Ladies and gentlemen, welcome to the Cosmo Pharmaceuticals Half Year Results 2020 conference call. I am Alice, the conference call operator. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to the management team of Cosmo Pharmaceuticals. Please go ahead, gentlemen.
Good morning, everyone. This is Alessandro Della Chà. Thanks for joining our call, and let me walk you through the introduction and the first half 2020 key events. As you might have seen from the press releases that we have released in the past days, we're very pleased to report a series of very good and positive developments that have happened to date. First of all, let us confirm that we are on track to return to operating profit for the financial year 2020, as already announced, as a result of the actions that we have taken in the last 18 months. To begin with the good news, the first one was the EMA's CHMP has adopted a positive opinion for Methylene Blue MMX.
This was good news that we have long been waiting for. I hope that this finally clears the fog in terms of what the company has actually been doing. It's important for me to stress that the documentation and the information that we have submitted to the EMA for the centralized registration was exactly the same that was submitted to the FDA. One may find odd somehow that while one agency believes that the information pack is not sufficient and asks for a second trial, notwithstanding the written agreement that one trial would have been sufficient, you have another agency, as respected as the EMA, that believes that the package is, in fact, more than sufficient and let alone that we did not have something similar to a Special Protocol Assessment with the EMA. This is the way regulatory things go sometimes.
For us, it's important that EMA has deemed the package more than sufficient to grant not just registration, but centralized registration. The other good thing is that BYFAVO was approved by the FDA. This has triggered a further milestone in the form of additional equity in Acacia Pharma Group shares. We've also announced a very positive result of the first investigator-initiated prospective study for GI Genius, which has demonstrated that GI Genius really significantly increases adenoma detection rate and adenoma per colonoscopy when compared to the standard of care. Notwithstanding the pandemic, our production facilities have continued to operate. We've continued to ship products and received all the materials needed for the production so that we didn't have to access our strategic reserves of materials.
Delivery and supply continue to work as usual, so we have no fear of potential disruptions, though clearly measures remain in place to protect the health and welfare of our employees. Nonetheless, the pandemic has slowed down our development pipeline and our clinical trials, and is also impacting both GI Genius, Aemcolo, and Eleview sales. In this respect, what's happening to us is not different from what's happening to all other pharmaceutical company. Promotion and field activities by the reps is severely hampered to the point, in some cases, of being nullified by the fact that reps cannot enter hospitals or cannot enter doctors' cabinets. We just have to hope that this will clear up in the near future. Slide number six entails just a 30,000-feet view of the company. It shows our market cash, our net cash, which is currently EUR 238 million.
You can see here just a quick representation of what our stakes are. Probably going forward, we will have to dedicate a little bit more time in explaining exactly how this important portion of our activity, which is holding stakes in other company, is actually slowly changing the way we're looking at business. As I was saying, in terms of key events, important, the European Medicines Agency has adopted a positive opinion for Methylene Blue MMX. As most of you probably know, the report from the CHMP does not exactly amount to an approval because the approval of drugs is made directly by the European Commission, and this is normally something that happens 67 days, don't ask me why such an odd timeline, 67 days after the issuance of the CHMP report.
We will have to wait another bit, but I have no doubt that we're going to get the authorization in the end. We are, in fact, now entertaining multiple discussions with potential partner to enter into either a license or a distribution agreement for Europe. We've made progress with the FDA in relation to the second Methylene Blue MMX Phase III trial design. This has taken way more time than expected because this kind of activities at the FDA has been severely hampered by the pandemic. The FDA has shifted its capacity in trying to keep, as much as possible, the PDUFAs have they have been set, and we've had, I think, a very good example with BYFAVO. The PDUFA was moved from beginning of April to beginning of July because we had submitted additional documentation that was asked by the agency in relation to an excipient.
They did all they could to keep the 5th of July timeline, which is exactly what they did. We have been told, looking forward to a very important PDUFA date that's coming soon, the 27th of August for Cassiopea's WINLEVI. We do have all hopes that that PDUFA date will be respected as well. As I was saying, this is having an impact on all the other collateral activities, protocol review and protocol interaction is taking more time. This advancement of the protocol for the second Phase III is taking way more time than expected. We still hope we might be able to start the trial in Q4, but this really depends on when the answer from the FDA will come. The approval of BYFAVO has triggered a milestones from Acacia.
