The conference must not be recorded for publication or broadcast. This conference call may contain certain forward-looking statements based on a current assumption and forecast made by Santhera Pharmaceuticals. Such statements involve certain risks, uncertainties, and other factors which could cause the actual results, financial condition, performance, or achievements of Santhera Pharmaceuticals to be materially different from those expressed or implied by such statements. These factors include those discussed in the comprehensive risk factor disclosure on the company website at www.santhera.com. Santhera disclaims any obligation to update any forward-looking statements. The conference may be downloaded on Santhera's website during the two weeks following the call. At this time, it's my pleasure to hand over to Mr. Dario Eklund, CEO. Please go ahead.
Thank you, Sandra. Good afternoon and good morning, all. Thanks for joining us today. I'm very pleased to provide an update on Santhera's performance and give you a glimpse into the developments on the horizon. As always, you will have the opportunity to ask questions at the end. I'm joined today by Andrew Smith, our CFO, and Dr. Shabir Hasham, who's our Chief Medical Officer. Let me start with an overview of what Santhera has achieved in 2023 and since the start of this year, 2024. The past 15 months were clearly a transformative phase for our company in which we made huge strides in bringing AGAMREE for Duchenne muscular dystrophy to market. At the same time, and under difficult market conditions, we strengthened our financial position and extended cash reach beyond important milestones.
Our top priority during the year 2023 and into 2024 was to obtain regulatory approval and press ahead with commercial launches. First came U.S. approval in October 2023, followed in quick succession by approval by the European EMA and the U.K.'s MHRA. Notably, European regulators have recognized the improved safety profile of AGAMREE, especially with regard to preserving bone health compared to standard corticosteroids while offering equivalent efficacy. In China, we supported our partner Sperogenix with the regulatory filing for AGAMREE, which has been granted priority review, setting the stage for potential launch already in Q1 of 2025. Then, at the beginning of this year, our vision became reality, and we were ready to begin to bring AGAMREE to patients. We were delighted to launch AGAMREE in Germany as the first market globally this January, and then in Austria starting February.
This was followed by a U.S. launch by our partner Catalyst Pharmaceuticals in March. We are encouraged by the initial market response to AGAMREE in Germany, which was overwhelmingly positive. Our German team tells me that the trend is continuing, and by now, AGAMREE is already prescribed to roughly 150 patients in Germany and Austria. There's clearly an unmet need that AGAMREE can address thanks to the combination of its anti-inflammatory capabilities while being able to preserve bone health and maintain normal growth. A key strategic decision during 2023 was the outlicensing of AGAMREE in North America to Catalyst Pharmaceuticals. The deal, which closed in July 2023, provided important capital to the business, enabling to reduce our debt and strengthen balance sheets, as well as to prepare for the European launch.
It also opened opportunities to further develop AGAMREE beyond Duchenne and exploit its full potential. With a focus on AGAMREE, we have taken a targeted approach to our pipeline and disposed non-core assets. After settlement of the reimbursement dispute with the French government, we completed the sale of the Raxone business to the Chiesi Group. Last month, we have returned rights to the pulmonary drug candidate lonodelestat to Spexis after reassessing its medical and commercial potential. More detail on all these initiatives will be described in the annual report, which will be published in May. Let me now turn to the months ahead of us, where there is, of course, much work to be done towards achieving our goals. First priority is on pan-European rollouts. We plan to make AGAMREE available to patients in additional key geographies in Europe through our own organization.
This includes France, U.K., Italy, Spain, Benelux, and Switzerland. Activities surrounding market access, stakeholder, and key opinion leader engagement, and the buildup of a core commercial organization is well underway. Negotiations for pricing and reimbursement are underway in Germany, the U.K., and France, and we expect to finalize an agreement with NICE in the U.K. during this summer. Agreements in Germany and France are expected early next year, as the review period in these markets typically has a duration of a year. The next commercial objective is ensuring availability of AGAMREE across Europe in those markets where we don't launch ourselves. Presently, we are in the late stages of negotiations with distribution partners for commercialization across European E.U. and non-E.U. markets. You can expect us to make announcements in the near future in this respect.
