Earnings Call: Q1 2020

May 13, 2020

Hello, everybody, and welcome to XPRAIN's phone conference in relation to the interim report of the first quarter twenty twenty. My name is Martin. I am the CEO of Xbrain, and I will be presenting the most recent events during this past quarter. And with me, I also have Susanna Helgesen, our CFO, who will go through some of the financial highlights of the quarter. And there will be a Q and A session towards the end, and there's a possibility to write questions in the chat essentially in the system, and we will answer them as good as possible at the end of the conference. Okay. So first of all, this quarter has for us as for many others out there been dictated a lot by the COVID-nineteen pandemic. And let me first spend some time on talking through how that has impacted us and what kind of response we have taken with regards to COVID-nineteen. If we start with our internal development activities, we have as many other companies gone towards a model of working from home essentially for the ones who can do it. But as many of you know, we also have quite a lot of laboratory activities, which is impossible to conduct at home. So we kind of follow the policy where the ones who can work from home shall work from home, but laboratory activities are being performed at our laboratory space here in Stockholm. And I think that from a development perspective, we've managed it pretty well, and we haven't faced significant delays in our development programs concerning what we're doing internally here related to COVID-nineteen. Then if we kind of expand the scope and look beyond our internal activities to what we do together with certain development partners. From a manufacturing perspective, we are also producing continuously batches of exducan at commercial scale together with our respective CMOs in preparation for filing. These batches will produce a part of the comparative package, which goes into the ultimate regulatory file. And this has been continuing without delays, I would say, despite the COVID-nineteen pandemic. All our CMOs have taken, I would be saying, adequate measures in relation to the pandemic, and they have been able to uphold their operations and been able to stick to the manufacturing schedules that we had set out together with them before the COVID-nineteen pandemic hit us. So I think also from that perspective, we've been able to manage. And then, of course, it comes to our global Phase III trial EXPLORER, the equivalence trial we are conducting with ranibizumab biosimilar exocrine. And here, we sent out an update earlier, a month ago or so, in relation to the impact on EXPLORER trial due to COVID-nineteen. And I think on the positive end, we have been able to continue recruitment of new patients into this study despite the current situation. And I think we've been fortunate with regards to, on the one hand, the geographical mix and on the other hand, the fact that over 50% of the clinics that are participating in the trial are independent eye clinics. And therefore, this is by the patients to these clinics are attached to a more limited risk of contamination. And also the fact that this is a treatment of a very severe eye disease, which is not treated leads to blindness. And I think we've seen a very high willingness amongst the patient population to continue this kind of a treatment and participating in a clinical trial like EXPLORER does not lead to significantly more visits at the eye clinic than if you were to go with standard treatment. So this has also contributed to a high willingness amongst the patients to participate in a trial like this. But we've seen a reduction in the recruitment. And I think we have a more detailed patient this a little bit later. So that's the kind of the impact so far with regards to COVID-nineteen pandemic. And I will be saying that main impact actually has been related to the slowdown in recruitment in EXPLORER trial. And but if you look at what that means for us, we still believe that we shall be able to finalize the recruitment of this trial third quarter this year, which shall take us to submission of marketing authorization application in Europe and The U. S. Well in time to be able to get the approval at the time of patent expiration of the originated product in Europe, which is July 2022. So I think we still are on track to watch an approval ahead of the patent expiration of the originator. Then we have advanced our preclinical portfolio. Mainly, we're putting efforts into the biosimilars to Xynsia and Opdivo, Xynsia and XD Vein, as we call these programs or products. And this is moving along very nicely in preclinical mode. And we are also doing some preparations with regards to taking these products into the clinic. We have started to design the clinical programs and we are going to engage with the regulatory authorities later this year, particularly on ex our Imsane program, the Zimsa biosimilar to discuss and ultimately agree upon the sign of the clinical trial that we believe is going to be required to get the marketing authorization of this product. So very exciting development on this front and particularly, Cimzia Biosimilar, we are very excited about this program as also the originated product continues to grow, recorded €1,700,000,000 sales last year, growing quite strongly. And we see no other biosimilar programs actually targeting this product. So I think this can become a very good position for us and a very good program, which we can make something successfully from a commercial perspective. And then coming to the cash position, we came out of the quarter with 84,000,000 in cash position. And as you also highlight here, and I'm going to talk more about that on the next page, the Bausch and Lomb deal we did a couple of weeks ago involves an upfront payment, which, of course, is coming after the closure of the first quarter. So this is not accounted for, but a payment that is shared between us and Starda, and it's coming after the end of the first quarter, contributing in a good way to our capital. Okay. So that was kind of highlights. If I move to next page. So let me then spend some time on the recently entered partnership with Belgium Longbussen happened after the end of first quarter, so a few weeks ago only. We're very happy to have closed this deal together with Starda with Bausch and Lomb. And as many of you probably know, Bausch and Lomb is eye care product and pharmaceutical specialist founded in The U. S. Some 150 ago and will have been specialized in eye care since then. It's a very strong brand