Welcome to the PharmaMar Fiscal Year 2021 conference call. My name is Juan, and I will be coordinating your call today. If you would like to ask a question during the presentation, you may do so by pressing star one on your telephone keypad. I will now hand over to your host, José Luis Moreno, Head of Investor Relations and Capital Markets to begin. José Luis, please go ahead.
Thank you, Juan, and good morning to everyone. I would like to welcome all of you to 2021 full year results conference call. On the call with me today are Mr. Luis Mora, Managing Director of PharmaMar, and María Luisa de Francia, our Chief Financial Officer. As usual, following our prepared remarks today, we'll open the line for questions. I'd like to remind you that today's conference call might include forward-looking statements regarding future events or the future financial and operating performance of the company, and such forward-looking statements are only predictions based on current expectations, and actual results might vary from those projected. We disclaim any obligation to update any information provided herein.
We refer you to our safe harbor statement on our corporate presentation, which is available on our website together with the press release of our results that we released yesterday. In regard to our business, some of the most important highlights of last year have to do, of course, with Zepzelca. In this regard, after a very successful launch in 2020 and an impressive commercial work, our partner in U.S., Jazz Pharmaceuticals, has established Zepzelca as a treatment of choice in second line in small cell in U.S. The commercial success of Zepzelca in United States has triggered a $25 million commercial milestone that have been accrued in 2021. Apart from the approval in the U.S., our partners for Zepzelca in other territories achieve approvals in other countries.
Specialised Therapeutics receive authorization for Zepzelca in small cell lung cancer in Australia and Singapore. Immedica receive authorization in Emirates. Jazz also received the approval for commercialization of Zepzelca in Canada. Last year, we signed license agreement for Zepzelca with three new regional partners for other territories, like Adium Pharma for 21 countries in Central and South America, Lotus Pharmaceutical for Taiwan, and Eczacıbaşı for Turkey. Another very important event with Zepzelca last year was the start of a phase III LAGOON trial in second line in small cell lung cancer, a study that will serve as a confirmatory trial in the U.S. after the accelerated approval of the FDA, and also will serve as a registrational trial in Europe for the EMA.
Other relevant news last year in oncology business was that our partner, Specialised Therapeutics, received authorization to commercialize Yondelis in Australia for soft tissue sarcoma. In other areas of business, it is also important to highlight that concerning our RNA interference development, our subsidiary Sylentis last year started a phase III trial with tivanisiran in dry eye disease associated to Sjögren's syndrome, which is currently recruiting in the U.S., and we expect to finish recruitment at second half of this year. As for the financial results, I'm glad to say that our recurring business continue growing. We are a profitable company and of course generating cash. Now I turn over to María Luisa, so she can give you all details about these financial results. María Luisa?
Thank you, José Luis. Good morning, and thank you all for joining this full-year results call. The year 2021, from a financial point of view, leaves us with a very clear message. It was the year in which recurring revenues took over our income statement. These are revenues consisting of annual sales and royalties received from our partner sales, and they have increased by 27% compared to the previous year, amounting to EUR 165 million. Focusing now on recurring oncology revenue, so eliminating diagnostic revenues, which in 2020 had a significant peak due to the COVID-19 test sales, then the increase is 37%. Proof of the importance of our growing recurring revenues is that if we remove the effect of non-recurring revenues from Jazz license agreement, upfront and milestones from both years, 2020 and 2021, then the operating profit grows 57% compared to 2020.
The importance of the strength of recurring revenues can also be seen in the cash flow generation at the operating level. This cash flow generation has happened even taking into account that R&D expenditure in 2021, which amounted to EUR 72 million, represents 44% of total recurring revenues. Even so, we have generated EUR 26 million of cash at operating level. Another consequence of the good performance of recurring revenue is that the group has improved net cash position compared to 2020, closing the year with EUR 167 million, while reducing the total debt by 14% compared to previous year. We cannot fail to note that within 2021 licensing income, non-recurring revenues, we find accrual of $25 million, EUR 22 million from the achievement of a commercial milestone foreseen in the Jazz agreement.