Acacia will pay us in the next days EUR 15 million cash plus EUR 15 million in Acacia shares. We will receive also EUR 5 million milestone in shares at the first commercial sale, which is expected to occur within end of December 2020 anyways. One of the things that we've done here in this respect, which has also been announced, is that we have assigned the license agreement which we had from PAION directly to Acacia. Now Acacia entertains a direct contractual relationship with PAION. We are out of that. Therefore, now we don't have any more contractual responsibilities or contractual tasks to be performed in respect of PAION. We're just financial investors in both PAION and Acacia.
The Italian Agenzia Italiana del Farmaco has granted a marketing authorization to Stadmycin, which is the brand name Rifamycin SV MMX, which has been licensed just for the Italian territory to the STADA Group. This has triggered a EUR 1.5 million milestone. The Aemcolo Phase II proof of concept in IBS-D has progressed, and we expect that this should be over, hopefully with data released by year-end. As I said, very positive results of GI Genius investigator-initiated prospective clinical study announced in February, and U.S. trial required for GI Genius FDA approval commenced. This is also going very slow. I don't know whether you all know that all elective procedures in the United States are basically on hold. This is slowly progressing because only very urgent colonoscopies are being done right now in U.S. hospitals, and this is one of the reason why we're seeing impact also on Eleview sales.
Nonetheless, the cooperation with Medtronic continues to go full throttle, and we have received news of the approval of GI Genius both in Australia, Israel, and United Arab Emirates, and more to come, which I hope is going to be seen by the market as a good show of efforts from the side of Medtronic in order to have this approved in all the countries covered by our agreement. Cassiopea has completed the rights offering, so Cassiopea is now poised to wait coldly for the approval of WINLEVI, which should come soon. I will not entertain further discussion on the Acacia Pharma deal, which I believe you're all perfectly aware of, but happy to answer to any question.
In terms of products update and Methylene Blue MMX, I think I've told you already what our feeling is and why we feel satisfied by the fact that the info package has been deemed more than enough to grant the approval. As I was mentioning, Aemcolo's sales have been severely impacted by the pandemic because basically people is just not traveling at all. We have progressed, not just the IBS-D Phase II clinical programs, but also the three investigator-initiated studies which now have all commenced. We hope we will be able soon to provide additional information in this respect. GI Genius, I think I have already told you how things are progressing, and I would then pass the word to Niall, our CFO, for the H1 2020 financial review. Thanks, Niall.
Thank you, Alex. I'm on Slide number 19 now. In the first half of 2020, our revenues increased to EUR 25.9 million compared to EUR 21.5 million in the prior year. Our net expense is reduced by 40% down to EUR 23.2 million. That's down EUR 15.5 million, mainly as a result of a reduction in expenses related to the restructuring of our U.S. organization that we carried out last year. We're now seeing the impact in the current P&L. We booked a EUR 5.3 million increase in other income as a result of the sub-license deal with Acacia. We have an operating profit of EUR 2.7 million, compared to an operating loss of EUR 17.2 million in the prior year.
Our net financial expenses were EUR 5.8 million compared to EUR 2.6 million last year. This includes imputed convertible bond interest of EUR 4.2 million and an unrealized net loss on investment in funds of EUR 1.6 million, which we have by and large recovered by the end of July. Our loss after tax for the period was EUR 3 million, compared to a loss after tax of EUR 20.8 million in the same period last year. This includes our share of Cassiopea's loss of EUR 2.2 million. On Slide number 20, we have some more detail on the revenue compared to last year. Our Lialda revenue increased by EUR 2.9 million to EUR 11.7 million, mainly due to an increase in U.S.-related sales.