name across the globe, particularly probably in North America. Currently, Bausch and Lombard 2019 recorded sales of US4.7 billion dollars as a very sizable company. And also what we believe is very beneficial when it comes to sales and marketing of Exlucane is that this is a company specialized in eye care and eye pharmaceuticals. And they have, of course, a sales force, which is established in North America. They have relationships with approximately 2,500 eye clinics in The U. S. That currently are prescribing Lucentis and the other VEGF alpha inhibitors for ophthalmic use. And so I think this is a perfect plug and play situation for us where they were able to leverage that sales force, those relationships and their brand to maximize the commercial potential of Exlucane. And I think Exlucane is a product that fits very well into their portfolio. So we're very happy of this partnership. And the partnership in such, as we communicated, involves a license payment. It was an upfront payment of a mid single digit million dollar payment, which then according to the co development agreement with Starda is then shared fifty-fifty between Starda and Xtrain. And I think we're a little bit reluctant to share further details with regards to the exact terms in this agreement, but of course, it then involves milestone payments, which are due upon regulatory approval in The U. S. And ultimate launch in The U. S. Of Exlucane. And then there is a profit split agreed upon. And all proceeds coming from large and long commercialization of Exlutane in North America are then shared fifty-fifty between Exprin and Starda. So this is a very good partnership. And this in relation to our previously communicated target with regards to income generation from ex Lucan, it only strengthens our strong belief that we shall be able to generate €100,000,000 at least from ex Leukane in income, so income after deduction of production costs and related profit sharing with our partners three years after launch. So EUR 100,000,000, three years after launch in net income generated to Expert. And this is our strong firm belief that we shall be able to do and it has only strengthened with the partnership with Bausch and Lomb. And also, I think that this deal shall bring further comfort to all of you out there with regards to the quality of this program. We're fully confident that all of us working with this day to day within Xtrain. But if you look at it from the outside, now you've had two large pharmaceutical companies in Stauden, Bausch and Lomb doing their detailed due diligence on this program and decided affirmative entering into partnerships with us. And in doing such a deal, you really turn on every stone all the way from the clinical program to the manufacturing of the product and is also included from Bausch and Lomb side, a visit of our respective contract manufacturers over here in Europe. So I think this also shall bring further comfort to all of you out there with regards to the high quality of the program of ex fuel chain. Okay, excellent. So let me move from there to Page five. So this is going a little bit more into detail on the Phase III trial, EXPLORER, what I talked about here initially with regards to the COVID-nineteen impact on the recruitment. So you can see here on this graph on the one hand that the cumulative recruited patients into this trial, as many of you know, we're targeting five eighty patients. And we had by the May three eighty one recruited into EXPLORER. Now if we would have followed the recruitment rate we observed during the first quarter this year throughout up until summer, we would have finalized recruitment in June. But there has been a reduction in the recruitment rate due to COVID-nineteen. And roughly reduced by fifty percent compared to pre COVID-nineteen situation. But we're still confident that despite this situation, we shall be able to finalize the recruitment during Q3 this year. As I said initially, I think we're fortunate with regards to the geographical mix, where quite a significant portion of the patients are recruited in regions, not so severely impacted by COVID-nineteen pandemic. And also that almost 50% of the clinics are separate eye clinics, so separate from hospitals, which facilitates for patient perspective in terms of fear of contamination in connection with the visit to eye clinic. And then also that this is a very severe eye disease, which leads to very high willingness amongst the patients to continue this kind of treatment and also initiate this treatment in case you're diagnosed with the disease. And then it's of course hard to predict how the COVID-nineteen pandemic situation will unravel globally and particularly in these regions. We see from where we're sitting signs of reduced restrictions in quite a few of these countries in which we are recruiting, which we believe will makes us going back sort of towards the recruitment rates we had before the pandemic or somewhere in between there. So we're pretty confident at least to be able to finalize the recruitment Q3 this year. Okay. If I go to next page, what that then means for our overall time line for ex LUCANE is that we shall be able to communicate on top line data first quarter twenty twenty one from the study and being able to file to the regulatory authorities in Europe and The U. S. And we do that on the back of six months treatment data from all patients in EXPLORER. And then counting on the twelve months, the regulatory process takes us to approval ahead of the patent expiration of the originated product, which is in Europe, which is July 2022. And also, think that this timeline on our lead product, Exelucane, also provides a healthy list of triggers for the share with last patient in into the trial, top line data, submission of the MAA and BLA, respectively, and then ultimately, of course, approval. So I think we have quite a few significant triggers for the share in our continued development of exleucane towards the coming twelve months and beyond. Okay. So that was a brief update on the development and operations. So with that said, I leave over to Susanna to go through some of the details on the financial side. Thank you, Martin. Let's move over to Page seven and the update on the Q1 financials. In the financial summary for Q1, you can see that Expern did not report any revenue. R and D expenses amounted to SEK 44,600,000.0, which is an increase compared to the same period last year. This is primarily due to the ongoing EXPLORER study, regulatory preparation for filing as establishment of manufacturing and supply