Okay, let's get started. Good afternoon, everyone. Thank you very much for joining Jefferies Global Healthcare Conference today. My name is Miyabi Yamakita. I cover Japan biotech companies at Jefferies in Tokyo. In this fireside chat session, we have Nxera, represented by CEO Chris Cargill and CFO Hironoshin Nomura. Thank you very much for coming today.
Wonderful. Thank you for having us.
Yeah. Recently, there were lots of progress, clinical-stage assets, both partnering and in-house progressing, and in pre-clinical stage you disclosed multiple new programs. My first question is, where are you seeing the most exciting progress in your pipeline recently?
Excellent. Thank you. I'll take the first question. I'm Chris Cargill, CEO. Maybe actually, I'll start by sort of describing who we are. We are a Japanese biotechnology company, one of the very few Japanese biotechnology companies. I would say that we're a deep value stock. We've been the engine room of a lot of progress for large pharma companies of late. We're very proud of that. You may have read about a recent acquisition of Centessa by Lilly. We had a hand in helping generate those molecules. We're very proud of everything that comes out of our research laboratories in Cambridge. I'll talk a little bit more broadly about the pipeline as we move forward.
I think there's lots of things I could cover, but I guess this year, probably if I had to pick one thing that we're really excited about, it's been the progress of our in-house obesity, chronic weight management, and kind of rare endocrine disease pipeline. We've got a broad portfolio, This is really sort of picking up on our deliberate shift last year from where we were working on first-in-class targets to a more best-in-class approach. Some of the targets we're working on you'll know, GLP-1, amylin, GIP. These are the core focus. Our competitive advantage really is drugging these targets with oral small molecules. The prize here is an oral small molecule market that's still ostensibly dominated by injectable peptides, We want to make convenient, scalable oral therapies so that we can broaden patient access and give them more choice.
I think the other thing I would say that's unique, there are lots of people that are working on these targets. There are lots of molecules that are out there. Our view is certainly that on the oral small molecule front, a lot of what we see are kind of scaffold hops away from orforglipron or away from danuglipron. What we have is a proprietary hit-finding and structural biology platform that we call NxWave. We've been able to generate structures from very low-affinity novel molecules, which is something that there's very little precedent in the literature from competitors. From those structural positions, we're able to use our SBDD platform, and we've been able to deliver really large potency gains in just a few cycle times.
This is unusually efficient, and I would say that you'll start to see pharmaceutical company development candidates coming out of our platform probably sometime over the course of the next year. We're very excited about that. We've got novel chemical positions, particularly on GLP-1 and amylin. This is probably the most exciting thing. These are wholly owned programs. We've done a lot of work for partners, and we've done a lot of work in our history as a company, partnering our molecules with others, but these are coming through. They're wholly owned. It's a key emerging part of our story. Yeah, we really want people to sort of focus on the good work that we've been doing there.
Great. You are developing multiple target obesity product, which one is most progressing so far?
Yeah, I think, look, honestly, the GLP-1 and the amylin small molecule programs are the one that we're most excited about. As I said, they're novel, they're a differentiated approach, and we hope that they'll play a big role in the future of therapy in this area.
Okay. In my understanding, you are looking to out-licensing two phase II preparation stage assets, EP4 agonist and GPR52 agonist. Could you give us an update on the current status and also another in-house asset, EP4 antagonist?
Yeah, sure.
Yeah, please.
Thank you very much. Actually, we touched on these at the Jefferies conference in London in November last year. That was the first time we announced our pivot away from sort of a focus on novelty and a focus on first-in-class to perhaps moving forward with a more best-in-class strategy, which I just touched on. What that meant was we had a host of programs that have actually already been through the clinic. They've been through phase I and I-B. They're at the point now, because they're novel first-in-class programs, where we would like to out-license them and find the appropriate home for them to be developed globally. I'm pleased to say that we're making really good progress on that. We are in multiple active discussions across both of those programs, and I'm very confident they're going to find world-class partners to take them forward.
