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

Good morning, everyone, and welcome to the Zealand Pharma's Corporate Update Conference Call. Today's call is being recorded. On the call this morning, we have Martin Nicklasson, Chairman of the Board of Directors; Adam Steensberg, the company's Chief Executive Officer CFO; and Matt Dallas, the company's Chief Financial Officer. Later in the call, there will be an opportunity to ask a question. Please note that the conference call may contain forward-looking statements and date the conference with regard to the forward-looking statements set out in the accompanying press release issued by Zealand earlier today. I would now like to start by and the call over to the Chairman of the Board, Martin Nicklasson. Please go ahead.

Thank you, and thank you, everyone, for joining today. Today, we announced several updates, including our reinforced strategy to prioritize research and development and the corporate restructuring to streamline business operations. As part of this strategy and restructuring, we also have appointed Dr. Adam Steensberg, our former Executive Vice President of Research and Development and Chief Medical Officer, to the role of Chief Executive Officer. Following a review of all business operations, we have decided that this is the best path forward for the company to maximize company and shareholder value. The corporate restructuring is intended to leverage our peptide platform by prioritizing investments in our research and development pipeline programs and streamlining commercial operations. We will no longer be commercializing assets on our own. Rather, commercial operations will be restructured to pursue partnerships for Zegalogue, V-Go and glepaglutide and dasiglucagon late-stage clinical portfolio. As part of this restructuring, we are reducing the U.S. workforce by 90% by the third quarter of this year, with additional cost reductions implemented in Denmark. These changes will result in an annual operating expense reductions of approximately 35% from the 2021 levels. The Board has endorsed these steps to ensure that the company continues to play to its strengths, and we believe that Adam is well qualified to take charge having developed the company's rich and deep pipeline. Before I hand the call over to Adam to further discuss these changes and the next steps for Zealand as a refocused research and development organization, I would like to take a moment to thank Emmanuel Dulac for his leadership of the company over the last 3 years. I also would like to express my gratitude to employees affected by this restructuring, including the President of Zealand Pharma U.S., Frank Sanders. I and the Board wish a Emmanuel, Frank and everyone affected, the best of luck in their future endeavors. I am excited about the future we are building at Zealand with this refocused approach, and we are confident that Adam will be a strong leader for the company. Adam has been with Zealand for several years and has served as our CMO since 2015. With this rich experience in the clinical development of our peptide platform as well as overseeing all our late-stage, early-stage program. Adam will be an invaluable leader for our new R&D focused company as we work to reach patients by partnering our commercial assets. With that, I will now turn the call over to hear from our new CEO, Adam Steensberg. Over to you, Adam.

Thank you, Martin. I look forward to leading the company on the next stage of our journey as we work to deliver new medicines to patients with unmet medical needs in a range of disease areas. I also want to take this opportunity to thank those employees leaving the company for their hard work and dedication towards our mission. We have made the decision to refurbish the company because we believe that our commercial products can generate more value for our stakeholders by entering strategic partnerships. At the same time, we will transform the company into a more focused and cost-effective organization by improving our operational efficiency and entitling business development efforts, we will be in a position to fully leverage the value of our most advanced assets and to develop new peptide based therapies. We have a strong R&D pipeline with 2 Phase III readouts this year. One, for dasiglucagon in congenital hyperinsulinism, or CHI, in the second quarter; and one for glepaglutide in short bowel syndrome in the third quarter. We also plan to complete our Phase II trial in collaboration with Boehringer in obesity and to announce Phase I data for our amylin analog targeting of obesity later this year. In tandem, we pursue commercial partnerships for our existing commercial assets, V-Go and Zegalogue for the treatment of type 1 diabetes. With a strong commercial partner, we believe we will be able to better achieve our goal of reaching clinicians and ultimately patients in need for better treatments. We also will work to pursue commercial partnerships for our late-stage programs in CHI and SBS, and we look forward to providing you with updates as we make progress on this front. With the restructuring, we are also updating our financial guidance for '22. Net operating expenses in '22 are now expected to be DKK 1 billion plus minus 10%. This is a decrease of DKK 200 million from prior guidance issued March 10 this year. And due to the changes in commercial strategy, net product revenue from sales of commercial products is now expected to be DKK 150 million plus minus 10%. This is a decrease of DKK 125 million from prior guidance and does not include revenue from existing licensing agreement or from any potential partnerships. If such partnerships occur, we will update the financial guidance accordingly. And with that, I will now open up the call for questions. Operator?

