Ladies and gentlemen, welcome to the Basilea Pharmaceutica Half Year Results 2023 conference call and live webcast. I am Alice, the conference call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to David Veitch, Chief Executive Officer. Please go ahead, sir.
Thank you. Hello, I'm David Veitch. I'd like to welcome you to our conference call and webcast, reviewing our financial results and key achievements for the first half year, 2023, as well as highlighting upcoming milestones. For further detailed information, please see the ad hoc announcement issued this morning and also our half year report. These documents are both available on our website at basilea.com. I would also like to mention that this call contains forward-looking statements. Joining me on our call today are Adesh Kaul, our Chief Financial Officer, and Dr. Marc Engelhardt, our Chief Medical Officer. I would like to start with a brief summary of our key achievements. Most recently, in early August, we submitted the new drug application or NDA to the U.S. Food and Drug Administration for our antibiotic, Zevtera.
Cresemba, our antifungal for invasive mold infections, has continued its commercial success in the first half of 2023. Its global in-market sales exceeded $393 million in the 12 months ending March 2023, which is a 14% increase year-on-year. Of note, after gaining approval in Japan in late 2022, our partner, Asahi Kasei Pharma, launched Cresemba in this commercially important market earlier this year. Our financial performance in the first six months of 2023 was very strong. Today, we reported a 57% year-on-year increase in Cresemba and Zevtera-related revenue. We're also very pleased to report an operating profit of 36.9 million Swiss francs, resulting in a significantly improved net profit of 31.9 million Swiss francs.
We concluded the first six months of the year with an increased cash and restricted cash position of Swiss francs 112.9 million. Our financial strength is also evidenced by the reduction of our net financial debt by more than Swiss francs 22 million to Swiss francs 38.1 million. With Cresemba and Zevtera, we have demonstrated our ability to take anti-infective drugs from research through clinical development to commercial success. As we continue to establish ourselves as a leading anti-infectives company, our strategic focus is to expand our pipeline with valuable assets. This will be achieved by advancing both our internal research programs and by in-licensing or acquiring promising compounds. I will now hand over to Adesh.
Thank you, David. I would like to start first with a short update on the commercial performance of Cresemba, a key driver of our strong set of financials. I will then highlight some of the key financial figures that we published today. I'd like to mention that all figures I refer to are in Swiss francs, unless specifically stated otherwise. On a global level, Cresemba 12-month sales continued to show double-digit growth with initial contributions from China, where our partner, Pfizer, launched in mid-2022. The overall positive trend through the first half of 2023 was demonstrated by multiple milestone payments triggered by Pfizer, related to achieving certain sales levels in Europe and the Asia, Pacific, and China regions. We see significant growth potential for the brand going forward.
Cresemba continues to gain market share in established markets and is the biggest selling product by value for the treatment of invasive mold infections in the US. We also expect to see increasing contributions from China and also Japan, where Cresemba was launched only this year. These two countries alone represent approximately 25% of the global market opportunity for Cresemba. The commercial success of Cresemba is reflected in our strong financial results for the first half year, 2023. Cresemba and Zevtera-related revenue amounted to CHF 80.5 million, which is a 57% increase year on year. Included in this number is royalty income, which increased by 27% year- on- year to CHF 36.7 million, directly reflecting the continued growth of Cresemba in-market sales in the key territories. Total revenue increased by 47% to CHF 84.9 million.
Total cost and operating expenses amounted to CHF 48 million, with operating expenses decreasing by 28% year-on-year, reflecting the successful focusing of our business on anti-infectives and the completion of the ceftobiprole phase III program. This resulted in an operating profit of CHF 36.9 million and a net profit of CHF 31.8 million for the half year versus losses in the previous year period. I would now like to provide a little bit more context on our Cresemba and Zevtera-related revenue. Royalties have been increasing year-on-year since 2015, reflecting the in-market sales performance of Cresemba in the major territories.... Milestone payments have been more volatile. We have been recording milestone payments every year since 2017, with generally larger amounts since 2021, as compared to the period before 2021.
