Earnings Call: H1 2020

Jul 30, 2020

Ladies and gentlemen, welcome to the Cosmo Pharmaceuticals Half Year Results 2020 Conference Call. I am Alice, the Chorus 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 Delacao. Thanks for joining our call. And let me walk you through the introduction and the first half twenty twenty 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. And 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. So to begin with the good news, the first one was the EMA's CHMP has adopted the positive opinion for Metylene Blue MMX. This was a good news that we have long been awaiting for. And 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. And 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 agreement with the EMA. But 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 BIFAVA was approved by the FDA. This has triggered further milestone in the form of additional equity in Akasha Pharma Group Shares. We've also announced very positive results of the 1st investigator initiated prospective study for GI Genius, which has demonstrated that GI Genius really significantly increases abnormal detection rate and adenoma for colonoscopy when compared to the standard of care. Notwithstanding the pandemic, our production facilities have continued to operate. We've continued to ship the 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 GIGENIOs, Aimcolo and Elaview sales. In this respect, what's happening to us is not different from what's happening to all other pharmaceutical company. The 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 next future. Slide number 6 entails just a 30,000 feet view of the company, shows our market cash, our net cash, which is currently €238,000,000 You can see here just a quick representation of what our stakes are. And 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. So as I was saying, in terms of key events, important, the European Medicines Agency has adopted a positive opinion for methylene blue and 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. So will have to wait another bit, but I have no doubt that we're going to get the authorization in the end. And 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 2nd methylene blue MMX Phase 3 trial design. This is taking 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 PDUFA as they have been set. And we've had a I think, a very good example with Vifavor. 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. But then they did all they could to keep the 5th July timeline, which is exactly what they did. And we have been told, looking forward, to a very important PDUFA date that's coming soon, 27 August for Casiopeia's wind levy. We do have all hopes that, that PDUFA date will be respected as well. But as I was saying, this is having an impact on all the other collateral activities. So protocol review and protocol interaction is taking more time. So 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 BIFAVO has triggered milestones from Acacia. Acacia will pay us in the next days 15,000,000 dollars cash, plus $15,000,000 in Acacia shares. And we will receive also a 5,000,000 dollars 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 signed the agreement license agreement that which we had from Payone directly to Acacia. So now Acacia entertains a direct contractual relationship with Payone and we are out of that. Therefore, now we don't have any more contractual responsibilities or contractual tasks to be performed in respect of Ion. We're just financial investors in both Ion and Acacia. The Italian Agencia del Sarmaco has granted a marketing authorization to Stud Mycin, which is the brand name rifamycin Espoo MMX, which has been licensed just for the Italian territory to the Stata Group. This has triggered a $1,500,000 milestone. The Inculum Phase II proof of concept in IBS T 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. So 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 Elaview sales. Nonetheless, the cooperation with Medtronic continues to go full throttle, and we have received news of the approval of JIG news 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 on the side of Medtronic in order to have this approved all the countries covered by our agreement. Casiopeia has completed the rights offering. So Casiopea is now poised to wait closely for the approval of Wuvilebi, 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 questions. 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, enclosed sales have been severely impacted by the pandemic because basically people is just not traveling at all. But we have progressed, not just the IBS D Phase 2 clinical programs, but also the 3 investigator initiated studies, which now have whole commenced. So we hope we'll 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 Nyle, our CFO, for the H1 2020 financial review. Thanks, Niall. Thank you, Alex. So I'm on Slide number 19 now. In the first half of twenty twenty, our revenues increased to €25,900,000 compared to $21,500,000 in the prior year. Our net expenses reduced by 40% down to $23,200,000 That's down €15,500,000 mainly as a result of a reduction in expenses related to the restructuring of our U. S. Organization that we carried out last year. So we're now seeing the impact in the current P and L. And also, we booked a €5,300,000 increase in other income as a result of the sub license deal with Acacia. We have an operating profit of €2,700,000 compared to an operating loss of CHF 17,200,000 in the prior year. Our net financial expenses were CHF 5,800,000 compared to CHF 2,600,000 last year, and this includes imputed convertible bond interest of CHF 4,200,000 and an unrealized net loss on investment in funds of CHF 1,600,000, which we have by and large recovered by the end of July. Our loss after tax for the period was 3,000,000 compared to a loss after tax of €20,800,000 in the same period last year. This includes our share of Casiopea's loss of €2,200,000 On slide number 20, we have some more detail on the revenue compared to last year. So our Lealda revenue increased by $2,900,000 to $11,700,000 mainly due to an increase in U. S. Related sales. Our UCERIS income was down, however, to $2,500,000 compared to $4,600,000 last year, and net sales by Bosch were $16,300,000 in the first half compared to $32,500,000 in the same period last year. Net sales by Ferring of CortiMend increased to €8,900,000 and our income was €2,300,000 versus €1,800,000 last year. As Alex mentioned, we received a €1,500,000 dollars milestone from Crenas SpA in relation to the granting of Italian marketing authorization for rifamycin. And our Elaview revenue was €400,000 versus €1,000,000 last year. So Slide number 21 is a recap of our profit 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 €405,400,000 We had cash and investments and funds of 238,500,000 dollars Our shareholdings in Taion, RedHill, Acacia and Volition were worth €97,800,000 And our investment in Cassiopeia was carried at $138,800,000 As at the end of June, the market value of