We have the first question from Joseph Stringer. Michael Novod, your line is open.

Michael Novod from Nordea. First of all, congratulations Adam with your new position. So a few questions. First of all, when you sort of think around the licensing opportunities for glepaglutide, we saw one of your competitors or potential competitors do a license deal regionally for GLP-2 today. So what are your thoughts around change the structure of a iLet's leadership Phase III date to be positive? Will you pursue one big global? Or is it also an opportunity to potentially carve out regions and do retail deals? And then secondly, just a clarification on the revenue guidance. What does the DKK 120 million, DKK 100 million-ish include for the revenue guidance for 2022. Is it just to get a feeling of what is actually included Yes, that's it.

Maybe I'll ask you to answer the first question -- sorry, the second question first, and then perhaps I can address the first question later.

Sure. So the revenue guidance of DKK 115 million represents the combined revenue that we would record for both V-Go and Zegalogue in 2022 from our -- the sales generated from our commercial entities, right? And they've been scaled down as with this restructuring, it changes a bit of the structure of the field force and therefore, impacts the revenue accordingly. It does not represent any potential business developments or partnerships or revenues or milestones, either from our existing partners or from potential future partners with this -- as part of this refocused strategy.

It's just simply a scale down that since you don't have the promotional activities, then you just don't see the same sales go through. So that's just a...

Yes. On potential partnership and deals done, I think we -- it's the fact that glepa is the most valuable asset in our pipeline right now, and we have a clinical lead out coming in Q3 this year. The program has also been worked with a less in this custom both U.S. and Europe. And key to us when we will use a partner that is that we need to identify from what we need to in success including the product to the market. If that global or regional partners that is something we will evaluate down at around the time. But definitely, the glucagon has a global opportunity.

Okay. And maybe on the -- on Zegalogue and V-Go, how easy do you think it is to find partners? How advanced are you sort of in potential discussions to find commercialization partners just so we actually are going to see that this is actually leading to partnership deals on the commercial side. So these products are still going to be sold going forward?

Yes. Matt, you want to comment on that?

Yes. I mean it's hard to -- we can't comment, obviously, on stages of discussions for any business development with our programs. So we're moving forward, it's actually -- obviously, with this release and change direction, it becomes a high priority for us to partner these programs will take every effort and we will use third parties to supplement our partnering activities.

We have the next question from Thomas Bowers from Danske Bank.

Yes. Thank you very much. A couple of questions. So I'll just kick off with -- you have the liquidity covenant with Oberland that is to be breaching in September without any additional milestones. So I'm just wondering, of course, this is related to a cash position. But is there any changes now that you have updated your strategy on V-Go and Zegalogue there is also a low single-digit royalty of net sales attached to this loan. So any changes on the covenant and how we should see the liquidity. And then just on -- just a follow-up on Zegalogue and V-Go divestment. So I'm just wondering, are you still targeting to complete the dual hormone and CHI Phase III and then maybe also mini-dose progression before you actually make any considerations. I know that you have been -- well, I think the port partners you have been talking to or potential partners you've been talking to have been more interested in getting the whole data, the global data rights. So -- but is there any changes here that you may see an out-license of Zegalogue alone and then retain the remaining parts of dasiglucagon.

So maybe I can address the last question and then Matt can follow up on the open end question. So for Zegalogue which is a product that's on the market, we will pursue partnerships as communicated in the release as we seek now in order to make sure it gets in the hands of the best commercial entities. I think we are in a quite different situation compared to a few years ago because you can say, compared with the different solutions you also described that we have the CHI and the V-Gos yet to sustain API. But today, Zegalogue it's a new product. And so it only shares the API. The product presentation is very different from how the product will be presented in these other offerings. So I think that is a difference, you can say, anymore of today compared to when we had these discussions before we had a label and a product on the market. So we issue a partnership for Zegalogue, whether this will be with only legal or it will include other opportunities. That, of course, depends on further discussions. But right now, the key focus for us is to make sure the product that's on the market gets in hand in a committed strong commercial entity. Matt, will you have a follow up on the Oberland?