We have also started discussions with potential partners in other regions where there's also a significant partnering interest, but our immediate focus is ensuring availability of AGAMREE across Europe and supporting our existing partners Catalyst in North America and Sperogenix in China. A pipeline priority is the development of AGAMREE in additional indications. Here, we are targeting rare pediatric indications with high unmet medical need. The discussions with our partner Catalyst are well advanced in terms of prioritizing the indications we want to pursue beyond Duchenne, and we have already started the design of the next study for joint development and funding. We are very pleased with this collaboration and hope to share more about these joint plans in the second half of this year. Another corporate priority is financing. Currently, our operations are financed into 2025, excluding repayment of the convertible bond.
We are in active discussions with a number of providers to extend our cash reach, including the remaining debt repayment, up to sustainable profitability, which we expect to reach in the first half of 2026. I'll let Andrew explain more about that. With this, let me hand over to Andrew for comments on the financial results and our financing initiatives.
Thank you, Dario. Today, as you saw, we released the preliminary unaudited 2023 annual results with full P&L, balance sheet, and cash flow statements, together with a comprehensive update on our business. The audit of the results will be completed in due course and will allow us to publish the full audited report during May. I'll start with comments on the financial performance, followed by a status update on our financing activities. Let me first turn to the full year 2023 results. All amounts I will mention in summary will refer to Swiss francs, even if not stated explicitly for verbal simplification. Revenue amounted to CHF 103.4 million. By far, the biggest contributor to this was the CHF 99.9 million from the U.S. license agreement with Catalyst. An additional CHF 1.9 million consisted of regulatory milestones from our partner Sperogenix in China.
Net product sales to licensing partners amounted to CHF 2.9 million, and this included sale of Raxone to Chiesi as well as AGAMREE to Catalyst, and in addition, the CHF 0.8 million sales of Raxone in France prior to the transfer to Chiesi. Operating expenses amounted to CHF 32 million, 43% lower than last year. The main factors contributing to this reduction were lower development expenses and a net gain on the sale of the Raxone business to Chiesi in the amount of CHF 17.7 million. Development expenses decreased by 39% year-on-year to CHF 18.7 million, and this reduction was primarily related to lower third-party clinical and regulatory services, as well as the transition of CMC activities from a development to commercial stage following completion of the approval processes.
On a comparable basis, marketing and sales expenses slightly increased to CHF 9.8 million in relation to the higher pre-commercialization activities in preparation for launches in Europe, as well as incurring expenses in the U.S. prior to the Catalyst license. G&A expenses increased by 45% to CHF 21.2 million, primarily related to costs in the context of financing and licensing activities, as well as the addition of personnel and infrastructure in order to support European commercial activities, whilst at the same time supporting U.S. activities in the period up to the Catalyst license. The net financial expense amounted to CHF 14 million, which reflects a 25% reduction year-on-year. The difference, for the most part, is related to the settlement of exchangeable notes during the year.
At the bottom line, the company recorded a net profit of CHF 54.8 million for the year 2023, compared to a net loss of CHF 71.1 million for the year 2022. Net cash inflow from operating activities amounted to CHF 47.6 million, mainly driven by outlicensing income, compared to an outflow of CHF 29.8 million for 2022. In the same time period, net cash outflow used in investing activities rose to CHF 18 million, compared to CHF 3.9 million in the prior year. The largest component thereof were regulatory-based milestone payments for AGAMREE, which were capitalized to intangibles. Net cash flow used in financing activities was CHF 0.1 million as proceeds from financing transaction and cash used for financing balanced each other out, compared to an inflow of CHF 14 million for 2022.
In summary, this resulted in a 12-month increase in cash and cash equivalents by CHF 29 million, or from CHF 1.4 million at the start of 2022 to CHF 30.4 million at the end of the year 2023. Now, let me move on to the financing. Coming into 2023 with a very limited cash runway, we largely addressed this and our debt profile during the year through an equity transaction with Idorsia, restructuring finance with Highbridge, and a license and equity investment from Catalyst. Additionally, through the resolution of France clawback negotiations and the sale of the remaining Raxone business to Chiesi, we further reduced our debt obligations.
