Zealand Pharma A/S

CSE:ZEAL

Earnings Call Transcript 2022-Q1

[Operator]

Ladies and gentlemen, thank you for standing by and welcome on Zealand Pharma Results for Q1 2022 Conference Call.

[Operator Instructions]

At would now like to hand the conference over to your speaker today, Matt Dallas, Senior Vice President and Chief Finance Officer. Please go ahead.

[Matthew Dallas, executive]

Thank you, operator. Welcome and thank you for joining us today to discuss Zealand's first quarter results for 2022. I'm Matt Dallas, Senior Vice President and Chief Financial Officer of Zealand. With me today is Zealand's President and Chief Executive Officer, Adam Steensberg. You can find the related company announcement and additional supporting information on our website at zealandpharma.com.

I would like to point out that we will be making forward-looking statements that are subject to risks and uncertainties. These statements are valid only as of today, and the company assumes no obligation to update them, except as required by law. Please refer to recent filings for a more complete picture of risks and other factors. With that, I will turn the call over to President and CEO, Adam Steensberg.

[Adam Steensberg, executive]

Thank you, Matt, and thanks to everyone for joining today. Please turn to Slide 3. As you all know, at the end of the first quarter, following a thorough review of our business operations, we announced an organizational restructuring and a strategic refocusing to transition Zealand into a more cost-effective company focused on our core competencies, the research and development of innovative peptide therapeutics addressing areas of high unmet medical need. We believe this decision better supports our mission to change the lives of patients with next-generation peptide therapeutics. With a new commercial partnership strategy, and a more streamlined organization, we are financially well positioned to achieve our goals in the next few years, which includes the potential for 3 more commercialized products and a highly valued product pipeline, including programs targeting diabetes, obesity, chronic inflammation, nourishing our strong and innovative peptide platform.

Please turn to Slide 4. One of my top priorities since taking over as the CEO has been to execute on the announced restructuring, including securing a strong financial runway that will take us beyond near-term clinical milestones. The cost savings associated with the restructuring and the amendment to our finance agreement with Oberland Capital have delivered financial stability, which enable us to deliver on our R&D focus, as Matt will discuss later in greater details. We expect to have completed the announced downscaling in the U.S. by the end of the third quarter. As announced today, Matt will be leaving Zealand to pursue new opportunities by the end of August, and we have initiated a search for a new CFO for the company.

Matt joined Zealand in 2019 and played an important part in building Zealand's commercial operations in the U.S. and has created a very strong finance organization for the company. Personally, I've really enjoyed working with Matt, and I look forward to work with him until the end of his tenure here at Zealand.

Securing strong commercial partnerships is a fundamental element to our new strategy. Our business development team has been very busy engaging potential partners for V-Go and Zegalogue, and I look forward to delivering on these negotiations in the coming months. Lastly, we look forward to top line results for our 2 -- for 2 of our Phase III programs, which -- of course, depending on the data could lead to NDA filings.

Please turn to Slide 5. We continue to make progress on our clinical pipeline. All programs are based on innovation coming from our peptide platform, which is the foundation of our refocused strategy. Our excellence in understanding peptides and our broad know-how in how to create innovative peptide therapeutics will be a decider when considering future strategic partnerships.

Our clinical programs, they target type 1 diabetes, rare diseases, obesity, and we have a late preclinical assets targeting chronic inflammation. We have strong momentum across the pipeline and a number of upcoming significant milestones this year. Importantly, we had 3 major clinical data readouts approaching with pivotal Phase III results, both to glepaglutide in SBS and dasiglucagon in CHI, both of which I will expand upon in a moment, and Phase II data for BI 456906 in type 2 diabetes.

This candidate is partnered with Boehringer Ingelheim and is the lead program in our obesity portfolio, which also includes an amylin analog in Phase I development and GLP analog in late preclinical development. Applying our peptide know-how and cutting-edge platform to create therapeutics to tackle obesity is an important part of our refocused strategy, and I look forward to sharing updates from these programs with you later in the year.

Turning to Slide 6. As I mentioned earlier, in the coming weeks, we expect top line results from our Phase III study evaluating dasiglucagon for the treatment of congenital hyperinsulinism, or CHI, in neonates and infants. CHI is an ultra-rare pediatric disease characterized by recurrent and persistent hypoglycemia. Our randomized placebo-controlled study of 12 children with CHI, ranging and aged from 7 days to 12 months, we'll measure a primary endpoint of reduced need for intravenous glucose.

