Ladies and gentlemen, good morning or good afternoon. Welcome to the Santhera Pharmaceuticals. I am Moira, the call's operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. After the presentation, there will be a Q&A session. You can register for questions at any time by pressing star and 1 on your telephone. Should you need assistance, please press star and 0 to call an operator. The conference must not be recorded for publication or broadcast. This conference call may contain certain forward-looking statements based on current assumptions and forecasts 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's 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, sir.
Thank you, Moira. Good afternoon and good morning, everyone joining us from the U.S., and thanks for joining today's call on this occasion of our half year results publication. Here with me today, I have our CFO, Andrew Smith, as well as, Dr. Shabir Hasham, who's our Chief Medical Officer, to answer any questions you may have later on. We'll briefly review the performance in 2022 to date, give you an outlook across various milestones and into 2023 before taking your questions at the end. Let me start with the highlight of 2022 that everyone at Santhera is very thrilled about. At the end of September, we submitted a marketing authorization application to the European Medicines Agency for vamorolone and DMD. One month later, the submission was validated, which confirms that the dossier is complete and the review by the CHMP has started.
Completion of the CHMP review is expected in Q3 of 2023, which could allow us a first launch in Europe towards the end of next year. In October, we completed the rolling submission of an NDA to the U.S. FDA for vamorolone and DMD. After 60 days or around year-end, we expect a reply from the FDA on whether priority review will be granted. Subject to priority review, vamorolone could be approved as early as mid-2023. Either way, vamorolone is set to become available to patients in the U.S. in the second half of next year. Successfully accomplishing these two major projects and laying the groundwork for potential approvals in the U.S. and Europe was a major achievement for Santhera. It required everybody's full dedication over many months, for which I'm very thankful to all of our employees.
In the course of this year and while preparing submissions, we have assembled and presented compelling new data indicating that vamorolone displays anti-inflammatory efficacy with a potentially superior safety profile compared to standard of care. Among others, differentiating characteristics were observed in the areas of bone health, preservation of normal growth, and less frequent and less severe mood disturbances. The bone-specific findings were presented at several congresses, including the International Conference on Children's Bone Health and the World Muscle Society Congress, and published in the peer-reviewed journal JAMA Neurology of the American Medical Association. You find papers and posters on the Santhera website, or we are very happy to send them to you if you're interested.
In 2022, we also started two new studies, one in Becker muscular dystrophy, a milder form of muscular dystrophy, and one in a wider age range of DMD patients. These studies are a logical next step within the original area of neuromuscular disease. Of course, the potential benefits of vamorolone may also be highly relevant to other indications beyond DMD, in which chronic use of steroids is standard practice and where vamorolone's efficacy and safety profile can make a remarkable difference. Vamorolone is the main strategic focus in the near term and will consume the lion's share of financial and human resources. Our focus will be on advancing vamorolone through the regulatory process towards approval and in parallel on preparations for market entry. As a regretful consequence of this focus, we were forced to pause the development program for lonodelestat.
Phase II studies in an acute pulmonary indication as well as in cystic fibrosis were almost ready to go but had to be postponed subject to funding. Owing to the limited resources, partnering remains our priority. We explore various opportunities via collaborations and/or partnerships with vamorolone, lonodelestat, and also Raxone. Our first agreement was concluded in early 2022 with Sperogenix for vamorolone for the Greater China region. Such deals give access to non-dilutive funding. At the same time, we open possibilities to exploit the product's potential to a much broader extent than Santhera would be able to do alone. With equally high priority, we are pursuing additional near-term financing primarily to bridge the gap to approval of vamorolone and to fund market entry preparations. With this, let me hand over to Andrew for comments on the financial results and our financing activities. Andrew, please.
Thank you, Dario. I'll start with some comments on the financial performance, followed by a status update of our financing activities. Let me first turn to the half-year results. Total revenue amounted to CHF 6.3 million. This is up 40% year-on-year from CHF 5.5 million in the first half of 2021. Included in total revenue is revenue from outsourcing transactions in the total of CHF 11.2 million compared to nil for the same period last year.
This largely reflects an initial income from Sperogenix who in-licensed vamorolone for all rare disease indications in the Greater China region. Also included in total revenue and recorded as negative sales is an additional accrual of CHF 6 million in relation to ongoing uncertainties around pricing and reimbursement of Raxone in France. Also, to remember, Santhera voluntarily supplies Raxone to patients for free already since August 2021. We do this purely out of goodwill to patients who have no other therapeutic option, and will continue to do so until conclusions of the negotiations with the French government. Operating expenses amounted to CHF 30 million compared to CHF 21.9 million in the same period last year. Development expenses increased to CHF 16.9 million compared to CHF 13.6 million last year.