Yes. So with the sense, there's no changes to the terms for the liquidity coming with the Oberland Capital. It will impact our cash runway by expense reductions of this magnitude. And we'll have an earnings release coming up in May, and we'll update the impact of all of this as it pertains to cash runway with that release.

Okay. So just to completely understand that there's nothing -- there's nothing attached on the liquidity covenant. There's nothing related to the royalties they get. That's up to you whether you will divest or will not prioritize the promotion of the product?

Right.

We have the next question from Lucy Codrington from Jefferies.

Just a few left. So I just want to think back to prior to Zegalogue approval and launch kind of how advanced you got when considering partnerships at that time? And whether any of those potential partners could be reconsidered at the time? And then just with regard to glepa, are we right in thinking that the partnership with this is likely to be after the Phase III data rather than before?

Yes, you can say a glepa being the most valuable asset in our pipeline right now, this is a Phase III asset where we will have clinical results in the third quarter. So that's, of course, a key inflection point, which, in our mind, will define the value of this product. So it's probably more likely to be after than after --after than before results because we see this as the key value inflection point of Zealand this year So -- but of course, again, I can never comment or we will not be able to comment on specific partner discussions or timing of those events. On Zegalogue you're correct, we had some discussions before. I think as Matt also highlighted before, we will engage in a very structured process, engaged a third party to make sure that we, you can say, identify all potentially interested parties and then look for the best potential commercial group to take this product forward. So again, I cannot be more specific on those things yet. So for that.

Thank you for your question. We have another question from the line of Joseph Stringer from Needham.

We've got -- call drop. So apologies if this is a repeat set of questions. But just curious, the timing of this announcement, why now sort of ahead of 2 Phase III readouts this year. Just curious if you could add some color on what sort of drove the decision and sort of the timing of the announcement? And then secondly, to kind of ask again on SBS, you had the key readout third quarter of this year. Is that something that you would wait until the data -- top line data readout prior to giving an update on partnership decision on potential partnerships -- or is it something that you would be open or willing to secure partnerships prior to data? Any additional color on that would be helpful.

The last question on when we'll do a partnership. I mean we see -- and maybe you were all dial-in there, but we see -- you can say, we know we have a major inflection point with Phase III clinical data readout expected in Q3. And for us, that is a key event. And this is where we would expect, you can say, partner discussions to kick in significantly. But having said that, we also understand that this is a very attractive asset. So whether people will engage before or after or when we will announce something, we cannot comment on it, but we will -- you can say diligently pursue the best partner for glepa. But we, of course, have high hopes for the Phase III readouts that come in Phase III are coming in the third quarter and as such are happy to wait for those. On the first question, actually, what was that? Can you just repeat that because it's out of my mind. Timing on...

Yes. Just curious on the timing of today's announcement, just in terms of...

This is a dialogue that the management team have had with the Board and evaluated the business operations, and we really believe it's the right time. And you can say -- we think we have 2 attractive products on the market, which have opportunities now with other commercial players. And then before we enter this extremely, you can say, data intensive in the next few months, both with data coming out with CHI and [indiscernible]. We actually believe it's important to be clear on the opportunity for these assets. So we -- that's important for the timing. Maybe I'll turn to Martin, and want to add something to this.

No, I think it's a very valid question. And we have done a thorough analysis that Adam refers to. And when you reach an insightful decision, you have to act -- and so it's no other meaning behind this. But also the fact that we have realized how challenging it is to launch commercial brands in today's world. It is a challenge, and we believe that if we do smart partnering with parties who already have the infrastructure in place, we hopefully in the future, will enjoy revenues based on upfront milestones and royalties, which you know are revenues that hit the bottom line directly without any dilutive measures in between. So we hope we can have a more productive unit company and also a very highly profitable units in the future with this model. So we invest where we think we get back to the back.

Operator, are there any more questions?

The other question from Jesper Ilsoe Carnegie.

Thank you so much. So 2 questions from my side. Firstly, one perhaps for Matt. So on the cost savings, so you target 35% from '21 level. So just to do some quick math, will it be fair to assume a sort of flat DKK 800 million in OpEx from 2023 forward. So perhaps you can just give some thoughts on how this OpEx cost base will develop going forward after this announcement. And then I'll take the question afterwards.