Product revenues to our distribution partners, as well as certain deliveries to Pfizer, are also variable, as deliveries happen in bulk and depend on the manufacturing schedules. However, the general trend for product revenue over time is as well reflecting the increasing demand for our brands across the world. If you look closer at 2023, you can see that we expect continued growth in royalty income in the second half of the year, in spite of the unfavorable US dollar, Swiss franc exchange rate trend. We also expect a significant increase in product revenue, with the second half of 2023 expected to account for around 65% of total full-year product revenue. Revenue from milestone payments is largely de-risked for 2023, as the majority of milestone events expected for the year have already occurred in the first half of 2023.
The increase in cash flow contributions from our marketed drugs has been driving the consistent improvement of our net cash used for operating activities over the past years. Supported by the factors just discussed, we became cash flow positive in 2022 and have been able to increase cash flows from operating activities to CHF 21.9 million in the first half of 2023. In the first half of 2023, we have used our positive operating cash flow to start repaying our senior secured loan as planned. We have repaid CHF 18.4 million of our loan, which is around 25% of the initial CHF 75 million. We are planning to repay a further 25% of the loan in the second half of 2023, and intend to have it fully repaid by September 2024.
This would mean that the only remaining debt as of the end of 2024 would be our $97 million convertible bonds, which are going to mature in mid-2027. Based on our strong financial performance and prospects, we're increasing our guidance for the full year, 2023. Cresemba and Zevtera-related revenue is expected to increase more than 20% to $147 million-$150 million, with a continued double-digit growth in Cresemba royalties to approximately $76 million and $33 million-$34 million in milestone payments, of which 90% have already been secured in the first half of 2023. Total revenue is expected to amount to $157 million-$160 million, taking into consideration that we expect lower reimbursements from BARDA now that the Ceftobiprole phase III program is nearing completion.
Cost of products sold are expected to increase to CHF 25 million-CHF 27 million, and operating expenses are expected to decrease to around CHF 80 million. Bringing all this together, we expect an even more significant increase in operating profit than previously guided for, of now CHF 50 million-CHF 55 million, and a net profit of CHF 41 million-CHF 46 million. Our guidance excludes the potential impact from any in-licensing or acquisitions. In any event, our healthy financial situation allows us to build and progress a strong R&D pipeline to support the long-term growth of Basilea. I will now hand over to Marc for the portfolio update.
Thank you, Adesh. Let me start with Zevtera and advanced generation cephalosporin for the treatment of bacterial infections, for which we've just submitted an NDA to the U.S. FDA. Based on its pharmacology and antibacterial spectrum, the data from various phase III studies and the post-marketing experience, we consider Ceftobiprole an excellent treatment option in difficult-to-treat patients presenting to the hospital with severe infections when the clinicians suspect involvement from Gram-positive pathogens, including methicillin-resistant Staphylococcus aureus or MRSA. For these patients, Ceftobiprole provides a single-agent, first-line bactericidal treatment option with proven efficacy in SAB, ABSSSI, and CABP. The U.S. is the most important market for commercializing branded hospital antibiotics and is estimated to account for up to 90% of global sales for anti-MRSA treatments, as shown by daptomycin and ceftaroline.
Considering the need for anti-MRSA antibiotics in the US, this is why one of our key priorities is to gain access to the US market for ceftobiprole. Our NDA submission in early August 2023 underpins this strategy. With the NDA, we are seeking approval for SAB, ABSSSI, and CABP based on three successfully completed Phase III studies in these indications. The SAB and ABSSSI studies were supported by and received significant funding from BARDA. Following the NDA submission, the FDA will decide within 60 days whether the review process can start. ceftobiprole has QIDP status, which provides for a priority review of six months, compared to 10 months on the standard review. Therefore, we expect the FDA to decide on the NDA within eight months after submission, which means in the second quarter of 2024.
As the QIDP status also provides for additional market exclusivity, a 10-year market exclusivity period would start at the date of approval. In line with our business model, we plan to commercialize ceftobiprole in the US with a partner, and intend to enter into such a partnership prior to the FDA decision on the NDA. If ceftobiprole was approved in the US, we would envisage to lead the launch with SAB, because we believe that SAB is the indication with the highest medical need, supported by the data from the ERADICATE study, which was the largest randomized study performed in SAB for registration purposes of a new antibiotic.