our stake was 188,200,000 euros We are recurring intangible assets of 25,700,000 and during the period, we derecognized the Remy Maslow intangible asset to the value of €24,000,000 We had property, plant and equipment of €29,500,000 and trading on the receivables of €44,000,000 euros On the liability side on our balance sheet, the liabilities mainly consist of the liability component of the convertible bonds of €160,100,000 Moving to our cash flow on Slide 24. We had a positive cash inflow from operating activities of €3,400,000 and this compares to an outflow in the same period last year of CHF 15,500,000 So we see the effect of the cost reductions coming through here on our cash flow. We had investments in property, plant and equipment of €1,900,000 investments in intangibles by way of our clinical trials of €1,800,000 euros And we participated in the capital increase in CASSIOPEIA, which resulted in a net outflow in the period of €4,000,000 We also converted the loan we had to Cascapia into equity there. We had a net outflow in relation to the investment and disposal of financial assets of €19,100,000 Moving to Slide 25. We paid interest on our convertible bonds of €2,200,000 and we purchased treasury shares to the value of €3,400,000 So I will now hand back to Alex for the 2020 outlook and the key priorities. Thanks, Niall. So our strategy going forward now has been set. We've decided to enter into partnerships with select players in exchange your equity stake and or milestones and or royalties or combination of both as you have seen with Medtronic, RedHill and Acacia Pharma. Now you've seen a further expression of this with the assignment of the license agreement, which transforms Cosmo into a pure financial investor and not anymore 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 Casa Pia. We will review our options after that we may be PDUFA's date. 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 bifavo approval because this has happened already. But we are now really looking forward the PDUFA date of Winleby on the 27th August. This is going to be, I think, a major, major value creation. And then for us and the completion of a long, long work where you would remember it has been the Kosmos Infrastructure and Kosmos 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 Casiopeia when Casiopeia was spun off. So even though we have only within brackets a 45% stake in Casciopeia, we will hopefully look at the approval of Winleby as a 100% success of Cosmo and the further success in getting approvals. What we're looking forward in Q4 is the MB MMX, hopefully, start of the 2nd 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 results. Our 2020 guidance is unchanged notwithstanding the particular circumstances and notwithstanding the impact on Aimclo, GI Genius and Elaviv sales. So we're confirming revenues in the range of $52,000,000 to $56,000,000 and total expenses in the range of $48,000,000 to $50,000,000 of which we want to stress Aesop for $7,200,000 and depreciation and amortization for $6,400,000 are not monetary items. And therefore, we still expect we will be able to close the year with an operating profit in the range of €2,000,000 to €8,000,000 This will also depend on several things we're currently negotiating, and we will see how this will unfold. So 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 Henriette Remberger 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 CascioCare? Or could the earnings also come in even higher if you have a very, let's say, lucrative way to dispose of your Casiopeia 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 Valuation Lab. Please go ahead. Hi there. Congratulations for the excellent first half. First question is maybe on methylene blue. How are you progressing with finding the EU commercialization duration of the second registrational trial and the cost? Thanks, Bob, for the questions and good morning. Good morning. In respect to the first one, well, discussions are ongoing. In Europe, it takes up to 6 months before you can start actually negotiations with several 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 Metaline Blue, which is rather exceptional in the European situation. This does not entail that you have some sort of price examination 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. And normally, this doesn't complete at least will take more than 6 months after the formal approval, which will come in the end of September. So we have plenty of time to conduct these negotiations with no hurries. And 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 to 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 $10,000,000 $15,000,000 This is more or less what we have in mind. And I hope this answers the question. Definitely. If I may, just a few more questions. Just on bifavo, indeed, you're getting most of the upside through your stakes in Acacia and Payance. But don't you aren't you still entitled to something like €82,000,000 on milestone payments? Absolutely. Actually, if I'm not mistaken, it's €105,000,000 in milestones. Okay. €105,000,000 there. No, no. This 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 the all the commercial milestones would have survived the assignment and of course they do. So I'm just taking this occasion to stress this point. Again, the assignment has no impact on our overall compensation and the compensation integral part of the compensation was this $105,000,000 of commercial milestones, which we will expect will be paid us in due course. Okay, very clear. And then 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 products now on the market are approved. Your equity for product strategy is largely executed. So 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? And then also following on that, probably with positive cash flows, do you see 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 and the new products or new projects we're working on, of course, will all have their IP portfolio, which will be natural evolution of what we've been working on so far, but with significant innovations. And 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 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. So I think that this hiring should send a precise message of what is coming what was coming next. And you've been asking me another question, which has just slipped out of my mind. That's just with positive cash flows going in 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 duty of management is to make as much as possible shareholders happy. So if there will be excess cash, this excess cash will be returned to shareholders. And 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 will let be on August Absolutely. Thanks, Bob. Thank you. The next question comes from the line of Barbara Bracher with Credit Suisse. Suisse. I have one question on the commercialization of Metulane Blue in Europe. Do you have an ideal partner? And should this be an international partner who could also commercialize it in the U. S? And then one other question on