This CHF 3 million increase is primarily related to the preparation of regulatory submissions in the U.S. and Europe for vamorolone. Marketing and sales increased to CHF 5.9 million compared to CHF 2 million in the same period last year. The main contributor to the CHF 3.9 million increase is a provision of CHF 2.1 million related to Raxone in France. In total, we have made an additional accrual of CHF 8.1 million in relation to Raxone in France in the first half of the year. Thereof, CHF 6 million recorded under revenue and CHF 2.1 million under marketing and sales expenses. This brings total accrual included in non-current liabilities for this purpose to CHF 25 million. We expect to finally settle the dispute, including final pricing for Raxone in early 2023.
Once this agreement is reached, we will resume sales and expect to be able to settle the liability from future sales of Raxone in France. G&A expenses rose by CHF 1 million from CHF 6.3 million to CHF 7.2 million, and this was primarily a result of the addition of key personnel in U.S. subsidiary in preparation of vamorolone launch in 2023. The net financial expense amounted to CHF 3.6 million compared to CHF 0.4 million in the same period last year. The change is largely a reflection of a recognized gain on exchange of the 2017 '22 bonds in the first half of 2021, which have been partially offset by the costs associated with financing transactions.
Bottom line, the company recorded a net loss of CHF 29.7 million for the half year, which includes a provision of CHF 8.1 million related to France, as discussed earlier. This compares to a loss of CHF 20.5 million in the same period last year. Cash outflows for operating activities in the first six months of 2022 decreased by one-third year-over-year and amounted to CHF 12 million. In the same time period, cash inflows from financing activities were CHF 3.5 million, compared with CHF 14.3 million in the same period last year. In summary, this resulted in the six-month decrease in cash and cash equivalents by CHF 8.5 million, or from CHF 21.2 million at the start of the year to CHF 12.7 million as at the end of June 2022. Let me move on to financing.
Our efforts to secure sufficient funding focused on three dimensions. First, by reducing the high overall historic debt. This in combination with difficult market conditions hindered the ability to raise adequate funds. We accomplished this in early 2022 when we fully repaid the 2017 '22 bonds and further reduced outstanding convertible bonds to CHF 31.5 million maturing in August 2024. Second, by extending cash reach through a reduction of near-term financial commitments as well as internal project prioritization and cost control. We did this by renegotiating the timing of a vamorolone approval milestone payment, which reduced near-term financial obligations of the company by CHF 20 million. In addition, we decided to prioritize pipeline projects, as Dario mentioned already. Third, by securing additional funds to finance the company through to approval of vamorolone in mid-2023 at least.
In June, the company upsized its existing financing arrangement with certain funds managed by Highbridge Capital Management by up to an additional CHF 40 million. As of June 30, 2022, CHF 20 million remained available subject to certain conditions on the consent of Highbridge. Additionally, Santhera has looked to create approved capitals in supporting and satisfying its funding needs. Where do we stand as of November? Given our cash runway into Q1 2023, it is clear that we will need to secure additional funds in the short term. We are pursuing all avenues and strategic options.
This includes, but is not limited to, non-dilutive funding in the form of out licensing agreements and/or the monetization of assets, debt financing, royalty financing, a standby equity distribution agreement, or depending on market conditions, also equity-based funding. With regard to equity-based funding, we are asking shareholders for additional capital increase at an upcoming EGM to be held at the end of November. Whilst further dilution in a placement at low share values are, of course, not our preferred avenue, we hope that shareholders will approve the capital increase as it provides us with additional options and flexibility with regard to short-term financing. Thank you. I now turn you back to Dario.
Thanks, Andrew. With this, I close our summary remarks, and I hand over to the operator for the Q&A session, please.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touch-tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star then 1 at this time. The first question is from Bob Pooler from valuationLAB. Please go ahead.
Good afternoon, gentlemen. Congratulations on the progress you made so far this year. A few questions on my side. First, starting off with Raxone. What are actually the remaining issues with the French authorities regarding the reimbursement of Raxone and the LHON?
Hi, Bob. Thanks for the question. With regards to Raxone in LHON in France, we're at the very late stages of negotiations. I was personally in Paris a few weeks ago to wrap this up. Now it's really down to formalities of the agreements. I expect these to probably be wrapped up in the first weeks of the next year or so. I think we will be able to get reimbursement for Raxone again in France in Q1 of next year.