Our UCERIS income was down, however, to EUR 2.5 million compared to EUR 4.6 last year. Net sales by Bausch were $16.3 million in the first half compared to $32.5 million in the same period last year. Net sales by Ferring of CORTIMENT increased to EUR 8.9 million. Our income was EUR 2.3 versus EUR 1.8 last year. As Alex mentioned, we received a EUR 1.5 million milestone from Crinos SpA in relation to the granting of Italian marketing authorization for rifamycin. Our Eleview revenue was EUR 400,000 versus EUR 1 million last year. Slide number 21 is a recap of our profit and loss for the period. Moving to Slide 22 is a summary of our statement of financial position. At the end of the period, we had total equity of EUR 405.4 million. We had cash in investments and funds of EUR 238.5 million.
Our shareholdings in PAION, RedHill, Acacia and VolitionRx were worth EUR 97.8 million, and our investment in Cassiopea was carried at EUR 138.8 million. As at the end of June, the market value of our stake was EUR 188.2 million. We are carrying intangible assets of EUR 25.7 million, and during the period we derecognized the remimazolam intangible asset to the value of EUR 24 million. We had property, plant and equipment of EUR 29.5 million and trade and other receivables of EUR 44 million. On the liability side on our balance sheets, the liabilities mainly consist of the liability component of the convertible bonds of EUR 160.1 million. Moving to our cash flow on Slide number 24. We had a positive cash inflow from operating activities of EUR 3.4 million, and this compares to an outflow in the same period last year of EUR 15.5 million.
We see the effect of the cost reductions coming through here on our cash flow. We had investments in property, plant and equipment of EUR 1.9 million, investments in intangibles by way of our clinical trials of EUR 1.8 million. We participated in the capital increase in Cassiopea, which resulted in a net outflow in the period of EUR 4 million. We also converted the loan we had to Cassiopea into equity there. We had a net outflow in relation to the investment and disposal of financial assets of EUR 19.1 million. Moving to Slide 25, we paid interest on our convertible bonds of EUR 2.2 million, and we purchased treasury shares to the value of EUR 3.4 million. I will now hand back to Alex for the 2020 outlook and the key priorities.
Thanks, Niall. Our strategy going forward now has been set. We've decided to enter into partnerships with selected players in exchange or equity stake and/or milestones and/or royalties or a combination of both, as you have seen with Medtronic, RedHill and Acacia Pharma. You've seen a further expression of this with the assignment of the license agreement, which conforms Cosmo into a pure financial investor and not any more a commercial counterpart. Going forward, we want to stress again the point that at this stage it should be sufficiently clear that we have no long-term strategic objectives for Cassiopea. We will review our options after the WINLEVI PDUFA date, and I know that the company is entertaining discussions with multiple players, and we will see how this discussion will end up.
Slide 29 is just a recap of the advancement in our pipeline, and we have good upcoming milestones. Well, one should have been taken out, the BYFAVO approval because this has happened already. We are now really looking toward the PDUFA date of WINLEVI on the 27th of August. This is going to be, I think, a major value creation event for us and the completion of a long work where you will remember it has been the Cosmo's infrastructure and Cosmo personnel that have been 100% responsible for this because the clinical development activities are performed by the Cosmo team through a service agreement that we have entered into with Cassiopea when Cassiopea was spun off.
Even though we have only, within brackets, a 45% stake in Cassiopea, we will hopefully look at the approval of WINLEVI as a 100% success of Cosmo and a further success in getting approvals. What we're looking forward in Q4 is the MB MMX, hopefully the start of the second Phase III trial, depending on, as I told you, on the interaction with the FDA and the speed of this interaction. In respect to GI Genius, the U.S. trial completion, assuming that we will be able to quickly go back to normal in terms of clinical activities, and also hopefully the delivery of the Phase III IBS-D results. Our 2020 guidance is unchanged, notwithstanding the particular circumstances, and notwithstanding the impact on Aemcolo, GI Genius, and Eleview sales.
We're confirming revenues in the range of EUR 52 million-EUR 56 million and total expenses in the range of EUR 48 million-EUR 50 million, of which we want to stress is OpEx for EUR 7.2 million and depreciation and amortization for EUR 6.4 million are not monetary items. Therefore, we still expect we will be able to close the year with an operating profit in the range of EUR 2 million-EUR 8 million. This will also depend on several things we're currently negotiating, and we will see how this will unfold. I think that this is all for now in respect of the presentation, and we'll be more than happy to answer to any question you may have. Thanks.