Just a reminder, the EP4 agonist, which our compound code is NXE'744, it's a first-in-class gut-restricted EP4 agonist indicated for IBD. It's designed to promote mucosal healing through a mechanism that's differentiated to the current standard of care. We've done all of the first-in-human work. It's got clean safety, it's confirmed gut restricted. We've done dosing in an early UC patient cohort. Yeah, we're really excited about that, and we've confirmed target engagement, and there's discussions ongoing, and yeah, as I said, hopefully we'll find a really good partner for that. The other program that you mentioned, Miyabi, was the GPR52 agonist. This candidly was a program that was actually already partnered. It was partnered with German company Boehringer Ingelheim. As so often happens when you execute these many partnerships, sometimes assets come back to you, right? Because the partners had a strategic pivot.
This asset came back to us at the beginning of the year after having $25 million invested in it by our partner to take it through phase I and I-B. It's novel. It's indicated for schizophrenia. It's got the potential to address both the positive and negative and cognitive domains. The phase I's complete. It's phase II ready to go. We're having active discussions on that program as well. We're really excited and very hopeful that both of those programs will, hopefully in the second half of this year, if we're lucky, these sorts of discussions can take some time, but we're hopeful that we'll find a new home for them. Our partners can get to work on global clinical trials to move those programs forward and make a difference for patients. Yeah, we're really excited.
Great. I think you have already talked to several companies, as you mentioned, but is the base case monotherapy for these two assets, or is combination therapy with a partner's product also possible?
Oh, that's a good question, but there's so many partners we're talking to, it's a little bit hard to narrow that one down. Certainly our view when they were in our hands and we were moving them forward was that they had the potential to be monotherapies.
Clearly, the one that is indicated for IBD is designed that it could possibly work as an adjunct therapy to some of the existing treatment approaches that are out there, so to speak, without giving too much away.
Got it. Thank you.
Thanks.
Yeah. Regarding another in-house asset, EP4 antagonist, recently Ono Pharmaceutical, another company developing EP4 antagonist, disclosed pretty good data in ASCO 2026.
Yep.
How was your impression about that data?
It's a good one. I'm not going to hog all of the limelight. I'm going to let Nomura-san speak as well. Look, I think the one thing I would say is there's no direct read across, but what we can now say I think with some confidence is that in certain tumor types, and it's gastric that Ono was going after, this mechanism of action is de-risked. It works. We're quite excited by what we have seen, and it really has the potential to help us shape our clinical science and our clinical development program. Just to remind everyone, it's an EP4 antagonist, and Ono's version is being tested in conjunction with their checkpoint and a chemotherapy treatment regime. We are a little bit earlier stage, and we're exploring it slightly differently.
Certainly the data that we've seen could really help us think about how we can maximize the value of that program. Did you want to add anything on that, Nomura-san?
Yeah. Actually, Chris covered basically all.
Yeah. Sorry about that.
It's very encouraging. We are very happy about Ono's progression because it shows a clear efficacy in our perspective, especially in some type of biomarkers to subgroups. Yeah, we're very encouraged about that. What different from Ono's EP4 and our EP4 is basically we have three differentiated point. One, the compound itself is of course different. The phase I data and the PK/PD data shows we think our compound profile is okay and better. The second point is we are doing the phase II trial not only for gastric cancer, which Ono's data was published, but other three cancer types. Phase II data, we are expecting the readout days mid next year. We hope we show not only gastric, but the other cancer types results.
The third point is, of course, it is also applied to the Ono's compound, but we basically can combine with other PD-1, PD-L1 checkpoint inhibitor. We are now doing with atezolizumab. However, of course, if we find that mode of action or there is a potential, we can make a combination with other checkpoint inhibitor. We have some flexibility for the future development.