Along with this milestone, we find the recognition of deferred income from previous year near EUR 39 million. To summarize, the three points on which the financial statement has been based and which provide us with financial strength and the capacity to finance our projects in the future are a strong growth in recurring revenue, cash flow generation at the operating level, even with growing R&D expenditure, and maintenance of the level of net cash with a decrease in debt. Before I finish, I would like to make a reference to ESG issues, where we had had a special focus in 2021. The board of directors approved a sustainability policy, which contains our commitments in this area. Additionally, the board approved an action plan containing our environmental, social, and corporate governance objectives for the next three years. Now I turn over to Luis Mora.
Thank you, María Luisa. Well, I think 2021 was an extraordinary year. Regarding financial, María Luisa explained very well the three main points. The recurring business strength, sales increased 27%, I think, which is very important in order to consolidate our recurring business. The operating profit also increased 57% without the accrual effect of the incomes. Finally, the net cash increased 2.2%, even increasing the investment in R&D. I think this is the three main points, María Luisa remarked very well in our financial statements. Regarding Yondelis, 2021 was a good year. We maintained in 2021 our market share in soft tissue sarcoma in second-line with about 30%.
The gross sales increased 3%, but in the net sales was a similar figure to 2020 due to increased discounts in some South European countries. Important remarks for Yondelis was the presentation in ESMO in the trial, IES trial, the LMS-04. We demonstrate the combination Yondelis plus docetaxel against docetaxel alone show very important results, clinically meaningful for the patients, even in overall survival and progression-free survival. Also in 2021, the ESMO guidelines include the combination Yondelis plus radiotherapy for the treatment in soft tissue sarcoma. Regarding rest of the world, in 2021, some of our new partners start to distribute Yondelis in different areas in the world. In 2022, we observe continue to grow this sales in different regions. Also, in U.S. and Japan, the Yondelis sales increased in these two countries.
Regarding Zepzelca, very good news. As Luis announced before, the royalties we collected from our partner, Jazz Pharmaceuticals, increased on a quarterly basis. This is a good signal. The drug is established drug, is a reference drug in second line in U.S. in small cell lung cancer. For 2022, apart from the approval we achieved through our partners in 2021, we expected more approvals in 2022. Lurbinectedin is presented in many countries around the world, and then we expected more approvals. Even in important country, in China, where the phase I trial was already finished, we achieved the recommended dose, the same recommended dose as in Europe and U.S.
Now they are in conversation with authorities, the Chinese authorities, for the next steps, and we expected some news across this year, 2022 and 2023. Regarding PharmaMar's Zepzelca, the LAGOON trial, we announced in December this important trial, pivotal trial. We have started this trial we will use to transform the accelerated approval to full approval in U.S., and we want to use this trial to achieve the approval in Europe. For Europe, it's important to remark they need a formal, pivotal trial to achieve the approval. The important one was the first-line maintenance therapy trial was announced with our partner, Jazz Pharmaceuticals and Roche. This is a very good signal of the commitment of our partners with this drug.
We are sure the drug will grow in the future in this country. The early access program we started in the end of 2019 in some European countries. In 2021 was very well. The early access was well received by the doctors, continues to grow in France and in other countries. Today, this early access program is open in Spain, in France, in Austria, but in other countries in Europe. Not all the countries have the same early access funds to finance this type of treatment. France is pioneering in Europe about this early access. Zepzelca is not only small cell lung cancer, for Zepzelca we expected more indications. In fact, the trial we announced last year, we want to start in mesothelioma.
We expected to start this year. As part of mesothelioma, we are designing the other trials for the other indications. We expected Zepzelca. We see Zepzelca the future in the market and beyond the small cell lung cancer in other indications. Ecubectedin, you remember, is PM14, but the INN name is ecubectedin. Ecubectedin today is in phase II, is tested in single agent in a basket trial in five different tumor types. Included BRCA1 in colorectal, in adrenocortical, in ovarian and some just soft tissue sarcoma subtypes. Apart from this phase II trial, the other two phase I trials are ongoing in combination with the immunotherapy and with irinotecan. We move forward with ecubectedin in the next step, and now is in phase II. I want to advance to you two new compounds.