Based on the profile of ceftobiprole and the available data from clinical study in skin infections and pneumonia, we anticipate a broadening of the use into other disease areas over time, and ceftobiprole being used in these indications whenever Staphylococcus aureus, and especially MRSA, are important causes of pathogens, or when the Gram-negative coverage provided by ceftobiprole is also desirable. Let's move to Cresemba. In the EU, market exclusivity is until October 2025 and can be extended by two years based on Cresemba's orphan drug designation, the completion of a defined pediatric program, and the subsequent European Commission decision.
The pediatric clinical study program with Cresemba included two clinical studies, and this program was successfully completed, so we are on track with the pediatric label submission to EMA in the second half of 2023, and we expect the pediatric labeling would be obtained in 2024. The successful completion of this procedure will trigger the market exclusivity extension until October 2027 in the EU. In the U.S., based on the QIDP and orphan drug designation, the current market exclusivity is until March 2027. A pediatric labeling by the FDA would extend the market exclusivity by six months to September 2027.
To support the utility of Cresemba in the pediatric population, we have also developed a smaller capsule. We are convinced that Cresemba, if approved, will address important medical needs in the treatment of invasive aspergillosis and mucormycosis in children. I will now turn over to David.
Thank you, Marc. Before we open the floor for questions, let me close with a quick summary and an outlook. We reported very strong financial results for the first half of 2023, where we continued to significantly increase our revenues and reduced our operating expenses, leading to a significantly increased operating profit as well as net profit compared to 2022. With the NDA submission, we are also in parallel, progressing discussions with potential partners for the commercialization of Zevtera in the US, which we intend to execute prior to the FDA's decision. While partnerships for commercialization are one part of our business model, complementing our portfolio by in-licensing or acquiring further anti-infective assets is key for us, too, in order to build and progress a strong R&D portfolio.
When looking at potential candidates, we are focused on antifungal and antibacterial assets from late-stage preclinical research to the end of phase II. We put a strong focus on innovation and differentiation, but also importantly, consider commercial viability as a key factor, and whether assets could benefit from the existing push incentives and potential new pull incentives, which are currently being implemented or in progress. We believe with our strong track record, our expertise, and our financial strength, we are the partner of choice when it comes to taking anti-infective drugs from research through development to the market. Thank you for your attention, and we'll now open the line to your questions.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on the touchtone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets when asking a question. Only three questions might be asked in a row, then the line will be open to others. You can get back in line again for any follow-up questions. Anyone who has a question may press star and one at this time. Our first question comes from the line of Louise Chen with Cantor. Please go ahead.
Hi, congratulations on the quarter, and thank you for taking my questions here. Wanted to ask you a few. First, where do you stand on a partner for ceftobiprole in the US market, and who's the ideal partner for you? Do you think we might hear an announcement before the end of the year, or more likely in 2024? How do you think about expanding your product portfolio? I know you addressed a little bit, but maybe a little bit more color on where you see the best opportunities. Lastly, any important cash milestone payments that we should be focusing on in the next 12 months that we should be modeling into our financial model? Thank you.
Yeah, tha- thanks, Louise. Very good questions. Actually, Adesh, do you want to take, first of all, the where we are with the partnering for the U.S. for ceftobiprole?
Yeah. Hi, Louise Chen. Thanks a lot for your question. As, as you are aware, we have been actually in discussions with potential partners for quite some time. Given that, with that we have now clear timelines based on submission that we have done, we're getting now into I would say, the decisive phase of our partnering. Hence, we are now looking at getting to a point where we will see which of the partners eventually align, or potential partners align best with our vision for the product. With the goal, as you indicated, to have actually a partner signed on prior to the regulatory decision, next year.
... Your second part of the question was about the ideal partner or the set of partners that we're discussing with. And in essence, I think you could more or less say there are three buckets or three types of partners or potential partners we are talking to. First of all, more or less the obvious candidates, where you say, companies that are already marketing hospital antibiotics. Those companies would have synergies with, with, with their existing infrastructure and would benefit from that, from those synergies. Secondly, there are also companies that have already an existing hospital sales infrastructure, but that are looking at expanding their business to additional specialties in this area.