Financially, by the end of 2023, we were on firmer ground for the first time in a long time, with a reduction in financial obligations under debt instruments and clawback claims in total, reducing by around CHF 47 million, as well as ending the year with CHF 30 million cash on hand. While the cash on hand, together with projected income, is sufficient to fund operations into 2025, we also have both public and private convertible bonds with a nominal value of CHF 24.5 million maturing in August this year. So these results have been prepared on a going concern basis, and while with the upcoming debt maturity, there remain some material uncertainties, we are confident that we will address them shortly.
We're in active discussions with several parties to address the near-term debt obligations, as well as help provide the additional funding required to bridge through to cash break-even anticipated by mid-2026. In summary, and as Dario had already mentioned, 2023 was a transformational year as we gained approvals and improved the financial foundation, to now following recent product launches being the next step to raise the additional funding required to bridge through to sustained profitability. Further detailed financial information can be seen in the published press announcement released earlier today and in the annual report to be published during the month. This concludes my summary of the detailed financial information today, and I thank you for your attention. I'll now pass back to Dario.
Thanks, Andrew. With this, I'll close the summary remarks, and I'll hand over back to Sandra, the operator, for the Q&A session.
We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on touchtone telephone. You will hear a tone to confirm that you have entered a queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone with a question may press star and one at this time. Our first question comes from Laura Pfeifer-Rossi from Octavian. Please go ahead.
Yes, hello. Good afternoon. And congratulations on the very good start of AGAMREE in Europe. So according to the trading update, you said, I think, that end of Q1 you already had some 150 patients in Germany and Austria being treated, which suggests that you already have quite decent market share. Please, could you comment on what type of patients they are? So are these all switches from standard steroids, or does it also include treatment-naive patients? And also, what is your expectation regarding the number of AGAMREE treated patients in Europe for the full year? So that's the first question. And maybe then the second one is more on the funding side.
Here, we understand that you are guiding for a cash burn operationally of around CHF 30 million this year, which more or less uses up your current cash, and then on top, you have the upcoming bond maturities. But I also understand that you have some milestone payment obligations further down the road. I think it was in 2025. So how much money in total do you think you need to raise to bring you through to the profitability that you expect to reach in 2026?
Well, thanks for the question, Laura. I'll pass the second part of the question to Andrew, and I'll address the first part of the question. First, a correction to the assumption. When we talk about the ±150 patients that we have mainly in Germany, there's four or five patients in Austria. That's the number of patients we estimate today. That's not the Q1 end-of-March number. That's the estimate of patients today. In Germany, you have about 1,500-2,000 Duchenne patients who are on steroids at any given point in time. The ±150 patients represent almost a 10% share of the patients who are on steroids today after just a little bit more than 3 months. Now, to your question on what type of patients these are, we don't know that. We don't have a distribution of that yet.
We're going to be digging into that further, but right now, I don't have an answer for you. But I would caution you to not necessarily extrapolate from that number on a full-year basis because typically, what you have in these types of situations is that you have some pent-up demand. You have some naive patients who have been waiting for vamorolone and have not been put on other steroids. And you may have some patients who are switchers, who have been very unhappy with the side effect profile of the other steroids and who are the so-called low-hanging fruit, if you will. So typically, what you see is a bolus in the beginning of warehoused patients, if you will, and then you'll start to see a more steady-state growth.
Given that it's only been a little over three months from our launch, I would not want to say that this is something that you can extrapolate. We should probably wait a little longer before we start seeing the trend. Was there another question before I hand over to Andrew? I forgot. Sorry.
No, no. I think this one is well understood. I'm just wondering, do you think still it will probably grow, but it will just not double every quarter? I guess that's what you are saying. But you are not able to give us a more precise indication of what share you expect by the end of the year in Germany?
No, no. It's too soon to do that. On your other question on how many patients do we expect to have in Europe by the end of the year, it's also too soon to say that because the only market, really, that will have almost a full year of sales is going to be Germany. In the U.K., we are in discussions with NICE. We hope to have a final price agreement somewhere towards the second half of the summer or late summer where we can then launch after the summer. How many patients we will get there is obviously an unknown. The only thing I can say, though, is that Germany surprised us a bit because Germany was a market where we didn't have any clinical trial sites in our pivotal trial.