The first question comes from the line of Henrietta Rumberger with AWP. Please go ahead.
Yes. Hi. Just a quick question on your earnings guidelines. Does that actually sort of include your opting out from Cassiopea, or could the earnings also come in even higher if you have a very, let's say, lucrative way to dispose of your Cassiopea holdings? Thank you.
Good morning. Thanks for the question. No, that's not included at all. No disinvestment from anything is currently included in the guidance.
Okay. Thank you.
The next question comes from the line of Bob Pooler with valuationLAB. Please go ahead.
Hi there. Congratulations with the excellent first half. First question is maybe on Methylene Blue. How are you progressing with finding the EU commercialization partner? When do you expect an announcement? On the U.S. trial, what do you believe would be the duration of the second registrational trial and the cost?
Thanks, Bob, for the questions. Good morning.
Morning.
In respect to the first one, well, discussions are ongoing. In Europe, it takes up to six months before you can start actually negotiations with all the relevant health ministries of all member states in order to do some price determination. You all probably know that even if you have a centralized approval like we have or we will have for Methylene Blue, which is rather exceptional in the European situation, this does not entail that you have some sort of price determination or price fixing with the European authorities. Once the product is approved in all member states, you have to start independent negotiations with all member states and health ministries of the member states to set the price. Normally, this doesn't complete. It at least will take more than six months after the formal approval, which will come in the end of September.
We have plenty of time to conduct these negotiations with no hurries. As I said, we're talking to multiple parties, but this is not something that has to happen imminently because of this precise reason. In respect of the U.S. trial, the current suggestion that we were making to the FDA was a trial encompassing around 700 patients and a cost that could be between EUR 10 million and EUR 15 million. This is more or less what we have in mind, and I hope this answered the question.
Yeah, definitely. If I may, just a few more questions just on BYFAVO. Indeed, you're getting most of the upside through your stakes in Acacia and PAION. Aren't you still entitled to something like EUR 82 million on milestone payments?
Absolutely. Actually, if I'm not mistaken, it's EUR 105 million in milestones.
Okay, EUR 105 million. Yeah.
No. Well, this has been highlighted to me also by an investor of ours who said that when we communicated to the market the assignment. It was not clear that all the commercial milestones would have survived the assignment, and of course they do. I'm just taking this occasion to stress this point. Again, the assignment has no impact on our overall compensation. A critical part of the compensation was this EUR 105 million of commercial milestones, which we will expect will be paid us in due course.
Okay. Great. Clear. Just a final on your pipeline strategy. If you look at now, Cosmo, you've achieved a lot in the past few years. Most of your pipeline products are now on the market or approved. Your equity for product strategies is largely executed. The question is, what is the future of your pipeline strategy? Are you going to remain in GI, or are you going to seek maybe a new therapeutic area? Also following on that, probably with positive cash flows, do you foresee in the future also paying dividends?
Well, the answer to the first question is that we are silently working on several new pipeline options that we will communicate to the market when appropriate. The new projects we're working on, of course, will all have their IP portfolio, which will be a natural evolution of what we've been working on so far, but with significant innovations. You might have noticed this also from the fact that we have now hired a new CSO who has a specific background in product formulation and new delivery formulations. This is because we have very precise plan in mind and the pharmaceutical part of the development versus the medical part of the development is certainly the portion on which we want to concentrate more.
Okay.
I think that this hiring should send a precise message of what's coming next. You've been asking me another question, which has just slipped out of my mind.
That's just, with the positive cash flows going into the future, do you foresee paying dividends?
No, of course. We're not changing our position in respect of the fact that we believe that one of the duties of management is to make as much as possible shareholders happy. If there will be excess cash, this excess cash will be returned to shareholders. Even the most aggressive development plans that we have in mind does not entail that we will use all our cash at hand.
Great. Thanks for answering the questions, and fingers crossed then for U.S. approval when that be on August 27th.
Yeah. Fingers crossed. Absolutely.
Okay.
