generating asset of V-Go, which we think does have nice potential to continue to grow.