There was no previous experience with vamorolone in Germany, whereas, for instance, in the U.K., we had six clinical trial sites, and there's a significant buzz in the market in the U.K. already, which we didn't really expect to see in Germany. But still, we had this very strong uptake from the very beginning, which is clearly very encouraging.
Okay. Sure. Understood. Thank you.
Andrew.
Yeah. Hi, Laura. So on the overall funding requirements, we started the year with CHF 30 million in cash. We had CHF 26 million at the end of Q1. So you can see that our net cash spend has started to reduce already as we've started to see some income coming through. The 2024 nominal value bonds maturing in August are split between some public and private, and they have different conversion rates. Part of those are in the money or nearly at the money, and the split of those bonds is available on our website and updated on a regular basis.
As to the overall funding requirement, again, now as we start to see income coming through this year from various sources, our own direct markets, some milestones, royalties, as others come along, our overall funding requirement, including the debt repayment, we look to be somewhere between CHF 50 million-CHF 60 million over that time period. That's what we look to address.
Okay. That's clear. Yeah, that's clear. Then maybe just as a follow-up, and then I jump back into the queue. So you mentioned in your press release a couple of funding options. I think it included royalty financing or debt funding or also equity. So how do you prioritize these options? And I guess is it probably rather likely that it will be a combination?
Yeah. I think, as you see, we've been through a number of financing activities over the last few years in very difficult environments with unapproved products. Now that we have product approved on market with revenue, I think our options have expanded. We do see royalty-type options as well as debt-type options. They're obviously all open to us. We still would like to minimize the dilution, especially with the valuation where it is, but we consider all options. But priority-wise, we think of royalty and debt funding.
Okay. Thank you.
Probably a combination of both.
As a reminder, if you wish to register for a question, please press star followed by one. The next question comes from Bob Pooler, valuationLAB. Please go ahead.
Thank you. Good afternoon, gentlemen. Also, congratulations on the progress you made last year and already in this first quarter. Just on the overall funding requirement, is that CHF 50 million-CHF 60 million, or is it CHF 15 million-CHF 16 million? Just to clarify.
50.
Okay. Okay. Thank you. I was just thinking, yeah, Germany was actually surprised there. U.K. is coming there, and as you said, there's already a buzz. Do you think you will see a similar wrap-up of patient uptake in the other European markets?
I think so. I mean, vamorolone is very well established in the patient advocacy groups. There has been a lot of buzz around it for several years now. And now, being the first Duchenne drug that's available, approved in Europe, fully approved in Europe, and also approved in the U.S., clearly, this community is very much aware of the drug and its benefits. So I don't think that we'll see any different type of uptake in the other markets than what we've seen in Germany. Potentially, I would even expect the U.K. maybe to be slightly better once we get on the market there. Yeah.
Okay. And then in France, you're going to go for the early access program. Do you expect some sales maybe already this year for France?
Well, we have applied for the early access program in France, and we'll hear back from them late June or early July, potentially even earlier than that. But our expectations are a bit tempered because what we are hearing is that the French government has become much more restrictive with these early access programs. In the past, when we had Raxone, we had it in an early access program in France, but that was under different times and different circumstances. So currently, we're not planning on one. We've applied for it, but it's not in our assumptions or in our cash forecast that we would have any early access sales in France. So it would be an upside if we get it.
Okay. Great. Just regarding your EUR 150 million peak sales guidance for AGAMREE in Europe, is this for some territories only, or is it the entire European Union, including Switzerland?
No, the peak sales guidance, which is actually EUR 150 million or above.
Oh, euros. Sorry.
Yeah. It's for the Santhera market that we commercialize ourselves in. In addition to that, we'll then have distributor markets across Europe for the smaller E.U. and non-E.U. countries, which will add to that revenue.
Okay. And there you expect to announce some agreements soon. Are you preferring distributors or partnerships where you have upfront milestones and royalties?
No, the discussions that we're having right now are distribution arrangements where we are selling the product to a distributor, leaving a margin for them then to commercialize it in the market. So we don't expect in those typically, in those kind of distributor agreements, you don't have big upfronts like you have in licensing agreements. I mean, depending on the negotiation, there might be a smaller upfront, but it's not going to be of the magnitude that you see in licensing agreements.