Thank you. Thanks, Bob.
Thank you.
The next question comes from the line of Barbora Blaha with Credit Suisse. Please go ahead.
Hello, and thank you for taking my question. I have one question on the commercialization of methylene blue in Europe. Do you have an ideal partner, should this be an international partner who could also commercialize it in the U.S.? One other question on BYFAVO. I read that in Italy, remimazolam received a compassionate use authorization to be used in COVID patients instead of propofol. Do you plan to also apply for this compassionate use authorization in the U.S.? Propofol is very short in supply in the U.S., this could be a huge opportunity. Thank you.
Well, thanks, Barbora. Let me start from the last one. We don't need to get compassionate use authorization in the U.S. because we are already approved. That's something that you normally ask for prior to approval. Thank God we don't need that because our approval now is fully fledged. What you said about propofol is absolutely right. In fact, now i can say that we've had interactions with the FDA in order to get an earlier approval under the compassionate use rules in the wait for the formal PDUFA. The FDA came back to us and told us that it would have been faster for us to get the full approval rather than go through the route of asking the compassionate use approval, because that would have likely slowed down the PDUFAs.
They had been adamantly clear with us that they intended to approve the product. We said, "Okay, we're just not going to waste time in making additional filings for compassionate use," which will likely have only the outcome of slowing down the most important general approval. You're right, there's shortage of propofol, this is not just the point with Remi. The point is that it is perceived by the anesthesiologist community that Remi is a way more safe alternative than just propofol, as I have said multiple times to some of you. There's a widespread perception that in the context of procedural sedation, meaning patients that are not undergoing major surgery but just undergoing procedures, there's no reason in the world to put them under general anesthesia with all the risk of related adverse events.
It's a wave that's starting, and I think it will be massively perceived, and this is why it is so important. This is precisely also the reason why, in Europe, remimazolam has been granted approval for compassionate use prior to the approval that I'm sure will come from the European authorities. There's a widespread perception that this drug can replace propofol in many circumstances. If you do a colonoscopy, for instance, and this was the main reason why we wanted to have remimazolam in our pipeline. If you're doing a colonoscopy, there's no reason that you undergo general anesthesia. It's just a colonoscopy. If you can go under deep sedation with a product like remimazolam, which has a better hemodynamic profile that puts you at no risk of a stroke, that's just much better. In respect of methylene blue partners, yes, we are entertaining a discussion.
Frankly, right now we are entertaining discussions with highly specialized European players. We're not now taking into the equation whether these would be good U.S. partners or not. As you know, the European market is very different from the U.S. market. Apart from the world market, actually, the European market is just the sum of 26 very different markets with totally different price dynamics and with the need of completely different organizations. What I think is needed now is a European player that's capable of playing well in most, if not all, but say most of the European jurisdictions, which, as I said, are very different from one another's. I hope this answers the question.
Okay, thanks. One follow-up on BYFAVO. Who manufactures BYFAVO? Is it Cosmo or another-
No. The supply chain of BYFAVO is relatively complex. The API is manufactured by Cambrex, the vials are manufactured by Patheon, and the final product is released by Cosmo, who does also the secondary packaging. You have three players here. Cosmo is the least important of the three. First one, API Cambrex in Sweden, second Patheon with the plants in Monza, and third, Cosmo as secondary packaging and entity that makes the release.
Okay, thanks.
The next question comes from the line of Paul Verbruggen with Research Partners. Please go ahead.
Yeah, good morning. Maybe first a follow-up on one of Bob's questions. You mentioned that there are still some milestone payments due on BYFAVO to Cosmo. This EUR 105 million that you mentioned, is it a net amount, or will you also have to pay part of those to PAION?
No, it's a net amount.
Okay.
This just come to us. PAION is not entitled to milestones. PAION is only entitled to royalties, and royalties will then be paid now because of the assignment directly from Acacia to PAION.
Okay. Maybe two questions on revenues. Eleview revenues were very low, even if you consider the transfer of the commercialization and also COVID. Are there any other factors there, or were those really the two explanations?