Okay. Would that have an impact on your cash reach?
Andrew?
We don't think so currently because the discussions around the clawback really provide for and future revenue from Raxone more or less match the period over time. We don't think this is a near-term impact on cash requirements.
Okay. Just then, your plans on Raxone in the U.S., given all the good data that you have?
Yeah. Following the readouts of the post-marketing studies, LEROS and BAROS, where we had very convincing data around both safety and efficacy, we now think we have enough of a file to approach the FDA. Originally, we were planning to do that towards the end of this year, but due to the resource requirements on our teams here to submit both EMA and FDA for vamorolone almost at the same time, we just haven't had the bandwidth to approach them. I think that's something we'll do early next year, see if we can get a pre-NDA meeting scheduled.
Provided that meeting with the FDA suggests that the filing is something that can be approved, we would then submit for U.S. approval, and we would have that seven years of orphan exclusivity in the U.S.
Switching to vamorolone. You've completed the NDA submission in DMD in October. When do you expect the FDA acceptance of filing and a potential PDUFA date? Just on the acceptance of filing, how important is that for potential partner agreements outside your rare diseases?
We submitted end of October, as you know, and the acceptance of filing comes by day 60.
Okay.
I don't have a lot of experience of how the FDA operates around Christmas vacations, but technically speaking, it should be between Christmas and New Year's. It could come before, or it could come right after, but around there. By the book, it should be 60 days later. That acceptance of filing comes together with a PDUFA date. The most really relevant information there is, do we get the pediatric priority review designation or not.
Mm-hmm.
from the FDA. If we do get the priority review, that will be a six-month review from the date of acceptance. That will be an approval or PDUFA date somewhere towards the end of June. If it's a standard review, it will be four months later. That will be end of October.
Mm-hmm. It's now, I think, all of the D and D drugs got priority review.
I think most or all of them, or at least most of them have received a priority review. We also expect to get that.
Mm-hmm. Just coming back to the acceptance of filing on, you know, the importance of potential partner agreements outside rare disease such as DMD.
Yeah. I think the acceptance of filing, you know, is important because of the reasons that I just mentioned, the PDUFA date and the priority review designation.
Mm-hmm.
I don't think it's on the critical path for partnering with in other indications, co-promotions or partnering. Having said that, though, I think you asked the question outside of rare diseases, and I think right now we're still focused on rare diseases where the price point-
Mm-hmm.
Where the price point is similar to what we are expecting to get as a price point in Duchenne. It would be very difficult to launch something in a different area with a different price point with the same substance.
Mm-hmm. Yeah, that makes sense. Just, you've been to many conferences and presented more data, especially also long-term data. What is the feedback for KOLs? Basically, what did they like of the data, and what did they not like?
I could answer the question, but I think Shabir, who's on the line, who has daily contact with our key opinion leaders and the medical community is probably better equipped. Shabir, do you wanna take this question?
Yeah. Thanks, Dario. Thanks, Bob. Both we presented that to a number of conferences this year. Among four general themes, we presented the durable efficacy of vamorolone 6 milligrams per kilogram over the 48-week time point for the first time. We've also been able to demonstrate comparable efficacy to standard of care, with a comparison to an external control data set. We've shown a reduction in terms of fracture risk over long-term treatment with 2.5 years of vamorolone compared to the external data set as well. And we've also been able to show the preservation of growth, as we had with our earlier data set, but also the consistent and more benign safety profile we've seen with vamorolone.
Really the conversations with KOLs have focused very much around the bone health in that we've not shown any growth stunting over two and a half years, whereas you get considerable growth stunting with standard of care. For them, the reduction in spinal fracture risk is very important. Of course, it's a major practice with longer term steroid treatment. We also had conversations around the more benign safety profile. What I've heard from KOLs, but also investigators, is that they see the children on vamorolone appear differently other than being taller. They just appear different. Their distribution in terms of fat distribution is more diffuse rather than being in the abdomen, tends to be more diffuse and their appearance is more normal.
They tend to be able to maintain higher doses of steroids than they would have expected with the standard of care. We also see that now with 153 boys of the 164 who participated in trials still in expanded access programs. We're seeing a very good tolerability profile, very consistent with this more benign safety profile that we've seen within clinical trials. Overall, it's been very encouraging. Of course, for physicians, it's extremely important that you can maintain a higher effective dose range for longer. That seems to be apparent within the data set. Really parents are coming in less frequently in terms of concerns.
