Zealand Pharma A/S
Q2 2018 Earnings Call Transcript

Published: 16 Aug 2018

[Britt Meelby Jensen:]

Thank you and welcome everyone. Joining me on the call today is Mats Blom, our CFO; and Adam Steensberg, our Chief Medical Officer and EVP of Clinical Development. So, on page two, before starting, I would like to remind everyone that today’s discussion does include Forward-looking statements and that any such statements are subject to risk and uncertainties. So, moving to page three, I will begin today’s call with an update on key events during the last quarter and then I’ll turnover to Mats to cover the financials and will then update on our progress and outlook before opening up the call for questions. Please move to page four. So, we are excited about the positive momentum that continues to build across our portfolio of programs at different stages of development and commercialization. Starting with glepaglutide, we’ve been busy preparing for the upcoming Phase 3 with successful end-of-Phase-2 meeting with FDA in the U.S. and with CHMP Scientific Advisory Committee in Europe. We have submitted Phase 3 programs to the relevant authorities. So, we are getting ready for September start of Phase 3 with a one and twice weekly dosing, based on the 50-hour effective half-life of the drug. With dasiglucagon HypoPal rescue pen, we completed the pivotal Phase 3 trial with results expected in September. And for the congenital hyperinsulinism, rare disease indication, we have FDA approval of the IND, the Investigation New Drug application and have submitted the protocols, both in U.S. and Europe to start Phase 3 in September. Finally, we also saw encouraging 85% increase versus previous quarter in royalty revenue from Soliqua through our partner Sanofi. Turning to page five, we are pleased with the diversity of and progress in our pipeline, which as I just discussed, has several upcoming milestones, most importantly with such a group of [ph] clinical development pipeline, we have several shots on goals that could build shareholder value into -- in addition to the value that we see in our marketed product Soliqua. So, page six, with this short introduction, let me turn the call over to you, Mats to discuss our financials.

[Mats Blom:]

Okay. Thank you, Britt, and good afternoon, everybody. So, if you look on page seven now, if you review our products marketed by Sanofi, we continue to see strong growth in weekly prescriptions of Soliqua and as Britt mentioned for the second quarter royalties from Soliqua increased 85% versus previous quarter. In addition, the formulary coverage, both the private pay and Medicare has increased to 71% now. As a reminder, Zealand receives royalty revenue on 10% of Sanofi’s net sales in countries with a valid IP protection, and we’re also entitled to up to $100 million of commercial milestones. And those are based on cumulative Soliqua sales. Looking ahead, we expect an increase in these royalty receipts from sales of Soliqua, and we will of course provide update as we get reports made from Sanofi. Page eight, you can see a summary of our financial results for the first half of 2018. The net results; and the results are in line with the expectations we had. The net loss for the first half of 2018 was DKK 219.5 million compared to DKK 120.5 million for the same period in 2017. And increased loss is primarily a consequence of a decrease in revenue, in the same period in 2017 we had a milestone payment of DKK 69.6 million, as well, we have also increased operating expenses. Our R&D expenses for the first half of 2018 amounted to DKK 216 million compared to DKK 152 million for the same period of 2017, and this increase mainly relates to the clinical development of the three dasiglucagon programs and glepaglutide. Net operating expenses in 2018 are expected to be in the range of DKK 475 million to DKK 495 million or $76 million to $80 million. And most of this spend is related to the clinical development cost, of course. As you note this, the comparative numbers for previous year have been restated. The reason is that during the summer we became aware that DDK 17.1 million of royalty booked in the years 2013 until Q1 2018 related to countries with no IP protection and where we are not entitled to royalties. So, we have restated historical years. Looking more broadly, our financial results for the first half of 2018 are on track with our expectations and we are maintaining our financial guidance for the full year as already we announced in our 2017 annual report with net operating expenses to be in the range of DKK 475 million to DKK 495 million. If you turn to page nine, to the balance sheet, you can see that as of end June, we reported securities, cash and cash equivalents of DKK 461 million, and in addition we have DKK 6.1 million held as collateral for the royalty bond. And we believe that our current capital resources put us in a strong position to fund our programs and operations. In addition, as you can see on the right hand side, we have multiple potential sources on non-dilutive capital including new partnerships, upcoming milestone payments through existing partnerships and royalties from Soliqua. So, these additional resources will further bolster our ability to support our programs. I will now turn the call back over to Britt, and I’ll take any questions you might have on the financials in the Q&A section by the end of the call. So, Britt?