Okay. Okay. Then just approval in China could be coming in the first quarter of 2025. Does this trigger milestones for Sperogenix? And do you know what kind of peak sales Sperogenix is targeting for their areas of Greater China in DMD then?
Yeah. So we haven't disclosed the milestones. There will be milestones on both submission or have been milestones on both submission and approval, but we haven't disclosed those. But you can assume that between now and approval in China, we'll get CHF 5 million-CHF 9 million in terms of regulatory milestones. And in terms of the sales, yeah, Sperogenix has not guided towards any sales, and neither have we in China. Obviously, the price in China will be likely much lower than it is in the U.S. or Europe. But on the other hand, China has somewhere between 50,000-70,000 Duchenne patients. So there's a significant potential volume in China.
Just on Catalyst, I think they're reporting in May. Do you expect some sales milestones from Catalyst in this year?
No sales milestones from Catalyst this year, no. Just royalties on their sales.
Okay. And then just on your pipeline, I think the next step for AGAMREE is then the proof of concept trial results for Becker's muscular dystrophy. When do you expect that? And do you also expect off-label use in DMD?
That's a question that I would pass over to Shabir if you're on the line.
Yeah. Hi, Bob. Thanks for the question. You'll remember that ReveraGen are actually running this study. So the latest information we have is that they're in the final stages of recruitment, very final. And so we have to wait and see what the top-line results are, probably late quarter three, early quarter four, to be able to comment more on that.
Okay. Okay. And then you mentioned that probably soon you'll announce additional rare disease indications there. Are these development costs included in your guidance, also in the longer-term guidance? And then also just, are you looking to expand your pipeline with external projects, or is now the focus really on expanding the number of indications for AGAMREE?
So the first question or answer is, yes, the costs are included in our forecast and our projections for these additional indications. We have done a lot of work with Catalyst on this. They were here a few weeks ago with their leadership team, where we also started really closely honing in on the indication and already starting to work on clinical trial designs. There are still some work to be done around this. We want to have dialogue with both the FDA and EMA on the feasibility of those trial designs. And we also want to file some additional intellectual property around these indications. So we're not quite ready yet to disclose the details. You should expect to hear more about our plans then in the second half of the year. And what was the other question? Oh, the pipeline.
The focus for the coming year or so is certainly to get these additional indications or potentially two indications off the ground for AGAMREE beyond Duchenne. But then beyond that, we will start looking at either partnering, licensing, or even M&A activity to fill our pipeline with external innovation as well. So that's something that we plan to do in 2025 and onwards much more aggressively. But for the next year or so, the focus is on AGAMREE and getting that off the ground.
Okay. Then just the final question. You announced, which is quite great, that you're going to reach a breakeven for top line of 2026. It seems you have some detailed modeling there. There's still some moving parts there, but what are the underlying assumptions for that?
I'll pass that to Andrew. He's the mystery man. He's for financial modeling.
Thanks, Bob. Thanks, Rob. No, as you can appreciate, there are a number of moving parts, especially as we navigate the pricing reimbursement across Europe in the different countries. But the base assumptions and touching on the new indications you just mentioned with Dario there, we don't see costs really starting to increase until 2025 just because 2024 is more the development, regulators getting sites selected, and so on, which is the lower-cost phase of the program. But looking further forward, on the cost side, we see sales and marketing incrementally adding around CHF 10 million-CHF 15 million on where we are now, up to a CHF 20 million-CHF 25 million marketing area. And that should support substantial growth, would be pretty fixed as we grow revenue in the markets there. That would lead our overall cost base somewhere around CHF 55 million or so, ±, including some development expenses.
On the revenue side, by 2026 or during 2026, we expect to reach around 50% of our peak revenue target. So that's in the direct and some of the indirect markets. So we'll have a mix of income of both product, royalty, sales milestones, and so on start to come through from the U.S., China, and some of our distributor markets as well. And obviously, as we go through and we start to see the revenues develop, then we can give a bit more granular guidance both for the near term and for the next couple of years. But that's broadly where we're headed.
Okay. Yeah. Probably May 9th with Catalyst, we'll know a little bit more about the U.S. market as well.