We believe dasiglucagon has the potential to be an important new treatment option for children with CHI, where there is a significant unmet medical need and we look forward to sharing the results from this Phase III study soon. With positive data, we plan to pursue an NDA submission, which will also include data from the Phase III trial in older children with CHI, with the FDA.

Please turn to Slide 7. Let me now turn to another product in our pipeline where we look forward to share Phase III data later this year. Glepaglutide, our long-acting GLP-2 analog being investigated for the potential treatment of short bowel syndrome, or SBS. We believe there is significant opportunity to improve the care for these patients and also believe that glepaglutide holds significant potential as a next-generation long-acting GLP-2 analog. The once- or twice-weekly profile delivered when an autoinjector provides a clear differentiation and the upcoming Phase III data will provide more insights into the clinical profile of the drug. And with positive data, we'll pursue an NDA filing with the FDA.

Please turn to Slide 8. Our data readout for EASE-SBS 1 of glepaglutide remains on track for data in the third quarter. Also later this year, we expect to see the data from EASE-SBS 2 and 3, as you can see on this picture. And we look very much forward to sharing the data with you later in the year.

Please turn to Slide 9. For our additional late-stage dasiglucagon programs, our partner, Beta Bionics, initiated the Phase III program for dasiglucagon in the bihormonal artificial pancreas pump for the management of type 1 diabetes in late 2021, and we expect that the first dose in -- or the patients will be dosed later in this year.

Beta Bionics recently presented results for their insulin-only bionic pancreas pivotal study at the International Conference of Advanced Technologies and Treatments for Diabetes, achieving key primary and secondary endpoints and demonstrating improved outcomes over standard of care in people living with type 1 diabetes. While this trend did not involve, dasiglucagon has demonstrated the encouraging potential of the bionic pancreas pump for the management of type 1 diabetes, and we look forward to advancing our Phase III program.

In summary, we have a strong momentum across our robust preclinical pipeline and clinical pipeline and the refocused strategy prioritizing R&D announced at the end of the first quarter, we feel well positioned to continue this progress.

I will now turn over to our CFO, Matt Dallas, to walk us through our quarterly financials and the ways in which our organizational restructuring have improved our operational efficiency.

[Matthew Dallas, executive]

Thanks, Adam. This last quarter, we not only outlined our refocused strategy but initiated our organizational restructuring and took steps to strengthen our financial future, ensuring that we can continue to discover and develop innovative new peptide therapeutics in 2022 and beyond.

Slide 10 illustrates the immediate and long-term impact of the organizational restructuring. We are estimating an operating expense reduction from our 2021 level of DKK 1.25 billion by DKK 200 million in 2022. This is primarily related to a 90% reduction in the workforce of our U.S. subsidiary, and we anticipate that the long-term impact of the restructuring will result in a DKK 400 million annual reduction in operating expenses beginning in 2023.

In addition, on May 10, we completed an amendment to our note purchase agreement with Oberland Capital. This amendment was completed as a result of our change in strategy and helps position the company financially to execute on this strategy. With the amendment, Zealand has paid down USD 50 million of the original $100 million principal balance. And we're up to $75 million in additional capital available to Zealand following the completion of specific events. The member removes any restrictions on use of cash and extends the company's cash runway into 2023.

On Slide 11, you will see Zealand's income statement for the first quarter of 2022 and how it compares to 2021. The total revenues for the first quarter was DKK 15.1 million or USD 2.3 million. This was driven by net Zegalogue product revenue and partnership revenue from our colexion with Alexion -- collaboration with Alexion. The net operating result for the quarter was a loss of DKK 302 million or USD 45.1 million.

Sales and marketing costs are mainly related to the commercial infrastructure in the U.S. to support Zegalogue, while R&D costs mainly relate to our late-stage clinical programs. And as a result of our announced restructuring, all gross margin and operating expenses related to the V-Go wearable insulin delivery device are accounted for as discontinued operations. Total discontinued operations for the first quarter of 2022 were a loss of DKK 41.8 million or USD 6.2 million.

Slide 12 illustrates our financial position and the ability to support our growing business through continued investments. Net operating expenses for the quarter were DKK 314.2 million or USD 46.9 million. Included in net operating expenses for the first quarter of 2022, DKK 75.8 million is related to our announced restructuring. Cash on hand at the end of Q1 2022 was DKK 1.1 billion or USD 167.6 million.