[Britt Meelby Jensen:]

Thank you, Mats. On page 11, turning to glepaglutide, our once weekly GLP-2for short bowel syndrome. In the first half of 2018, we presented positive data from the Phase 2 study at several conferences including the Digestive Disease Week in June. We have also discussed results and next step with the FDA and CHMP advisory committee. And based on these meetings, we plan to initiate the pivotal Phase 3 trial in September. The trial will be a double-blind, placebo-controlled study in 129 patents with short bowel syndrome. We will be evaluating the efficacy and safety of both a once weekly and twice weekly dose of glepaglutide as well as the placebo arm over 24 weeks at multiple sites across the U.S., Europe and Canada. The primary endpoint for the Phase 3 trial is the number of patients having at least 20% reduction in parenteral support at six months. The key secondary endpoints are relative reduction in parenteral support and the fraction of patients achieving one day of parenteral support. We are excited about moving forward with what we believe is a very competitive profile where the effective half-life of 50 hours support the potential for this drug to be a once weekly treatment. The Phase 3 investigator kick-off meeting will take place at the ESPEN conference in Barcelona early September. Please move to Page 12. In June, we announced the results of the third Phase 3 trial of dasiglucagon rescue treatment for severe hypoglycemia, which confirmed its safety and efficacy profile in patients with type 1 diabetes. So, the multinational Phase 3 trial met its primary and key secondary objectives. The primary aim of this first Phase 3 trial was to evaluate immunogenicity of three single doses of dasiglucagon following subcutaneous administration in 90 patients with type 1 diabetes. In September, we will announce the final results of the second and pivotal Phase 3 efficacy trial ready-to-use dasiglucagon rescue pen for severe hyperglycemia. We will initiate the pediatric trial in September as well with an expected readout in the first half of 2019. So, we expect to file an NDA with the FDA in the second half of 2019. So, on Page 13 in the first quarter of 2018, the FDA approved our IND application for the initiation of two Phase 3 trials -- clinical trials of dasiglucagon in the rare disease congenital hyperinsulinism. It’s rare severe disease that affects mainly newborns and toddlers. We are scheduled to start these two trials in September. The trials will evaluate the potential of dasiglucagon as the new non-surgical treatment for children with congenital hyperinsulinism. During the two trials, neonates and children with CHI will be given low doses of dasiglucagon infused via the Accu-Chek Combo pump system from Roche. The second Phase 2 trial for dasiglucagon in congenital hyperinsulinism is expected to start in the fourth quarter of 2018. And both are expected to be completed next year in 2019 with an expected launch already in 2020. On slide 14, we continue to be excited about the development of dasiglucagon dual-hormone pump therapy for diabetes. So, dasiglucagon will be in a next-generation artificial pancreas device containing both, insulin and glucagon. The pump will control blood sugar levels guided by an algorithm without any need for patient intervention. Our pump partner, Beta Bionics has received an IDE approval from the FDA on their pump. So, it will be used in clinical trials. We have held a meeting with the FDA in second quarter in which they provided clarity on the path towards Phase 3, indicting considerable less effort than we had expected. A Phase 2/b study is planned to start later this year to test dasiglucagon in a whole new setting in the pump system, developed by Beta Bionics. So, we look forward to providing updates on this very exciting opportunity. Moving to page 16. So, in summary, our progress in the first half of 2018 was outstanding. We made great progress in all of our four late-stage clinical programs, which are all characterized by relatively attractive risk profiles compared to benchmarks. We also saw encouraging pickup in the Soliqua royalty revenue, driven mainly by improved formulary coverage. Looking ahead, we have two very exciting months ahead in front of us with two pivotal Phase 3 -- or with the pivotal Phase 3 results from the dasiglucagon HypoPal and two new programs entering Phase 3 for treatment of two rare diseases. We are very pleased by both the speed and the quality that we have been able to advance these programs, and it’s in line with our strategy of taking proprietary programs all the way to the market. So, with that, please turn to page 17. I’d like to thank you for your attention. And here I hand over to the operator to open up the call for questions.