biofavo. So I read that in Italy, Remy Madeline received a compassionate use authorization to be used in COVID patients instead of propofol? And do you plan to also apply for this compassionate use authorization in the U. S. Because propofol is very short in supply in the U. S, so this could be a huge opportunity. Thank you. Thanks, Barbara. Let me start from the last one. We don't need to get compassionate use authorization in the U. S. Because we have already approved. So that's something that you normally ask for prior to approval. And thank God, we don't need that because our approval now is fully fledged. What you said about propofol is absolutely right. And 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. But 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 PDUFA's. And they had been adamantly clear with us that they intended to approve the product. So 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, but 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 probable. As I have said multiple times to some of you, now 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 relate the risk of related adverse events. This is a 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, Remy 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, instance, and this was the main reason why we wanted to have REMI in our pipeline. If you're doing a colonoscopy, there's no reason that you undergo general anesthesia. It's just a colonoscopy. So if you can go under deep sedation with a product like Liremi, which has a better amodynamic 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 in discussion. And frankly, right now, we are entertaining discussions with highly specialized European players. So 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, very different from the U. S. Market. And apart from the world market, actually, the European market is just sum of 26 very different markets with totally different price dynamics and with the need of completely different organizations. So 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. And I hope this answers the question. Okay. Thanks. And one follow-up on the BiPavo. Who manufactures BiPavo? Is it Cosmo or No, no. The supply chain of Bifabo is relatively complex. The API is manufactured by Cambrex. The vials are manufactured by PATHION and the final product is released by Cosmo, who does also the secondary packaging. So you have 3 players here. Cosmo is the least important of the 3. First one, API Cambrex in Sweden second, PATHION in with the plants in Monza and third, Cosmo as a secondary packaging and entity that makes the release. Okay. Thanks. The next question comes from the line of Paulsen Brecken with Research Partners. Maybe first a follow-up on one of Bob's questions. You mentioned that there are still some milestone payments due on by FAVO to Cosmo. But this €105,000,000 that you mentioned, is it a net amount? Or will you also have to pay part of those to Payone? No, it's a net amount. Okay. Just come to us. Payone is not entitled to milestones. Payone is only entitled to royalties and royalties will then be paid now because of the assignment directly from Acacia to Payone. Okay, okay. Then maybe two questions on revenues. I mean, 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. And this effect was the fact that when we terminated the agreement with Olympus, we left Olympus with the inventory they had at hand. And therefore, in this 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. But now we have had all the reassurances from Medtronic that it should start again. Of course, we're monitoring this with a high concern. Okay. Okay. And then maybe on LYALDA. Revenues have been declining for a few years there. And now suddenly, they're up by a third on the first half of twenty nineteen. Do you think you can maintain that growth? Or was it a one off? I think so. And I think that you have some very good, 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 Pentaza, for instance. Pentaza continues to sell. And 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 e mails from U. S. Patients asking us if there was a way and of course, there was no way, but 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. And so they felt their condition had worsened significantly after they would move to the generic and therefore they're now paying out of their pocket the purchase of the originator because the originator heals them and the generic does not. So I think that this happens with these products, especially if you're dealing with GI conditions and something that has delivered into column. Keep in mind that bioequivalence is not at all an exit 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. So 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 patients depending on where in the colon is ulcerative colitis is located. I don't know if I've explained myself correctly. Well, that's very clear. And maybe one question about expenses. You mentioned, of course, the Ares restructuring now completed. So should we now calculate with SG and A of around €8,000,000 €9,000,000 per 6 months? Or do you 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. So I think that this assumption is correct. We can leave with that for now. Okay. And maybe one last, if I may, on GI Genius. So assume that the U. S. Study starts soon, do you think you will still be able to complete it this year? And how long will the regulatory review take in this area? In our original plan, the trial shouldn't have lasted more than 3 to 4 months. But of course, we were projecting recruitment at full throttle because the 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. So out of an original planned number of patients of 1100, we have so far been able to do only 56 of them because all clinical activities are except those for COVID are on hold. So it's difficult to say, Paul. If things would immediately go back to normal, answer would be yes, but it's very difficult. It's very difficult to predict. Then 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 Granny with Stifel. Please go ahead. Hi, guys. Good morning. Some questions have been answered. Just on the just 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 $2,700,000 of operating profit in the first half, What are the swing factors there to stick to that $2,000,000 to $8,000,000 range? And then related to that, the other income, €5,000,000 in the first half, I think I was going for about €6,000,000 of other income for the year in total. So is that just a phasing thing that you 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, yes, we booked the majority of that in the first half. So we would not see a repeat of that in the second half. On the operating and 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. Well, I just thank you for your time and your questions. And I hope there's going to be a chance to meet soon, hopefully in person, in person because conference and call are good, but also human contact is better. So thanks again and you just have a very good day. Bye.