Yeah. Thank you. I think it's probably worth reminding everyone, we're not really an oncology company, so to speak. As I mentioned at the beginning, the core underpin of our business is a structure-based drug design platform. Given this is in the clinic and it's in a competitive area, we partnered with Cancer Research UK, who bring all of the expertise when it comes to executing the clinical trial. They will continue to do that. As Nomura-san said, they're looking at multiple tumor types. I think based on the emerging data that we've seen, it's a really good opportunity to think about how we can move this program forward in a direction that's going to be best for patients. We're very excited and wonderful data by our competitor Ono.
Okay, now I like to move on to next topic, the recent earnings. So the market reacted positively to your first quarter results, including the decent commercial business progress. How do you view the performance?
I'm really happy. I'm stoked. I think we made a strategic decision in June 2023 to acquire the business of Idorsia Pharmaceuticals in Japan and in Korea. Not only did we get a fantastic team, we got two great assets. That has really given us the ability. We've talked a lot about what we do on the discovery side and the early research side. As a Japanese company, very important that we have a late-stage development and commercial capability. We got that from that acquisition. Since we purchased that business, the business has gone from strength to strength. The products are making a difference to patient lives every single day. They're growing really effectively. That has given us the opportunity to now be in a position where we can add more products to that portfolio.
Everybody hears about the drug lag and the drug loss problems that Japan has suffered for so long. We have built a nimble, agile business where we can make very rapid decisions on products that we can bring into the portfolio. I've got to say, vamorolone is a product that we have recently secured the rights to. It's a steroid-based treatment for boys that suffer from Duchenne muscular dystrophy. Our interactions with the regulators in Japan have been fantastic. They're so willing for small and mid-sized companies like ours to make these medicines available to patients in Japan, and they're really helping us accelerate things. They ought to be commended. They're doing a fantastic job. We're really, really happy. I might pause because I think Nomura-san can also comment on the results and how that was primarily driven, of course, by our Japan commercial business.
There are other aspects. Our partnered businesses hit a lot of milestones in the first quarter, candidly, which helped. I'll let Nomura-san talk to that a little bit.
Yeah. First quarter is actually we have a very good progression with our partner, which delivers us a lot of milestone. However, if you can see our presentation, this is not all we expected this year. Of course, we are expecting some more milestones, second, third, fourth quarter. That is one thing. Also, yeah, as Chris mentioned, the PIVLAZ and QUVIVIQ sales going very well. And especially QUVIVIQ, after first quarter result, we have several discussion with investors, and some investors are aware now their COGS, manufacturing cost of the QUVIVIQ is slightly start declining. That is actually earlier than our original expectation. When we changing the manufacturing side, we expected that cost reduction from 2027. However, part of that already started. Of course, that actual impact will come from next year as we expected.
That kind of, how can I say, both top line and the bottom line improvement helps us first quarter result, I think.
I think maybe it's worthwhile, Miyabi, that just for those that are not familiar with our company, in Japan, where we acquired these assets and the people and the programs from Idorsia, we have one product called PIVLAZ. It's for the prevention of cerebral vasospasm after an SAH episode. It has about 70%-75% market share now. It continues to grow, it's making huge impact on patient lives, and we love the product. The second product that came with that acquisition was a drug called QUVIVIQ. It's for insomnia. That is not a product that we market ourselves. We made a strategic decision to partner with another well-known Japanese company called Shionogi. That was a fantastic decision as well. They are a great partner. They commercialize with huge effort and zest. We're really happy to work with them.
That has really accelerated the uptake of that product. It's very early in its launch phase. The two-week prescription restriction that you have in Japan was only lifted in December last year. That product is very much in its launch trajectory. As I mentioned, vamorolone, which is a drug that we licensed from Santhera, we're currently going through regulatory discussions. We're really hopeful that we can make that drug available to patients as soon as possible. Our strategy with Japan is it's our linchpin market. It's our home market. Once we get these drugs on the market, we can then expand, and we have a fantastic team in Korea who are working very, very hard as well. We expect to see vamorolone move forward over there shortly.