Turning to our financial guidance on Slide 13. On March 30, Zealand updated the guidance for net product revenue from the sales of commercial products to be DKK 115 million plus or minus 10%. This was a decrease of DKK 120 million from the guidance issued on March 10. Combined sales of V-Go and Zegalogue in Q1 was DKK 39.2 million and were in line with the updated guidance.

Following the company's announced intent to sell V-Go, net product for the device is to be accounted for as discontinued operations. As such, net product revenue reported in the Q1 earnings release only reflects sales of Zegalogue, which were DKK 4.1 million, with full year net product revenue projected to be DKK 19 million, excluding any potential partnerships or license agreements.

In 2022, Zealand Pharma expects revenue from existing license agreements. However, since such revenue is uncertain in terms of size and timing, Zealand does not provide -- does not intend to provide guidance on such revenue. Net operating expenses for 2022 are expected to be DKK 1 billion plus or minus 10%. This is unchanged from our guidance issued on March 30 and is a decrease of DKK 200 million from the guidance issued on March 10.

With that, I will now turn it back to Adam.

[Adam Steensberg, executive]

Thanks, Mike -- Matt. Please join me on Slide 14. We expect 2022 to be a catalyst-rich year, and we look forward to sharing data from our Phase III studies evaluating dasiglucagon in CHI and glepaglutide in SBS. Along with updates from our ongoing Phase III study of the dasiglucagon bihormonal pancreas pump and progress on our obesity portfolio.

Partnering our commercial and late-stage assets will provide us with the financial strength to focus on the continuous advancement of our early-stage pipeline while leveraging our proprietary platform to -- for the discovery and development of innovative new peptide therapeutics in 2022 and beyond. This will allow us to take full advantage of our well-documented strength in research and development and enable us to deliver on our mission to ensure our mission -- our medicines reach the people who need them the most.

Thank you all. I will now turn it over to the operator for questions. Operator?

[Operator]

[Operator Instructions]

The first question from Thomas Bowers from Danske Bank.

[Thomas Bowers, analyst]

Thomas Bowers from Danske. So 3 questions here from our side. So just kind of with this financing agreement with Oberland. So you're paying a premium of USD 10 million to remove the liquidity covenant. So can you maybe just help me understand why you had this construct in the first place? So is there anything that has changed in regards to your original expectations of when you were supposed to breach this level? Would that be at a much later stage originally? Because it seems a little bit strange when you know that the glepaglutide data would come out in Q3.

And then just to understand with the updated agreement here. So the cash run rate into 2023, I'm just wondering, is that including the $75 million that you have additionally from Oberland? And also in that $75 million, you have $50 million as a sort of a dependency on M&A? Or how will you actually be able to get access to those additional $50 million without any M&A? So just help me understand this item here.

And then second question, just on your pipeline and new strategy. So assuming that you have positive readout here in very near term on CHI. So firstly, will you still advance and submit and do all the regulatory stuff and then aim to outliers afterwards? And how should we think about timing in regards to, of course, the other trials that you're doing with basically going to mini dose and also the hormone pump. So anything here that you want to wait, any catalysts that you want to await aside, of course, from the very upcoming in near term here on the CHI?

And then lastly, just on your dual listing. I guess you spent some money here, maybe USD 5 million, USD 10 million on an annual basis on the U.S. listing. And basically, [indiscernible] volume. So why haven't you also considered to delist in U.S. in connection with the whole restructuring to save money?

[Adam Steensberg, executive]

Thanks, Thomas. Maybe I'll just start by addressing the pipeline question, and then Matt, he will address the Oberland question and also the dual listing. You're correct that we expect to see the Phase III readout from the CHI Phase III study within the coming weeks. And I can also confirm that if it's positive, then we expect to submit an NDA late in the year, including the data from the first Phase III study. That also means, of course, that you can say our teams here at Zealand are completely engaged in writing that NDA already now, in the anticipation of and hope -- with the hope that we will see positive data. So we -- with the new strategy, we will still anticipate to submit the NDA and then in parallel, seek a commercial partner for the program. Matt?

[Matthew Dallas, executive]

Yes. Thomas, to get some of your financial questions. Let's start with the cash runway. The cash runway into 2023, that's just what we have in the bank based on our current operating plan. It does not account for any additional cash coming into this company. So it doesn't factor in any new business development or any additional funding from Oberland. And that Oberland additional funding, that $75 million, it's $50 million tied to business development, $12.5 million tied to glepaglutide positive data and $12.5 million for the mutual option. All right?