Some physicians said that they expect frequent visits from parents and children on standard of care, whereas those who are on vamorolone tend to be doing very well and coming in less frequently, which is exactly the target product profile we've been aiming for with vamorolone.
Okay. That's basically also one of the triggers why you're going for an expanded wider age group of patients, so younger patients and patients in the older group. How much do you expand the market by adding this wider age group?
I'll take that, Shabir.
Sure.
We are expecting a broad label in terms of age group. The way we've looked at the market is that there's basically three segments, of which one segment will be the early revenue, and then the other two segments will come slower. That's how we built our forecast. The first segment is obviously the naive, steroid-naive patients, the new starts. The second segment are the ones that are currently on steroids but are not happy with the way they're being treated. They have tolerability issues or safety concerns, or they are significantly down titrated due to those issues.
The third segment are those that have stopped taking steroids altogether because of the tolerability issues and safety concerns. The one that I think is the obvious first one to go after on this switch here is the middle segment that I just mentioned, the ones who are currently on the existing steroids but are unhappy or unsuccessful with them. Over time, as vamorolone becomes more standard care in this community, you'll see more early starts or naive patients being put on drug. That will also require some negotiation with payers to be allowed to start on vamorolone.
I believe also the last segment, the ones that have stopped taking steroids in the past but would still benefit from steroids are gonna be starting to use vamorolone in the future. If you look at these three segments, it's about 70%-75% of the expected patients five years from launch would be in the segment of switchers, the middle segment that I mentioned. Only about 25% would be distributed between the naive patients or the ones that have discontinued steroids. As data matures in these patient populations and as vamorolone becomes more standard of care, we would then expand also our share of those segments into those other two segments.
Okay. Clear. How many reps do you plan to hire for the U.S. and Europe?
This is a market that is quite concentrated, as you probably know, both in Europe and the U.S. You know, the number of reps is typically in the rare and orphan disease space determined by three factors in the market. The first factor is, you know, are patients diagnosed at all? In rare and orphan diseases, you often find situations where you have to do a lot of medical education around the disease for people to then identify the disease and diagnose the disease. In Duchenne, that's taken care of. The second element you need to look at is whether these patients are being treated in different specialties. Are they being referred back and forth between specialties?
Where do you find these patients, and where do you find the HCPs that treat these patients? In Duchenne, particularly in the U.S., it's quite easy. There's about 90 centers of excellence in the U.S. that are treating the vast majority of patients. About 90% of patients are treated. 28, no sorry, I think it's over 30 now, centers of excellence, and those are actually patient advocacy groups certified by PPMD. The targeting, so to speak, is quite easy. Then the third element is, you know, are you introducing something into the practice that inconveniences them? Are you know, introducing something that changes their treatment algorithms, changes the way they do their daily work?
In the case of vamorolone, we're not doing any of that. Steroids are a well-established market where clinicians know how to titrate them up and down, how to treat patients with them, and also how to fight for medical exceptions, prior authorizations, et cetera, for patients. All we're doing is introducing an option into their armamentarium where they have the same efficacy that they see with existing steroids but with a much more benign safety profile, particularly as it pertains to growth and bone and mood disorders. It's a long way to answer your question, but I think it's a relatively small sales force. It's gonna be more than 10 and less than 20. We're still refining that because it's also it goes hand in hand with the planning around the MSLs. How many MSLs do you need?
Mm-hmm.
It's a very medical education-intensive launch, so you may need more MSLs and less reps in the beginning and then vice versa over time.
Okay. That's actually a relatively low number, so pointing probably to a very high margin product, if price is in the range of other current treatments for DMD.
Correct.
Just one final if I may. You have the FDA-funded phase II trial of vamorolone in Becker muscular dystrophy. Any idea when you'll get those results? Also, what is the potential market size if approved in BMD?
In Becker's, to answer your first question, I think the current plan is to wrap up the study towards the end of 2024 with a readout at the end of 2024. The study would close somewhere mid-2024 with a readout in 2024. As it pertains to the market size, the number of Becker's patients is slightly less than the number of Duchenne patients, but they don't all take steroids today. Many of them would benefit from it, but their course of the disease is not as severe as Duchenne, so the benefit risk in many cases is not seen the same way as it is in Duchenne.
The ones that are taking steroids today, who have Becker muscular dystrophy are the real severe cases which are much closer in their phenotype to Duchenne muscular dystrophy than the Becker muscular dystrophy. We have internally, in terms of market size, estimated the BMD market for us to be about 1/3 of the size of the Duchenne market.