We delayed the start of the clinical trials we expected last year, but finally, we want this year to include these two new compounds in clinical phases. All the work in preclinical is done. They prepare all the documentation, and we expected to start these two new compounds, new clinical trials in this year. Regarding virology area, the NEPTUNO trial is still ongoing. The recruitment is ongoing in different countries. We announced last week in clinicaltrials.gov the expected date to analyze the recruitment in December. The Omicron virus changed the pathology of the patients, and this is one of the reasons why the recruitment is not doing like our expectations.
Beyond COVID-19, our labs are working with the applications, the other pharmaceutical compounds and other different bios. Finally, regarding SYL1801, so happy to announce you one of the phase I trials for macular degeneration was already finished. Now, we're expecting the result, and the phase II will start across this year. Regarding the phase III for the Sjögren's syndrome, dry eye linked to the Sjögren's syndrome, the trial is ongoing. When we will finalize this phase III, we will start the second phase III, what is needed for the regulatory purpose. In parallel, in this year, in 2022, we will start the safety trial, randomized safety trial, what is needed in order to support any marketing authorization in the U.S. and in Europe. In summary, 2021 was a very busy year.
Finally, the results was very good. We expected for 2022 to maintain this level of activity in R&D and the sales of our compounds. Thank you very much.
Okay. Thank you, Luis. Now these were our prepared remarks for today. Juan, I will open the line for questions now. If there are any questions, we'll take the questions now, and then we have some from the platform that I'll do myself.
Perfect. If you would like to ask a question at this point, please press star followed by number one on your telephone keypads now. If you change your mind, please press star followed by number two. When preparing to ask a question, please ensure your phone is unmuted locally. The first question comes from Christian Glennie from Stifel. Please, Christian, your line is now open.
Hi, guys. Thanks for taking the questions. Maybe start with a couple on the sort of more the financials and the guidance and then a couple on the current trials.
Oh, Christian, sorry, could you speak up a bit? Your line is very low.
Is that any better? Sorry.
Yeah, yeah, it's a bit better. Thank you.
A bit better? Okay. I'll shout more. A couple on the financials.
Yes. Thank you, Christian.
A couple more on the R&D side. Just on the royalties in Q4, is it possible to split out what was. I think 'cause there would have been potentially a catch-up royalty for there was an additional $10 million of sales that Jazz had in Q3 that wasn't sort of part of the initial recognition in Q3. What was the split between the catch-up royalty potentially versus the sort of underlying royalty based on sales in Q4? For Zepzelca, sorry.
Yeah.
We cannot disclose the royalties for Q4, the full year. It's calculated according to internal calculation of the company. We do not have information from Jazz regarding that much.
Yeah. Christian, let me clarify because we've received some other questions in the platform in regard to the sales of Jazz. This gives me, you know, the chance to ask them both. As María Luisa said, these are our estimates and we, you know, we do not have any information from Jazz at this stage. Jazz will release results later on today. For all of you who are asking about the sales of Jazz and want to know exactly details about that, Jazz is releasing their results later on today, so you'll have the chance to find out more details on that.
Yeah. Thanks, Luis. Then, I think just to clarify what you said in your prepared remarks, I think you mentioned the sales, the implied sales performance of Zepzelca last year has triggered a $25 million milestone. Is that in dollars, euros, and is that correct? That will be received p resumably in this year.
$25 million, that's what it was accrued last year, which is EUR 22 million. What we, you know, have in our P&L. Again, there's another question on this, on when we'll receive it. Whenever we receive this, we'll make it public. It's already been accrued in P&L in 2021.
Okay. Just on a bit of sort of R&D OpEx guidance for current year, you've obviously got the LAGOON starting, mesothelioma expansion, and NEPTUNO ongoing. What's the expectation for R&D spend in 2022? Anything notable on the OpEx side?
Yeah. Well, what I explained before, for this year, 2022, we'll be ongoing the LAGOON trial, VIVOTAP trial, mesothelioma trial, NEPTUNO trial, and Sylentis trial. It's four phase III ongoing. Apart to push the PM14 trial in next phase IIs and the two new compounds in the clinical trial. We expect that it to increase our investment in R&D.
Any rough order of magnitude?
No.
No.
Sorry, I didn't get it.
Okay. Okay.