We'll work with partners throughout the APAC region, Taiwan, Australia, New Zealand, et cetera, to make our medicines available, certainly the ones that make sense in those various markets. On the first quarter performance I mentioned, milestone momentum really helped. We have fantastic partners who are moving our assets forward with pace. I should mention Neurocrine. Wonderful company, wonderful partner. They are great stewards of the muscarinic agonist that were discovered, and some early development was done by our team in Cambridge. They're moving those forward. What's exciting is there's the lead product in that portfolio, which is a muscarinic M4 agonist. It's indicated for schizophrenia. It's in a phase III registrational trial, and there's going to be an outcome next year.
We think somewhere towards the end of next year, we think the phase III will read out. That would be an enormous milestone for us as a company. That would be the first molecule that's come out of our laboratories in Cambridge, U.K., and gone onto the global stage, and hopefully, it gets there. We're really pleased with that partnership. As all of those programs in their muscarinic agonist portfolio progress, we will learn more. Centessa, I mentioned earlier. Centessa has been acquired by Lilly. We had a hand in assisting the team at Centessa, who did a great job working with us to discover, and then they obviously took on the early development of the orexin 2 agonist portfolio. That's going to be fantastic.
I believe the transaction is slated to complete around the end of September this year, and thereafter, I would expect that Lilly will hopefully have some form of a strategy day, and they'll actually tell the world what their plans are for all those orexin 2 agonists. That's very encouraging. We also had some other milestone activity with other partners that we have. Separate to our in-house obesity and chronic weight management pipeline, we do have a metabolic disease collab with Lilly. It's much more earlier stage, but we've hit all our milestones there, and we've handed over all of our work and now those programs will progress within Lilly's portfolio. We also have a very broad neurological disease collaboration with AbbVie as well, which is very early stage, but we've been hitting milestones on those as well.
As you know, when you hit milestones, we receive income, and that went a long way to ensuring that we achieved profitability in the first quarter. I think that's probably where I would pause.
Anything else?
No? Thanks.
Just following up a little bit. PIVLAZ and QUVIVIQ are doing good, and we expect you can generate decent size of cash flow, of course, together with your milestone income.
Yeah.
In terms of the capital allocation, what are you going to use the cash which will be generated over the next couple of years? Debt repayment or new business development?
Bit of everything, to be honest. We have quite aggressive mid to long-term strategic growth plans, and of course, business development forms a large part of that. When I talk about business development, it's twofold. We are discovering and developing assets, and we need to get them to a certain point so that they can achieve value so that we can execute an out-license. Of course, that's what I'd characterize as general investment in R&D. We have this amazing Japanese commercial platform that we need to secure medicines for. Broadly speaking, we're focused on specialty and rare diseases. You will see us in-licensing additional medicines and hopefully doing a fantastic job of getting them moved through the clinic, through the regulatory process, and then on the market and available for Japanese patients. Those are two core areas of focus for us.
Of course, we do have debt liability management that we have to do from time to time. It's all part of our capital allocation strategy, but for the most part, we're focused on growth. Any additional cash flow that comes in will be utilized for executing long-term value creation for the company and to move as many medicines forward so that we can help patients in Japan.
Okay, great. I'm excited about your new drug discovery strategy using AI. You discussed recently the AI-related drug discovery strategy. What is your competitive strengths in AI-driven drug discovery platform, and what is the timeline?
Yeah. Sure. I guess I teased this a little bit at the shareholder meeting in March this year. I guess the headline is we are launching a new AI native drug discovery operation. We've made all the hires. We have the team in place. They're currently sitting in the office very close to me in London. There are actually some really talented people from our existing operations in Cambridge that are going to actually support the establishment of this activity. The thing that makes us different is we've been using AI and machine learning for a long time, actually. This is not a new concept. We've been using it for a long time in the way that we not only achieve structural enablement for drug discovery, but the way that we accelerate hit finding approaches and the like.