[Operator:]

Thank you. [Operator Instructions] We’ll now take our first question from Joseph Stringer from Needham & Co. Please go ahead.

[Joseph Stringer:]

Hi. Thanks for taking my question. This is Joey on for Alan Carr. I have a couple of questions. One, maybe can you comment on the increased Soliqua royalty quarter-over-quarter, going forward why do you -- you see that increasing? And just in terms of maybe a general market share question versus Xultophy, if you look at sort of the U.S. perhaps you can see a fairly steady market share, maybe a general comment on that. And as a follow-up question, I had a question, about the dual-hormone pump. Maybe could you elaborate a bit more on the nature of the discussions with the regulatory authorities and why you now thing that the path forward is going to be a less barriers or little bit less efforts than you previously expected?

[Britt Meelby Jensen:]

I’ll address the first and then I’ll hand over to Adam to address your question on the dual-hormone artificial pancreas. So, on Soliqua, it’s true that we -- I mean that we see an increase quarter-over-quarter. And if we look at the whole -- I mean, this whole new class of fixed combinations of GLP-1 and basal insulin, basically Soliqua and the other product Xultophy from Novo Nordisk, and if you look at the market shift split, it is true that Soliqua roughly has two thirds of the market and then Xultophy only one-third. Equally, if we look at the formula coverage Soliqua also has significantly more coverage than Xultophy. So, I think that is of course looking promising. I think, what we definitely focus on is also that this is a new class, and it would be great to see that whole class increase. We believe Soliqua as a competitive profile in this segment and with the focus Sanofi combined with the stronger formulary coverage, I think -- and you can see the same device as Lantus, which is still the leading basal insulin. I mean, we believe that this should be a good foundation for taking a big share in this fixed combination market. I’ll turn over to Adam to comment on the dual-hormone.

[Adam Steensberg:]

Yes. So, as you probably remember that last year we executed product two Phase 2a studies with dasiglucagon to use dual-hormone, one was the mini dose study and the other one was actually a study which together with Beta Bionics, in their you can say in the research device they had last year. What has been happening since that is that FDA as early as this year approved the IDE for generation 3. So, the first real combo device of Beta Bionics now has in clinical development. In that event, we took all the data that we had generated, some of the data that Beta Bionics has generated on this checkpoint [ph] describing the performance of the system and it runs in an insulin-only and a dual-hormone setting and had a discussion with FDA what they would like to see before we end the Phase 3. And we had approval for a longer Phase 2b study. And basically the feedback from FDA was that they were first of all really happy with the data that we could share with them. And I’d say, as long as we have data to support that, the dual-hormone [indiscernible] actually act through the safety of a system, they will be very comfortable with us, moving path into the Phase 3 setting. One thing which we have known all the time but not really perhaps truly appreciated the barriers [ph] of is that for this opportunity -- it is of course a combination product in the sense that we have Beta Bionics working on the device and work on the drug, but it is the device division of FDA who is taking the lead here and then they use the drug division as supervisor. And it will follow the recent regulatory milestones for new artificial pancreas devices. FDA has been extremely aggressive and supportive in getting these products to the market, put in [ph] systems. And it’s basically the same trend we now observe. We cannot provide further updates right now, but we are confident that later this year, we will be able to provide further clarity on this, and then for how we see the -- speed of development together with Beta Bionics. So these are the basic on it.

[Operator:]

[Operator Instructions] We’ll now take your next question. Thomas Bowers from Danske Bank, please go ahead. Your line is open.

[Thomas Bowers:]

Yes. Thank you very much. Two questions for me. Just to kick off with the Soliqua, the sales milestones that you also mentioned. I’m just wondering, with the current run rate and the small increase for the quarter, are you at risk of missing out of on part of these kind of milestone payments? And do you see any of these milestones to actually be triggered in the next say, let’s say, two, three years timeframe or are you at the current run rate, closer to let’s say at least five years away from the first of those sales milestones? And then…

[Mats Blom:]

Thomas, as you know, we don’t guide on royalty revenue. But, I can say, clearly, we are not at risk of losing them. And with -- I mean we that haven’t updated one quarter -- I mean, I don’t want to extrapolate, but the way it looks right now, the first one should come -- yes, within two to three years. That’s my best guess. But, we since we don’t guide on royalties, but, I mean, they are not at risk.