Thirdly, there are partners that, or potential partners that may not have an existing sales infrastructure in this specific area, but are interested from a strategic perspective to enter this space as they see significant potential in an area of high unmet medical need going forward. These three types of potential partners, and as I said previously, in the course of our discussions, we'll have to see where our vision for the product aligns best with the vision of the parties participating in the partnering process.
Let me take the question about expanding the portfolio to give you a little bit more color. I mean, Louise, from our perspective, we see and we're looking at, and I alluded to this in the words earlier, you know, we're looking at antibacterials, antifungals. We're not particularly driven by necessarily traditional versus non-traditional approaches, so both are open to us. We're looking at assets from the late preclinical to the end of phase two, across both those areas. As I said, what our key thing is about, can we see a way to differentiate the product, and can we see a way for the product to generate meaningful commercial returns? They're sort of some of the key criteria we use when we assess assets.
The final thing to say is, and we said this earlier in the year, we are actually, you know, confident enough to say, repeat again, that we hope to be able to show execution of such transactions in 2023, as well as obviously on an ongoing basis. Maybe your, your last question was about cash milestones coming. Adesh, do you want to take that?
Yep, absolutely. For this year, as we have indicated in our guidance, in essence, we believe that we could achieve eventually milestones in the range of CHF 33 million-CHF 34 million. As you've seen at the half year, we already reported CHF 30.6 million. In essence, milestone events for the second half of the year are quite limited, but adequately, as we have already achieved most of the goals. For going forward, it's difficult to really say when and to which amount we would actually be achieving milestones, but what I would like to point you to is that in the last few years, if you just take an average, we have been on average, recording CHF 30 million-CHF 35 million in annual milestone payments.
We have actually no reason, in general terms, to believe that going forward, that that's going to be fundamentally different.
Hopefully that answers your questions, Louise.
Thank you. Yes, it does. Thank you very much.
The next question comes from the line of Brian White with Cowen Inc.. Please go ahead.
Yes, thank you. Good afternoon, and thanks for taking my questions. I've a financial question to begin with, and that's really about your Cresemba, and if you have any insights that you can share with us regarding its performance, post-launch in key new markets such as China and Japan. You're back to the kind of partnering activities. I guess more of a general question about, you know, have you been pleasantly surprised about the quality of potential in licensing opportunities? I guess finally, just thinking about your ability to secure any of these programs. Is it really just a financial transaction, do you think? Or does Basilea have more to offer potential partners to secure these, these, these contracts, do you think? Thank you.
Yeah. Thanks, Brian. Just let me, let me attack the, the question about the, the Cresemba. I mean, what, what I would say is, obviously, we haven't reported on the specific China and Japan, but, but, data. But what we, what we can clearly show is globally, as we alluded to in, in our words a moment ago, you know, Cresemba from a sort of in-market perspective, is still nicely double digit. Growing as a compound, it's almost $400 million of global sales. What I would refer you to, which is sort of... is public information from, from Astellas recently, is that their, their six months of net sales in the first six months of this year versus the first six months of last year, was, was in excess of 20% you know, year-on-year growth.
Even in our, in our most mature market, this is a, this is the, the volume market share that you can gain with this product year, year, after year, after year. You know, that gives us the confidence to believe that this should continue to grow until, you know, peaking in, in the 2027 period. China and Japan, all I would say there is that there's no reason we would believe that they should do, you know, perform worse than any other markets that have been launched. They occupy about, as, as Adesh Kaul said in his words a moment ago, they occupy about 25%, we believe, of the potential for Cresemba. That's really we're just clearly start. I mean, Japan's just launched in this half year. China-
Yeah.
only launched last year. You know, we, we see all the signs pointing towards, you know, the, the, the analyst's expectations for, for this compound have peak year sales of sort of $600 million-$800 million range. We see no reason today why, why that's not achievable, but that, that, sort of, answers our view, I think, of the Cresemba point. In terms of the in-license opportunities and the quality of the assets that, that we're looking at, I mean, Adesh or Mark, do you want to comment on, on, on that? Because it, it clearly it's not from us, it's not like a... When we apply our criteria, it's not a massive volume game in terms of the number of assets in antibacterials and antifungals, but clearly there are assets that we are attracted to.