Yeah. We look forward to hearing that also. Just keep in mind that Catalyst launched mid-March, so the first quarter sales are not going to be that much yet.
Oh, it's more the indication, I think. Yeah. The initial indication. Yeah. Well, thank you, and wish you success going forward.
Thanks, Bob.
We have a follow-up question from Laura Pfeifer-Rossi from Octavian. Please go ahead.
Yes. Hello. Thanks again for taking the question. I'm just wondering if you could update us what is the current status and your plans of the Phase 4 development of AGAMREE in DMD. I guess you still have some clinical files or registries running, and I'm just wondering when we can expect some new data announcements. And also related to that, could this potentially lead to the filing of a label extension in the U.S.?
Shabir, why don't you take that one?
Yeah. Thanks, Laura. I'll answer to the extent I can, of course, for Catalyst's intention. Laura, you may be better asking them directly. So in terms of the Phase 4 plan, the key strategy is to continue collecting long-term data. We believe that the differentiated safety profile we've seen so far is really just the tip of the iceberg. It's the short-term side effects that you would expect to see with steroids where we see the differences with vamorolone. The things that we're hoping to collect data for in ongoing Phase 4 studies are the longer-term, more impactful complications. So particularly, we're still focused on fracture, fracture risk. We're looking at glaucoma, cataracts, delayed puberty. We're wanting to confirm no planted growth over a longer time period.
Diabetes, hypertension, those are the things that obviously are more serious complications but normally appear on steroid use after about sort of five years. So that's the focus of the data collection. As you know, we have a number of children globally, about 140 kids who've been on drug already for seven years. So these are the data that are basically being collected. The patients have already been exposed to the drug. So it's a very simple process that Catalyst are partnering with us doing is to create registries to bring these kids into a more formal data collection. So I'm hoping to have data available that we will announce at relevant congresses in the first half of next year. In terms of the label for the U.S., of course, Catalyst would have to comment on their intentions on that.
But for Europe, many of these are already included in the label either as absences of warnings or we've got commentary in the label already where we see reduced risks. So I think there will be minimal impact in the European label. But of course, for physicians, these are the things that become everyday very important issues when considering which product to use. So it's much more important in the clinical setting.
That's great. Thank you.
Thanks, Laura.
We have another follow-up question from Bob Pooler from valuationLAB . Please go ahead.
Thank you. Just one quick one on AGAMREE. I said you're looking into the rare pediatric areas for AGAMREE, but are talks ongoing? Are you still looking at also the large indications where steroids are used?
Currently, we're not looking at large indications where steroids are used. The highest unmet medical need short-term is in pediatric indications where children are getting very high doses of steroids over longer periods of time and where particularly the growth stunting and the bone turnover, mood, and behavioral disorders is really a crisis. Not in all indications do patients have a shorter lifespan like you have in Duchenne where they live into their 20s or 30s. In many of these indications, other pediatric indications, these patients end up having quite a long normal life. And having that growth stunting caused by early steroid use is obviously harmful for life. And so that's where we're going initially. We also have currently a formulation which is an oral suspension, a pediatrically appropriate form. We are working with Catalyst on a fixed-dose tablet.
Once that fixed-dose tablet is available to the market, then it's going to be the right time to start looking at potentially larger indications, rare nephrotic disease indications. But for the time being, we're focusing on pediatrics.
Okay. Great. And that fixed-dose tablet, so that will probably also have extended patent life as well.
That's our goal. But obviously, we can't commit to that at this point.
Okay. Thank you.
Sure. Thanks, Bob.
Ladies and gentlemen, that was the last question. I would now like to turn conference back over to Mr. Eklund for any closing remarks.
Thanks, Sandra. In the past 15 months, Santhera has reached some critical turning points. We've seen significant successes and hit key milestones. As we look to the future, we're geared up to keep this momentum going. Our goal is clear: to enhance care for the DMD community and improve our patients' quality of life. I'm truly proud of our team. Everyone's dedication and creativity have been absolutely outstanding. I'm really optimistic about what lies ahead. We're on track for profitability, and we're looking to broaden AGAMREE's therapeutic impact. Thanks again, everyone, for joining today, and I look forward to updating you soon.
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