I guess the thing that makes what I believe our strategy differentiated is it's a GPCR-specific AI native operation. If you think about our rich history in GPCR drug discovery, the only thing that we've really been doing really well for the last 20 years is we've been gathering a world-class proprietary data set on this entire receptor family, and we believe that's going to be what differentiates us. This is not another AI native drug discovery company that's going to train on publicly available data and models, right? We are going to be utilizing all of the positive data that we've generated over the journey as well as all of the negative data that we've generated over the journey, and all of that is proprietary, and it all comes from the extremely capable and competent team that we have working in the wet lab.
There's kind of this just compounding effect of data that comes out of our operation in Cambridge that will be fueling and feeding the way that we fine-tune models and the way that we build this platform. The overarching goal is that data advantage is hopefully going to help us completely crush cycle times and be able to discover more medicines to GPCRs faster. We're already really fast. We can go from target ID to a development candidate sometimes as fast as 18 months. We would look to even try and compress that time even more. The beauty of it is it's scalable. Not only will we be able to discover drugs faster, we'll be able to work on more programs and scale through, hopefully, the deployment of agentic scientists on top of the platform that we build.
That is something that I think is going to really move the needle over the next two to three years, being able to do significantly more amounts of drug discovery in a much more productive and efficient fashion over and above what is already an outstandingly efficient and productive group. We're very excited. A lot of the tools and applications and off-the-shelf models that people use, they're generally commoditized, but what we have is proprietary, experimentally grounded data that nobody else has access to, and we think that that is going to be the thing that gives us the cutting edge.
Great. Thank you so much. We have another couple of minutes. I open the floor to questions. Does anyone in this room have any questions? No. Okay. Okay, I have another question.
Sure.
You disclosed the business restructuring back in November last year. Has it done or still continuing?
Yeah, no, that's complete.
Okay.
That's complete. It's never nice to do these things, candidly, and lots of very talented people at our organization were part of that process. We hope that they've gone on and been able to find other roles at other places. For us, it's a business necessity to get our organization into the perfect size and shape so that we can do everything that we want to do, and most importantly, that we can do it sustainably. There's lots of pressures that not only we face, but all companies in the industry face, and you have to be proactive, and you have to be speedy when it comes to reacting to those changes so that you can live to fight another day and continue doing the good work that we do. Yeah, that's all complete now. We're looking forward.
As I said, we're in a growth phase, so we're really excited, and there's lots for us to do.
Great. Thank you so much. I think we covered everything. Any last words to market?
Anything that you wanted to say, Nomura-san?
Yeah, of course, we understand the market total situation in Japan. I understand someone likes semiconductor. However, our real business is actually going very well, and we are very happy to announce, maybe second quarter, third quarter, and full year of this year, how our progression of this year would be. I believe that is great. Thank you.
Yeah. I think what I would add is everyone that works at this company works so incredibly hard. Every day we're executing, every day we're improving, every day we're moving forward new medicines, and we're executing, and we're generating profits, and we're bringing on market new medicines. There's a really large amount of value that we've built in this company over the last 10- 15 years that clearly is not really recognized at the moment. It's tough work being one of very few biotechs listed in Japan. That's just how it is. If you look at how the markets are behaving right now in Japan, as Nomura-san said, unless you're in the semiconductor business, pretty much no one is buying you. There has been a lot of downward pressure on not just us, and I'm not complaining.
There's lots of great companies across lots of great sectors that are not doing semiconductors. I just want to reiterate to the market that regardless of how our share price might be trading, which is completely outside of our control, the fundamental value in the medicines that we are discovering and moving forward is compounding and growing every day. We truly are an example of one of those many Japan deep value, Tokyo deep value stocks, and we're looking forward to just continuing to execute, over time, we will grow to the appropriate valuation that we believe that we deserve. That will be good for our shareholders, but most importantly, moving our programs forward is good for patients, and that's what we're focused on doing.
Great. Thank you so much. Let's conclude this session here. Thank you very much, everyone, and have a nice day.
Excellent. Thank you. Thank you Jefferies for hosting.