Any clue?
Switching to just to remind us on timings here, recruitment obviously into LAGOON, potential timing of data on LAGOON, and then you mentioned that NEPTUNO was slower than expected. You're persevering there, but is there a point in time at which you might decide to stop that trial if recruitment continues to be slow into NEPTUNO?
The LAGOON trial, the recruitment timing is expected two years. This is the formal estimation. We expect that probably we accelerate this recruitment due to the number of hospitals who want to participate in the trial. I will announce you more than 130 hospitals in America and Europe want to participate in the trial. We expect that it will at least, but officially two years. Regarding this is for LAGOON trial. I want to remark that the primary endpoint for LAGOON trial is overall survival. Okay? Regarding NEPTUNO trial, recently we relate to the finalization of the recruitment until December this year. I explained the Omicron changed the typology of the patients in the hospitals.
The NEPTUNO trial was designed for hospitalized patients needing oxygen who developed pneumonia, etc. We observed with this Omicron effect in the patients. It's not a lot of patients with these characteristics who are hospitalized or are more severe when they arrive to the hospital or less severe or don't need to go to the hospital. For this reason, the recruitment is delayed. I want to remark the NEPTUNO trial is not only open in Europe. It's open in Brazil, Argentina, Colombia, Peru, and some country in Mexico, in South America. We will see the evolution of this pandemic, what will occur. According to our CRO, our expectation is in December of this year.
Sorry. You said potentially complete recruitment December 2022.
'22'.
Yeah. Okay.
This is what we update in clinicaltrials.gov.
Okay. Thank you.
Okay.
Thank you. Our next question comes from Álvaro Lenze from Alantra. Please, Alvaro, your line is now open.
Hi, thanks for taking my questions, and congrats on the good results. Maybe I missed this on the prepared remarks, but if the recognized milestones in Q4 have been EUR 22 million and you have in Q4 recognized EUR 40 million in licenses, and this comes up from EUR 8 million in Q3 and on a quarterly basis for the rest of the year, what is the remaining part of the milestones reflected here? I mean, 8+
Yes. Yeah, yeah.
+32
32.
Yeah.
Yeah.
Yeah, María Luisa.
Is that the question? Okay, understood. We have in our balance sheet a different amount regarding the upfront and milestone received already in 2020 amounting short and long term about EUR 95 million.
What has the recognition of this, the accrual of the already collected milestones been in Q4? Has there been any acceleration from what you accrued in Q3? If that is the case-
Yes. Yes.
Why is that so?
Yes, you're right. In Q4, as you know, it depends on the performance of our commitments regarding the contract. No, regarding the agreement. In the fourth quarter we complete some of these compromises. Yeah, in the fourth quarter, the amount recognized was bigger than in the previous quarters.
Okay, understood. Also a follow-up. The $25 million of milestones on, you know, commercial milestones that you've achieved with Jazz, is this part of the up to $200 million that was contemplated from commercial milestones in the agreement? If that is the case, what is the timing that we could assume for achieving more of these commercial milestones?
What we've released in regard of the commercial milestones, Alvaro, is EUR 550 million altogether. We haven't disclosed any more details about when they trigger, when we expect or what related to. Commercial milestones altogether are EUR 550 million, and this is part of our commercial milestones, but we have not released any more details on that.
Okay. Lastly, could this trigger an increase in the royalty rates that you are receiving from the sales of Zepzelca in the future if commercial performance continues to improve? Or do you expect the percentage of royalties to remain stable for the coming years?
Yeah. As you'll understand, we have not disclosed that either, of course, when these type of royalties are increasing as sales grow, but this is not disclosed either.
Okay. Perfect. My last question on capital allocation, whether you see your strong cash position as firepower mostly to accelerate internal R&D or whether you are seeing any opportunities for in-licensing or M&A. Thanks.
Yeah. Both. I want to remark in 2021 we generate cash, okay? This is important to know. In any case, our resources was designated and won for to push our pipeline. I said before in 2022 we have at least four phase III ongoing. Apart from the phase II, another candidate will join the clinical trials. We continue to work an important project for licensing the new drug for our sales force. It's not we don't say never, what will be the tool to finance this potential licensing, okay? I want to say that. What is important to remark is that these financial resources that, repeat, in 2021 we generate cash, we will ensure the future developments for the company and for the R&D of the candidates and new indications.