No, there was one effect also that now I have been told it should be completely over. This effect was the fact that when we terminated the agreement with Olympus, we left Olympus with the inventory they had at hand. Therefore, in these year and a half, Olympus has been placing this inventory and substantially screwing the sales tentatively made by Medtronic. This now should be over. It was taken into consideration. Its effect lasted definitely more than expected. Now we have had all the reassurances from Medtronic that it should start again. Of course, we're monitoring this with high concern.
Okay. Maybe on LIALDA. Revenues have been declining for a few years there, and now suddenly they're up by a third on the first half of 2019. Do you think you can maintain that growth, or was it a one-off?
I think so. I think that you have some very good proofs in looking at other products that have been genericized and then ramped up again and continue to be very effective. Just think of PENTASA, for instance. PENTASA continues to sell. The reason why it sells is because it works. We have received, and I don't know if I've told this already, but I will now to give this explanation. We have received many emails from U.S. patients asking us if there was a way, and of course, there was no way. If there was a way to provide them with the originators because Their physicians would put them on the generic, and they would find that the generic just doesn't work.
They felt their condition had worsened significantly after they moved to the generic, therefore, they're now paying out of their pocket the purchase of the originator because the originator heals them and the generic does not. I think that this happens with these products, especially if you're dealing with GI conditions and something that has delivered into the colon. Keep in mind that bioequivalence is not at all an exact science, and you may have formally a generic that delivers bioequivalence, but this doesn't mean at all that it plays the same role inside your body, especially if you, for a disease like ulcerative colitis, especially if you need the active to be deployed like an ointment throughout the whole colon.
If you have a tablet that just delivers into the colon and then pops up, it's highly possible that the bioequivalence is going to be identical, but certainly not the effect for the patient, depending on where in the colon his ulcerative colitis is located. I don't know if I've explained myself correctly.
Well, that's very clear. Thanks. Maybe one question about expenses. You mentioned, of course, the areas restructuring now completed. Should we now calculate with SG&A of around EUR 8 million, EUR 9 million per six months? Is there more savings potential there?
Well, not sure that there's going to be more savings there because, as I was mentioning before, we're setting up a whole range of new development programs. I think that this assumption is correct. We can leave with that for now.
Okay. Maybe one last, if I may, on GI Genius. Assume that the U.S. study starts soon. Do you think you will still be able to complete it this year? How long will the regulatory review take in this area?
In our original plan, the trial shouldn't have lasted more than three to four months. Of course, we were projecting recruitment at full throttle because patients that would have needed to be recruited had no special conditions. They were either colonoscopies for screening or colonoscopies for surveillance. The point is that so far, all this are just not happening. Out of an original planned number of patients of 1,100, we have so far been able to do only 56 of them. Because all clinical activities are, except those for COVID, are on hold. It's difficult to say, Paul. If things would immediately go back to normal, answer would be yes, but it's very difficult to predict. You would have needed to add 90 days for regulatory review, more or less.
Okay. Thanks very much.
Thank you.
The next question comes from the line of Christian Glennie with Stifel. Please go ahead.
Hi, guys. Good morning.
Morning
have been answered. To understand a bit more on the operating profit guidance and target for the full year. What are some of the swing factors there that gets you, having already booked EUR 2.7 million of operating profit in the first half, what are the swing factors there to stick to that EUR 2 million-EUR 8 million range? Related to that, the other income, EUR 5 million in the first half, I think I was going for about EUR 6 million of other income for the year in total. Is that just a phasing thing that you've effectively booked the majority of that, or is there still potentially some further other income amount for the full year as well?
Niall, do you want to tackle this?
Yes. On the other income, I would say that, yeah, we've booked the majority of that in the first half. We would not see a repeat of that in the second half. In terms of the overall guidance for the year then, I think we just see a continuation of our current revenue streams and the cost base as we see it right now.
Okay. Thank you.
Ladies and gentlemen, that was the last question. I'd now like to turn the conference back over to the management team of Cosmo Pharmaceuticals for any closing remarks.
I just thank you for your time and your questions. I hope there's going to be a chance to meet soon, hopefully in person, because conferences call are good. Also human contact is better. Thanks again. You just have a very good day. Bye.