Okay. Well, that's quite sizable.
Yeah.
Okay. Thank you for answering my question.
Thanks, Bob. Thanks for the questions, and thanks for your continued interest.
The next question is from Boobalan Pachaiyappan from H.C. Wainwright. Please go ahead.
Hi. Can you hear me okay?
Yes, we can. Hi, Boobalan.
Hi. Thanks so much for taking my questions, and congrats on the progress. Just want to follow up on Becker muscular dystrophy, the phase II study that's coming. Maybe to get started, can you discuss the baseline characteristics of the BMD patients who will enroll in your phase II study? Maybe like you can talk about their typical NSAA score and all that.
That's a question I would pass on to Shabir, please.
Yeah. Hi, Boobalan. The entry criteria are being a Becker's patient who are naive to steroids, 12 to 65 years of age, with an NSAA score less than 30. I think there's a time to walk criteria as well of less than 30 seconds. NSAA score is less than 32. Time to run/walk score is less than 30 seconds.
Thanks for the color. With respect to the efficacy benchmark for success, do you guys set one in terms of NSAA score drop or maybe time to run or walk?
Bear in mind that this is a phase II study. The benchmark we're looking at is an improvement of time to run/walk of about 2.5 meters per second, which is it's consistent with what we saw in Duchenne, but it's also the MCID that's generally accepted.
Okay. That's clear. Thanks for that. You already talked about the possible data release date, so I'm not going to focus on that. With respect to combination with existing therapies, do you think vamorolone's mechanism of action allow for potential combination with existing therapies that are used both on and off label in BMD patients?
Shabbir?
In terms of the mechanism of action? Yeah. You know, the mechanism of action, we don't see anything in terms of the safety profile that would give us concern. It's very consistent with what we see with steroids other than the bone health, preservation of height, and maybe the more benign safety profile. There's no reason we would expect any issues in terms of the combinations.
Okay. Thanks for that.
I think it's important for the listeners on the call to understand that steroids are today used in conjunction with exon skippers and gene therapies that are in clinical trials. For instance, the gene therapy trials that are ongoing right now, they all have steroids as an inclusion criteria in the study. As these new modalities come to market, they're not going to replace steroids. It's gonna be an additive therapy, and you would want to have the best steroid for your patients, particularly if you're gonna be spending hundreds of thousands, if not millions, on gene therapies, for instance.
It would be a real pity to dose a young child with a gene therapy and then need to have that child in a wheelchair early on because of bone fractures and other bone-related health issues. The current gene therapies are not curative. They will just modify the disease from a Duchenne phenotype to more of a Becker phenotype. It will extend their life, but it's still not a cure for these boys and adolescents. They will continue benefiting from taking steroids.
You wouldn't wanna give a steroid that causes osteoporosis and spinal fractures, and stunts growth to a boy or a child who's expected now to live much longer. So I think that's an important nuance to understand in the big picture.
Thanks for the color. I'm sure you probably saw this. One of your competitors in the BMD indication, Edgewise Therapeutics. They recently reported six-month interim results involving their asset, EDG-5506. What are your thoughts on the six-month interim results of your competitor's drug?
I think it's just a little bit too early for us to comment on that. You know, I just would like to see the outcomes of this before we say anything.
Understood. Maybe one or two in the segment before I wrap up. Are there any particular biomarkers that are interesting to you in the BMD indication, maybe creatine kinase levels or troponin I? Are you planning to evaluate the number of severe adverse events as part of your endpoint analysis in your phase II BMD study?
We are looking at a couple of endpoints. We're looking at CK. We're also looking at microRNA-146a. We will be looking at SAEs.
Okay. That's all from me. Thanks so much for taking my questions and congrats on the progress.
Thank you, Boobalan.
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Okay. I'll close the call with just a few comments here. I wanna thank you all for joining us today and your interest in Santhera. We believe that, as you've heard now, with vamorolone, we have an anti-inflammatory drug with a unique bone-sparing profile. It has the potential to change the lives of boys with BMD and down the line, potentially in other pediatric indications. Our ambition is to make it available to patients as soon as possible. On the back of this, I trust that we will be able to secure sufficient funding to take the company to approval of vamorolone. First and foremost, I thank our employees for their dedication and persistence and our investors for their support. Please stay tuned for updates on our progress in this exciting journey. Thanks again for joining today, and speak to you next time. Bye-bye.
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