Maybe, maybe Marc and, and Adesh, you want to comment?
Yeah, I, I, I would completely agree. We, we see several antifungal and also antibacterial compounds and programs that are clinical stage or late preclinical, innovative, addressing unmet medical needs and have the potential of being commercially viable and attractive. I would clearly say that the quality of potential in-licensing opportunities is good. I think your other question was whether this is a, you know, financial consideration only. From our experience, what partners are looking for is, of course, has a financial component, but also has a component on reaching out to a development partner that has the knowledge and experience, the track record, and the infrastructure to deliver on these assets.
We believe that we are seen by many of the partners we've been speaking with, and we're speaking with, as such a partner.
Yeah, the, the only thing I would add is to build on something that Marc, Marc said. I think financials or financial structure is only really a challenge if we're, we're in discussions with parties that are looking for an exit, in essence. A lot of, of our parties are looking similar as we do for Zevtera, over the lifetime of an asset, and then, of course, it's the ability and the commitment that you're bringing to maximize the value of that. I think that's, that's basically where we can, we can truly leverage our, our experience and track record.
Okay, that's great. Thanks very much.
Thanks, Brian.
The next question comes from the line of Soo Romanoff with Edison. Please go ahead.
Thank you for taking my calls. A lot of my calls or my questions have already been answered, but it was nice to see the Zevtera NDA submissions. Could you give us an idea of the distribution model, and if it's gonna be similar to the Cresemba approach?
Yes, sure. What... Adesh, do you want to take that in terms of-
Yeah.
because that is our thinking at the moment.
Yeah, absolutely. Thanks, Soo. In essence, we have, we have successfully managed, as you know, licensing and distribution models for Zevtera. We would be open for both. In general, I think the way that we think about it is really that we would maintain responsibility through our CMOs for global supply, just given our existing partnerships outside of the U.S. as well, and the economies of scale with respect to manufacturing. Probably we'd find a structure where we would keep on supplying a partner, and we would then be participating through some royalty structure in the actual, in the actual sales.
Soo,
Great.
Did that answer your question?
Thank you so much. Yes, that was great. Thank you. Great quarter.
Okay. Yeah.
Thank you.
Thanks, Soo.
The next question comes from the line of Ram Selvaraju with H.C. Wainwright. Please go ahead.
Hi, thanks for taking my questions. Just a couple of quick big-picture ones. In terms of, you know, what you would expect to accomplish potentially on the in-licensing or asset acquisition front, can you talk through what you expect to do with those assets, assuming that they are successfully in-licensed and developed successfully, and if you expect them to effectively fit into the model that you've used for Zevtera and Cresemba? Also, you know, as an adjunct to that, whether you expect to ever establish your own commercial infrastructure in the U.S., and if so, what criteria might determine that? Thank you.
... Yeah. No, Ram, Ram, thank you. Good question. I'll make a comment, and then I'll also ask Adesh to jump in. I mean, I think in essence, we feel that for this stage in our evolution as a company, the model we have, where we, where we in-license compounds, late research through to the end of phase 2, as Mark said, then develop them with the capabilities that we've got, all the cross-functional capabilities to take a compound from research all the way to the market, but then look for a partner to commercialize, whether, you know, the many different players then come into the frame in terms of more big pharma that are willing to commercialize, but don't do the research and development themselves. We, we feel that there's lots of sort of small companies doing innovative research.
There's lots of big companies doing commercialization, but, but in the anti-infective space, we fill this sort of gap, really. We think that in the value chain and we think it's a, it, it works for us as a model. I think in terms of would we ever one day in, in selected markets like the U.S., you know, commercialize? I think, you know, we, we probably... You can never, you can never say never, but, but you need-- you do need, I think, critical mass. So clearly, that's obviously one reason why now we're looking for, and discussing with partners for ceftobiprole in the U.S., because of the fact that we haven't got a, a portfolio of compounds. Cresemba is successfully with Astellas, so we, so we only have, Zevtera.
So actually our model for the foreseeable future, I think makes incredible sense to us. We think it's a very effective model. Adesh, would you add anything?