chain. Also, are announcing our R and D efforts for our preclinical biosimilars. Out of total operating expenses, R and D represented 86%. Operating loss amounted to SEK 48,700,000.0. The greater loss compared to last year is primarily due to increased R and D expenses. EBITDA amounted to minus SEK 47,000,000 and the net result amounted to minus SEK 48,900,000.0. Experian ended the quarter with SEK 84,500,000.0 in cash and the equity ratio amounted to 45% and has decreased since the beginning of the quarter due to losses for the period. Earnings per share amounted to minus SEK 3.17. Let's move forward to next page to look more in details on the financials. On page eight, you'll see a table to the left for the total income quarter by quarter. And here we have added both revenue and operational income. In Q1, we had a total income of 4,900,000.0 that is primarily consists of exchange rate gains from derivatives and operational receivables and payables. If we look at the net result to the right, it amounted to minus 48,900,000.0. The loss has increased since last year, which is primarily due to increased R and D spending, but also increased G and A spending. Let's move forward to Page nine. Looking at SG and A in the table to the left, we had total expenses of SEK 7,000,000 in Q1, which has more than doubled since last year. The increase can be explained by extent being a growing company and the large part of the increase is related to transactions. Some of the expenses during the last year has been related to transaction, capital raise and main market listing. And we have adjusted for those non recurring in the adjusted SG and A. If we move further to R and D expenses to the right, we have expenses amounting to 44,600,000.0 in Q1. This is an increase from the same period last year. As I mentioned earlier, this is primarily due to the ongoing EXPLORER study, regulatory preparation for filing as well as establishment of manufacturing and supply chain. We have also increased our R and D spending for our preclinical biosimilars that amounted to SEK 7,000,000 compared to just SEK $05,000,000 for the same period last year. In the bar to the right, we have presented the R and D expenses for biosimilars, which is everything except Sveratide. Let's move forward to Page 10. In Q1, we had cash flow from current operations before changes in working capital of minus million. Moving further down to changes in working capital, we did not have any changes in inventory as this has been written down to zero. For changes in trade and other receivables and payables, we usually have quite big fluctuations due to the re invoicing structure that we have with our partner, SADA, and this was also the case this quarter. Operating cash flow amounted to minus SEK 83,300,000.0. Cash flow from investing activities amounted to SEK 0. Cash flow from financing activities amounted to minus 800,000.0 and refers primarily to amortization of these liabilities. Total cash flow for Q1 amounted to minus SEK 84,500,000.0. Let's move forward to Page 11. On the left, you can see the variations in operating cash flow quarter by quarter. And for Q1, the amount was negative million. Looking at the cash balance to the right, we ended the quarter with a cash position of 84,400,000.0. Cash balance is decreased since year end due to losses and negative changes in working capital. Let's move forward to Page 12. Looking at summarized figure on the balance sheet in blue, you can see that it has decreased to 311,400,000.0 compared to year end in orange where it amounted to 338,900,000.0 Swedish crowns. Starting off on the asset side, we had non current assets of 94,300,000.0 Swedish crowns, which is in line with the year end. The changes here are smaller investments leases as well as currency related changes. We had current assets of SEK132.6 million in Q1. And out of these, SEK42.9 million is a receivable from our partner Stada that was later received in early April. But this one pretty much explains the difference compared to the year end. In current assets, we also find purchase and packaging costs of reference drug that are used in the EXPLORER study amounting to SEK45.1 million. Prepayments to our CRO for the clinical trial amounted to SEK17.9 million. Cash amounted to SEK 84,500,000.0, a decrease due to operational spending. Moving over to the other side of the balance sheet, we have shareholders' equity amounted to 139,500,000.0 Swedish crowns. And also here a decrease is due to losses for the period. Noncurrent liabilities amounted to 15,100,000.0 Swedish crowns, of SEK 4,400,000.0 related to status part of the long term deposits to our CRO. Non current leases amounted to SEK 5,600,000.0. Current liabilities amounted to SEK 156,800,000.0 and that includes deferred income and accrued expenses of SEK 108,700,000.0, whereof SEK 84,400,000.0 is deferred income from SADA. Furthermore, trade and payables amounted to SEK 43,700,000.0. And that was all on the financials. Back over to you, Martin. Thank you very much. So then I just wanted to finalize this conference with an overview of the investor conferences in which we're going to participate during the coming months. On the one hand, we will be participating at the ABG Life Science Day, which is due May 26 and the Red Eye Growth Day in June and then Pareto Securities Healthcare Conference in September. So these are the three upcoming Capital Markets Day or investor conferences in which we're going to participate. We were supposed to be participating in few more or less months or two, but they've been canceled due to the COVID-nineteen pandemic. But you can always reach out to us in case you have any questions. If you we can ask the questions at the end of this call, but going forward also. And please come and see us. I think that all of these conferences will be sent also as webcast. So you can also be seeing our presentations over the Internet. Okay. With that said, I want to thank everybody for listening in today's call. And I want to open up for potential questions. And as you can see now yeah. I was just going to say that if you somebody wants to ask a question, then please press star one on your telephone. At this point, we don't seem to have any questions over the phone, so please continue. Okay. In case no questions over the phone and we see no questions either that has been submitted to the system. So in case no questions, then I think we can conclude today's call. Thank you. That does conclude our conference for today. I want to thank you all for participating and you may now disconnect. Thank you.