And then the amendment with -- on the Oberland agreement. That was driven by the fact that when we entered this deal, we were a commercially focused company. And as such, that deal had components in it that were tied to net sales targets by the company that would release a liquidity covenant. Once we made the change and announced our restructuring, it would have been impossible for us to achieve those targets because we were no longer going to be the commercial entity for our programs. So with that, we did -- is the reason why this amendment, and it removed that liquidity covenant, we prepaid a portion of it down, but it frees up the remaining balance without any commercial ties.

On the dual listing, what I'd say there is you're absolutely right in the cost behind it. With the restructuring and also kind of as our normal course of doing business, we're always evaluating the cost drivers in this company. And with that, the dual listing is always something that is under our approach, and we'll look at as we move forward is to not only that, but what everything else and how we operate, what's the best and most logical way for us to be spending our proceeds.

[Thomas Bowers, analyst]

All right. Great.

[Operator]

We have the next question from Joseph Stringer from Needham.

[Joseph Stringer, analyst]

First is on the Phase III SBS readout for glepaglutide. Can you comment on potential impact of missed injections due to COVID? And have you -- do you have a stock plan or sort of precertified rules for handling missed injections? And have you discussed -- or has this been discussed and then reviewed by regulators?

[Adam Steensberg, executive]

Thanks. And if I understood the question correct, then it was relating to the risk of missed injections of glepaglutide in the study, so compliance to taking the drug, and if we have statistics to account for that. It's not something we have observed. And to be honest, it's not something you can say we would expect would increase with the COVID situation. We have had a key focus here throughout the COVID to secure drug supply for the patients. And there's not been situations where we have not been able to supply that product to the patient. So we do not see any issues here. So if that was correctly understood, your question, I don't think we have a specific issue here.

[Operator]

The next question from Lucy Codrington from Jefferies.

[Lucy-Emma Codrington-Bartlett, analyst]

Just a few. Starting with the artificial pancreas. I just wanted to get more kind of on your thoughts about how the insulin-only data stacked up versus your expectations? And whether you see any implications from those for your planned dual trial? And then related to that, just what seems to be the delay in starting the dosing of that trial, particularly given we were expecting a significant proportion of the patients from the incident only to roll over into the dual trial? And then just to double check on the revised Oberland agreement, are there any changes to the royalty obligations with that?

[Adam Steensberg, executive]

Thank you. I'll take the first question and then Matt will address the Oberland. So as many of you probably saw and as we also shared here on the call, that, Beta Bionics, they a few weeks ago shared the Phase III data for the pivotal study and the insulin-only at ATTD. And the way we see these data is that they are very confirming -- they are confirming our ambition for this product in the sense that they are very much in line with what we could have expected based on the Phase II data of the insulin-only system.

So of course, in our minds, it also speaks well for what we can expect for the bihormonal data. As you may remember, we did a head-to-head study -- a small Phase II study a few years ago. So it really -- for us, it's extremely encouraging data when we think about what the dual hormone iLet can -- how that could perform compared to existing systems. So we have really been reassured about the potential, I would say, seeing these data. And perhaps even more importantly, also the fact that the device is now being submitted for a regulatory approval with the FDA. So that also confirms, you can say, the technical progress that Beta Bionics are making with the device.

We would have liked to see the first patient being dosed yet. There has been slight delays as -- in that, as you eluded to, we are happy with what we see right now. Beta Bionics wanted to make sure that the device that we apply in the Phase III bihormonal study is completely similar to the commercial device that has been submitted to the FDA and we agreed to that strategy and accept that, that introduced a little bit of a delay with regard to dosing the first patient. Patients who are participating in the insulin-only study could, of course, still be eligible to enroll into the bihormonal study. So we are comfortable, but of course, we'd have like to see it happening a little bit before.

[Matthew Dallas, executive]

And Lucy on the royalty obligation, because we reduced the principal down from $100 million to $50 million, with that prepayment, the royalty obligation was subsequently reduced by half.

[Operator]

I will now hand back the conference over to Mr. Adam Steensberg. Please go ahead.

[Adam Steensberg, executive]

Thank you. So with that, we would like to thank you all for attending and for your questions. We look forward to connecting in a few future announcements and updates. Have a great day.

[Operator]

It does conclude the conference for today. Thank you for participating. You may all disconnect.