Okay. Perfect. Thank you very much.
Thank you, Álvaro.
Thank you. As a reminder, to ask any further question, please press star followed by number one on your telephone keypads now. The next question comes from Joseph Hedden from Rx Securities. Please, Joseph, your line is now open.
Good afternoon, and thanks for taking my questions. Congrats on a strong set of numbers. A lot has been answered already actually. I just wondered if I could get an update on what's happening with the mesothelioma program. It seems to be quiet on that front.
Well, yeah, please. Mesothelioma trial is in combination with immunotherapy. We are today. The protocol is finished, the CRO selected, the centers are selected too, and we are very close to finish an agreement with an important pharmaceutical company. The immunotherapy from this important company in order to start this pivotal trial. The trial we will compare Zepzelca plus immunotherapy against the standard of care. The trial will be performed in more than 100 hospitals in Europe and USA. The primary endpoint is overall survival, and we expect it to start first half of this year.
Okay. First half. Great. Perhaps if I can ask on Yondelis, just what your expectations for the pricing dynamic going into this year. I mean, there's obviously been successive rounds of cuts have affected Yondelis. While it seems as if that market share is stable or, if not, growing, just wanna get your thoughts on what Yondelis could be doing this year.
Well, I don't have a crystal ball because in Europe the market access, you know, is not easy and the countries, more than the South European countries, have more pressure from the pricing, discounts, delays, et cetera. In 2022, in general, we don't expect more pricing pressures in that regard. We suffered in 2021, in 2020, in 2019. As from the news we have today, we don't have any advice about this potential reductions or more discounts regarding the prices of Yondelis. It's good, I want to use your questions. It's very interesting, when we launched Yondelis in 2007 for soft tissue sarcoma, the average number of cycles that hit the patient was four or five, okay?
Today, the average number of cycles the patient will receive is nine. Obviously, the awareness of the product, they use the product for the doctors, et cetera. This is good for the patients, for the doctors, and for PharmaMar, obviously. The patients maintain on this drug more and more time without progression. This is important impact in the sales, as you can see. We are the leader of the market in second line. We are far ahead of our competitors. Our competitors after Yondelis is one drug, say pazopanib and Votrient and some generics like GemTax.
Okay, thanks very much.
Thank you. We currently have no further questions. We have one question from Christian Glennie from Stifel. Please, Christian, your line is now open.
Okay, thanks for taking the follow-up. I just wanted to clarify, again, on the financials, just the current outstanding, Jazz, milestones from the original deal, what's the current balance and, how is that likely to be recognized in, terms of number of years? Is it evenly spread over a number of years or how, is it gonna play out exclusive of the commercial milestone?
Yeah. Good try, Christian. We disclosed these $550 million , and what we have received is $25 million . That's what has been accrued from us. Yeah. From the total commercial milestone, you deduct that $25 million, and you have what is left.
Sorry. No, no. I'm just talking about the accounting of the original EUR 300 million amounts.
Oh, right.
From the original deal.
Yeah.
Uh.
Sorry. Sorry, Christian. Sorry.
We told you the amount that's still pending to recognize as income, about EUR 95 million. In next year, in next years, it depends on the time it takes us to accomplish our commitments regarding the agreement. Our calculation is that in 2022, around EUR 30 million could be recognized, but it depends on the accomplishment of commitment.
Okay. That's helpful. Maybe finally, on the dividend, obviously you increased that this year. How should we be modeling or expecting dividends over the next few years? Is that gonna be progressive? Is it gonna be similarly expected to-
Yeah.
Have some growth there or what?
Yeah. Yeah, as we said in previous years, the dividend will be decided by the board, or the board will decide to propose a dividend to the shareholders meeting on a yearly basis. That will depend very much, of course, on our, you know, investment needs in R&D and so forth. I mean, the priority of the company and the management is to cover all needs in investment in R&D, which is investment in the growth of the company. Once all that is planned, then they'll decide on the dividend on a yearly basis.
Okay, fair enough. Thank you. Taking the question.