Yes. I mean we're not going to -- obviously, it's literally to provide guidance on '23, lot can happen in the next year, right? But that is the trend line with the analysis following this announcement.

Okay. Then just some questions as well on the partnership strategy. So just to -- so I understand that you, of course, will refrain from commenting too much. But just to understand, can you confirm whether or not you have had and had started discussion or will you start to see them basically from today? And also perhaps a question for the Chairman of the Board. So how you as a company balance the partnership strategy on glepa compared with the potential M&A potential after the Phase III data here in Q3, as I would assume that partnership in some territories, potentially Japan could be a potential poison pill to some companies. So are you internally balancing this partnership versus M&A potential?

Yes. So if I answer the first question and then Martin can answer the second. But on the partner thing, again, we cannot comment on the specific, you can say, discussions and so on. But as Matt also said, we have started a structured process. We are -- we have engaged a third party, and we are, of course, in dialogues. But we cannot be more precise on these, but it is a key priority for us in the next period to secure partnerships for the 2 commercialized products as we truly believe they make a huge difference for the patients. Martin, over to you.

Yes. I mean we -- as Adam has already said and we, of course, agree on that from the Board. Glepa is a true value driver and the data readout in Q3 will be an inflection point for the company. However, we need to look upon this in a sober manner. I mean we are doing -- going to pursue partnership discussions to find the best home for this brand on a global basis. And whether that will trigger some poison pill or not is something we cannot today either speculate on or take any consideration of we really want to maximize the value of that assets. And so if there will be any kind of actions from third party, we are prepared to deal with that.

The next question is from Keyur Parekh from Goldman Sachs.

Apologies if this has been asked before I joined the call late. But a couple, please, if I may. The first one, does the decision to refocus kind of from an R&D perspective. Just wondering kind of how confident you guys feel about the depth of the pipeline you have today and what that might mean relative to kind of R&D spend kind of going forward? Do you need to partner the existing assets under late-stage pipeline before you can bring in new products in? Or do you think those 2 are not kind of rate limiting? That's kind of question number one. And then question number two, conceptually, I would love to hear your thoughts. I think you mentioned how difficult commercializing products in today's market kind of is. Would love your thoughts on kind of what was different relative to your original expectations when you decided many years back to kind of become this full stream vertically integrated biopharma company?

Yes. So I'll address your first question, first on the pipeline. When we look at this pipeline and also the discussions we have had, it has never carried more value in our eyes than it does today. We have significant late-stage assets that are reading out in the coming quarters. We have a very rich mid-stage pipeline. One of the products is partnered with Boehringer Ingelheim today, where we will present Phase II data in type 2 diabetes, and we also expect to see Phase II data in obesity that could be a highly valuable asset to Zealand as well. And then we have early stage assets in Phase I and early Phase II also in the obesity space. And then the preclinical activities. And you can say, of course, the investments and how we allocate our investments will, to some degree, also depend on where and how we partner along the value chain because we also have an ambition of controlling our costs. But as we have put in the release, it is our ambition to find partners along the value chain with a focus right now on the 2 commercialized assets, then a focus on the late-stage programs as we pass our clinical milestones. And then we might engage in early-stage partnerships as well on selected assets because we truly believe we have a differentiated peptide platform that many companies could benefit from collaborating with Zealand. So that is what you should expect going forward. And you can say investments will depend on where we make these strategic partnerships.

I also think it's a very important question because it really addresses the core modus operandi of the company going forward. I think we should be very agnostic and open and be data-driven. The data that we are going to generate for all these products and potential brands that Adam was alluding to, will be highly valuable and will be the introduction to many exciting partnership discussions, whether it's in early clinical phase or in late clinical phase. We can decide how far we want to take an asset based on how we believe the success in the future might be. So it's a matter of continuing assessment and a very nice problem to have.

Did that answer your question?

Yes, it does.

Thank you for your questions. I will now hand back the conference to Mr. Jalan.

Thank you, operator, and thank you for joining today. I'm extremely excited about this new chapter for Zealand as we refocus our strategy towards our robust pipeline and work to streamline and strengthen operations and to partner our commercial assets. And we look very much forward to provide further updates and to interact with all of you. Thank you so much.