The, the only thing is that we would, of course, also take into consideration just financial considerations, in the sense that if there are any new pull incentives and so on, that would make it, for instance, more attractive to just commercialize or lead with a single asset, for instance. That's certainly something that we would take into consideration. It's, it's, more or less, like building on what David was saying. We're not shying away from commercializing, but not for the sake of commercializing ourselves, but if it makes sense from a value creation perspective.
Does that answer your question?
Thank you very much.
Yeah.
As a reminder, if you wish to register for a question, please press star and one on your telephone. Star followed by one. The next question comes from the line of Dan Akschuti with Pareto Securities. Please go ahead.
Hello, everyone, and congrats for the stellar results and continuing to positively surprise the market. One question I would have is on, on the Zevtera market in general, if you have any kind of insights from, let's say, South America, where it's already commercialized, that you, I think would also apply to the U.S., that kind of help you gauge the potential as well in the U.S. If you could mention some details here, that would be appreciated. Thank you.
Yeah. No, thanks, Dan. I'll, I'll make a, a comment, and then I'll hand over to, to, to, to Marc. I think there's one important sort of aspect that we found actually, when way back in 2014, 2015, when we were commercializing ourself in Europe, the Zevtera, we found that one of the key aspects of the drug, which is why we focus on it, I think in Mark's comments earlier, is this MRSA activity. One of the key reasons why people use the drug is it, it's, it's a, it's a broad-spectrum antibiotic, but it, but it has usefulness against MRSA, which obviously limits the number of competitors that also are effective against MRSA. That's why we focus a lot on, on that in terms of delineating the potential of the product.
The other comment I would just say is that whilst MRSA can occur in many geographies of the world, it's very different, the prevalence. The US is significantly, of the developed markets of the world, is significantly the biggest market, which is why Marc said earlier, up to 90% of the potential for the compound is in the US. The US has a big sort of commercial potential due to the MRSA prevalence versus other markets of the world. Then the other thing, which is also very different, and Marc can come back to this, but is the indication that we would have.
The indication in the U.S., to remind you, is SAB and then skin, and then community-acquired pneumonia, if we were to clearly get a positive decision in Q2 next year. That's different. The SAB indication has not been. The study has only just been completed. Actually, we haven't got that same indication. This is the indication, and maybe this is the segue to Marc to comment, that we believe is the sort of, is the real sort of value-creating indication. Maybe on that note, I'll just pass over to Marc.
This is also what comes out, you know, on the discussions we have with experts in this field. I think they clearly prioritize on the SAB indication. It's a complicated infection with a high medical need, only a few drugs that are really used for MRSA, SAB. I think clearly, ceftobiprole is a, a product for complicated hospital infections. And I think that in the US, the strategy would clearly be to, you know, to build on, on the SAB data, and then, as we have broader indications with ABSSSI and community-acquired pneumonia, there is. If it's approved, of course, then there is a potential, you know, to just have more, a wider scope, going along. I think the, the medical need and the strength of the data are strongest for the SAB indication.
... Does that answer your question?
Thank you very much for your- Yes, thank you. Just to follow up a bit on, on the antibiotics. As you know, there's a bit of a shortage, Pfizer warned U.S. doctors in June about that. Is that, something you're considering in terms of, manufacturing? Is it gonna be maybe even an opportunity for you? Or, just do you see any risks, for, like, manufacturing slots, at your, partner site? Or, is there any, any implications that you could share with us?
Yeah. Well, maybe I take that. I think from our perspective, I think we have basically the capacity that we need. We're not concerned from that perspective. It's not that our manufacturers would sort of reallocate the slots. When it comes to opportunity, I think the question is less from a manufacturing side. The question is basically, what is available in the market to treat this infection? If the shortage eventually concerns key MRSA drugs, that would probably be an opportunity for Zevtera, but that's really more the way that we are looking at it. It's not the shortage itself that creates an opportunity.
Okay, thank you. Yeah, that was everything for me. Bye.
Great. Thanks, Dan.
Once again, to ask a question, please press star and one on your telephone. Star followed by one. There are no more questions at this time. I would now like to turn the conference back over to David Veitch for any closing remarks.
Okay, thank you, very much for your interest, everyone, and, enjoy the rest of your day. Thank you very much.
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