Thank you.
Thank you. We currently have no further questions. I will hand over back to José Luis for the webcast questions.
Thank you, Juan. We have got a good number of questions on the platform. Quite a few of them have already been addressed. We have some repeated questions. What I'll try to do is address those ones who haven't been addressed. There's another good number of questions about our NEPTUNO. Just to remind what Luis just mentioned, there's been an update on the expected end of the trial, ClinicalTrials.gov. As Luis pointed out, that is our expectations. As he mentioned as well, that'll depend very much on the level of recruitment and the availability of patients. You know, as he said, this is an expectation.
In regards to an update on patients recruited on this trial, just to remind you that we do not update.
You know, recruitment in any of the trials. This is information that has not been disclosed. All that in regard to NEPTUNO. We have some other questions. For instance, Luis, we have questions about the trial with lurbinectedin in China, and what's the situation with our partner, and what will be the next steps.
Yeah, I explained before. In China, the phase I trial in Chinese patients was already finished. They received the same recommended dose that we use in basket trial. That is a good, very good news. Now they are in conversation with authorities for the next step. What we expected for China is a submission dossier for approval at the end 2022 or in 2023. This is important because China, you know, is a big country for small cell lung cancer because it's linked to the smokers. In China the incidence is much, much higher than in Europe. In any case, we have a partner, Luye Pharma, and he is in charge on all of these works.
Great. Since you mentioned China, we had some other questions about approvals in other countries. Again, these when they happen, we'll be announcing if there are approvals or registration in other countries. Let's move forward with other questions. Again, we had some questions about milestones. Milestones. This is in regard to potential milestones in case our partner, Jazz, will have a approval in first line. Is this already been agreed, Luis?
Yeah, it's included in the deal.
Okay. This is already been agreed. Let me see. Two more questions here. We have some questions about tivanisiran, our development with RNA interference. I think you've mentioned, but if you wanna repeat, you know, what's the pathway now. We have phase III-
Yeah.
Ongoing, but what's the next steps?
The current phase III is ongoing, and we expected to finalize the recruitment this year. This trial is a randomized trial for efficacy. The second trial for efficacy, we will start when we will finish the current clinical trial. In parallel, this year, we will start the randomized trial, the safety trial that is necessary for any submission to the EMA from the authority. It will be a randomized trial. The safety is the objective, and we will start this year too.
Okay.
Okay.
Another question about Sylentis.
Mm-hmm.
About SYL1801.
Yeah.
Which has a phase I ongoing and expected to finish this year. What's the situation on that?
This phase I trial, we've finished in December 2021. Now we are awaiting the results of this trial, and the phase II for this indication and with this drug will start this year. This is good news. I want to remind this phase I trial is to achieve a recommended dose and the safety lessons with this phase I with this drug.
All right. We have another question in regard to virology. This one goes, you know, other than COVID and plitidepsin, they're asking what other projects or we plan other projects or other, you know, studies in other viruses.
Yeah. Well, we never announced any news because today, in our labs, our scientists are working in order to discover new molecules. We have some good hints of activity with new molecules, and we'll be active against other different type virus than COVID-19. We expected to have more compounds in the near future to treat other different virus.
Okay.
Okay.
I think we've covered everything. Some other require a few more questions, but I'll repeat it. Again, to remind you that our partner, Jazz Pharmaceuticals, will release results later on today. So all those questions about their set, their sales and everything on their side, you'll find out today. I think we've covered more everything. Oh, just a final question here about our facilities in Madrid, the new works that we've done on a new facility.
Yeah.
They are asking if they are working already.
Yeah. In 2021, we have a new warehouse. We have 5x more capacity. We have more capacity of production and the new offices. All of these three investments are already functional, starting working.
All right. Thank you very much. No more questions. I'd like to thank you all for connecting today to our conference call. I would like to, you know, thank you all for joining us. For those who would like to meet with the management, we'll be participating in the forthcoming Needham Healthcare Conference next month. Prior to that, we'll be delighted to welcome you to our Key Opinion Leader event about small cell lung cancer that is scheduled for the 9th of March. We hope to see you there. Thank you again for joining, and we'll see you soon. Thank you very much.