[Thomas Bowers:]

Okay. That’s perfect. Thank you. And then, just on the rescue pen, you’re just losing [ph] a bit on. What is actually needed for you to submit the NDA filing? I see that you expect to file in the second half 2019, so approximately one year after the pivotal trial. And of course, I’m aware of the pediatric indications. But, is that a requirement for rescue pen to also have the pediatric data prior to an NDA or is that something else that I’m not aware of?

[Adam Steensberg:]

Yes. It is actually a requirement. And it has been part of our strategy over time. First of all, a significant portion of current users of [indiscernible] are parents to children with type 1 diabetes. So, we wanted to be able to tap into the segment at the start. I think secondly, and that is actually a major regulatory win for Zealand also is that we have been able to have both the European and American authorities to adhere to the same study for pediatrics, meaning that we will do this limited study in children down to the age of six before we submit the NDA and also the marketing authorization application in Europe. However, we do have a deferral for children below the age of six. So, that’s the study we’ll only do later in the program after submission. So, it’s a requirement. But, I think it’s also part of our strategy as it has been all the time, I would say.

[Operator:]

We will take our next question from Keyur Parekh from Goldman Sachs. Please go ahead. Your line is open.

[Keyur Parekh:]

Two questions, please. One, Mat, can you just help us to understand how you came up about discovering this discrepancy relative to the royalty income going back into the past? And does this mean, you now need to pay back those moneys to Sanofi, or what does this mean from a cash perspective for you guys? And then, secondly, Britt, obviously, we’ve seen a couple of your competitors kind of try -- just like to think about how do you think about the differences between the glucagon product you’re developing versus some of the others that your competitors might be trying to do, and specifically we’ve obviously seen AZ try something similar. So, just help us with your perspective and why you think you might have an advantage over them?

[Britt Meelby Jensen:]

I’ll answer question two and let Mats comment on the royalty. So, as you rightfully mentioned, we have both AZ and Lilly competing in the severe hyperglycemia space with our glucagon HypoPal and they both filed for the FDA. Thus, you can say, that’s of course something that we have followed closely as well. And I think these products are both different to our offering. And we believe in particular that we will have an advantage in how fast will work if we are able to confirm that in our Phase 3 trial which will read out soon. Furthermore, you can also say that Lilly’s product is a nasal spray. And in the market research that we have done, we have seen that that is less preferred over a pen, in particular due to the nature of this life threatening situation where patients and caregivers prefer pen. So, we will say, it’s a segment that has not been focused on for decades, and now we have some -- a couple of new entrants, three including us. And I think that’s something we follow closely. And it’s not -- if we are able to prove this faster, onset of action, it’s actually not bad to get increased attention in this segment before we come with our product. But that’s how we see it. But, we’re of course looking very much forward to see our Phase 3 data, so we’re able to confirm this. I’ll hand over to you Mats to just clarify the whole royalty...

[Mats Blom:]

And actually, it was -- every quarter, we are provided royalty reports by Sanofi. And considering that it’s sold in over 50 countries, it’s long reports. And I don’t know how it was found out. But, actually, Sanofi called me this summer and say they found errors in their royalty reports. They provided us reports on sales in countries with no valid IP protection. And that is not something we had followed, nor Sanofi. So, as a consequence of that we are restating historical numbers back to 2013, in total DKK 17 million over six years. So, it’s definitely material amount, but that’s the way we are handling it. And we are of course making sure that we will now have to provide patent list every quarter and cross check. But, I also assume that what we have received from Sanofi will also be cross checked on their said going forward. And the second…

[Keyur Parekh:]

And what does this mean from a cash perspective -- yes.

[Mats Blom:]

It means that in the next royalty payment, we get from them, which is higher than this amount, we will get deducted amount.

[Keyur Parekh:]

Thank you.

[Mats Blom:]

You’re welcome.

[Operator:]

[Operator Instructions] It appears there are no further questions at this time. I’d like to turn the conference back to you for any additional or closing remarks.

[Britt Meelby Jensen:]

Thank you. And I’d like to conclude by saying that we’re very excited for the upcoming two months and for both pivotal Phase 3 results and the initiation of our two Phase 3 programs. Thank you for listening in today and have a good rest of the day.

[Operator:]

This concludes today’s call. Thank you for your participation. You may now disconnect.