Zealand Pharma A/S

CSE:ZEAL

Earnings Call Transcript 2018-Q4

[Operator]

Good day, ladies and gentlemen, and thank you for standing by, and welcome to the Zealand Pharma full year announcement call.And I would like to hand the call over to your speaker today, Mr. Adam Steensberg, Interim CEO. Thank you. Please go ahead.

[Adam Steensberg]

Thank you, Bernardo, and welcome, everybody. Joining on today's call is Mats Blom, our CFO.On Page 1. During today's call, I will begin with a short introduction, and then I'll turn the call over to Mats for a quick summary of the financials for the fourth quarter and the full year ended December 31, 2018. After Mats, I will provide a short update on the clinical progress as well as summarize the outlook and upcoming milestones for Zealand in 2019. We will then open the call for questions.Please turn to Page 2, where I would like to remind everybody that today's discussions includes forward-looking statements, and that any such statements are subject to risks and uncertainties.So let's move to Page 3. 2018 was a remarkable year for Zealand, with significant progress across our early and late-stage portfolio of next-generation peptide therapeutics. As you can see on this slide, we achieved a number of key milestones throughout the year and secured a very strong financial position.Our 4 late-stage clinical programs maintained our momentum towards becoming a fully integrated biotech company with increased U.S. presence. We are making significant progress accelerating the development of these assets, and I'll go through the details later in the call.A highlight from last September was the results of our pivotal Phase III trial with dasiglucagon for severe hypoglycemia. These results confirmed the potential of the HypoPal rescue pen to be the fastest and most effective rescue treatment for severe hypoglycemia. Throughout the year, we also managed to initiate 3 ongoing Phase III trials, as listed on the slide.Turning to Page 4. As you can see, we ended 2018 with cash and securities close to DKK 1.2 billion or USD 178 million. This is a very strong financial position, and it should allow us to complete all plant development activities all the way into 2021.Next to the key financial indicators, we have noted several highlights from the fourth quarter and the period thereafter. In addition to key advancements of our late-stage clinical assets, we recently participated in Beta Bionics' Series B financing round, where they raised USD 65 million.Finally, I would like to acknowledge the resignation of former CEO, Britt Meelby Jensen, and the gentleman sitting next to me, our CFO, Mats Blom. Both Britt and Mats, they have provided outstanding leadership and have been very fun to work with during their time at Zealand. And on behalf of the entire team, I thank Britt and Mats for their many contributions to Zealand, and I wish them well for their next endeavors.So let's turn to Page 5. In 2019, we look ahead to achieve several clinical milestones, including firm progress in the glepaglutide Phase III trial, filing the NDA in the U.S. for the dasiglucagon HypoPal rescue pen, completing Phase II development for dasiglucagon in dual hormone artificial pancreas, and then have significant advancement with our dasiglucagon CHI program. We also expect significant advancements in our early pipeline arising from our validated peptide platform as well as conclusions of several strategic partnerships, which all have the potential to significant drive the value of Zealand.To support our growth and the potential commercialization of these assets, we constantly develop our organizational structure, while maintaining a disciplined financial management with tight cost control.I would now like to turn the word to Mats to let him discuss our financials.

[Mats Peter Blom, Executive VP & CFO]

Okay. Thank you, Adam, and hello, everyone, on the call. If you turn to Page 7, we can see a summary of our financial results for the fourth quarter and also for the full year ended December 31, 2018.And starting with the net result for the 12 months was a profit of DKK 581 million compared to a loss of DKK 275 million for the same period in 2017. The increase in the net result is primarily a consequence of the monetization of our future royalties and milestones for Soliqua and Lyxumia, adding a net of approximately DKK 1.1 billion to the results. In addition, our net operating costs for the full year in 2018 were in the lower end of our expectations.Looking at Page 8. It illustrates our very strong financial position. As I mentioned, our net operating expenses for the full year 2018 amounted to DKK 481 million, in the low end of our guidance, as I mentioned. This compares to DKK 371.6 million for the same period of 2017. And the year-over-year increase is mainly related to the clinical development of the 3 dasiglucagon program of glepaglutide for short bowel syndrome and preclinical research activities.Turning to the balance sheet. As of December 31, we reported securities, cash and cash equivalents of DKK 1.2 billion or USD 178 million, and we believe that this capital or cash position will put us in a strong position to fund all our programs and operations in the years to come.On Page 9, this chart just breaks down how our cash position was strengthened by these proceeds from the monetization of the royalty streams and the commercial milestones for Soliqua and Lyxumia, which immediately recognized DKK 1.1 billion in cash to our balance sheet. And we believe that having this additional capital on hand allows us to invest with greater financial independence and stability in our late-stage clinical programs, and as a result, puts us in a stronger position to build both short- and long-term shareholder value.Upon closing of the sale of the royalty bond, we also redeemed the outstanding loan with royalty bond of DKK 24.7 million -- or $24.7 million or DKK 158 million, making us completely debt free now.If we move to Page 10. Looking ahead, total net operating expenses in 2019 are expected to be within the range of DKK 550 million to DKK 570 million or $85 million to $88 million. And this increase compared to 2018 is due to the higher clinical development costs associated with having so many programs in Phase III.So I will now hand back to Adam to discuss about our pipeline before we turn to Q&A in the end, when I'm to happy answer any questions on the financials.

[Adam Steensberg]

Thank you, Mats. And then I would like us to turn to Page 12. And as I mentioned earlier, we have a very robust pipeline of clinical and preclinical programs of which 4 are in late-stage development. 2 of the earlier-stage clinical programs are being developed in partnership with Boehringer Ingelheim. The first one is a once-weekly GLP-1/glucagon agonist for treatment of obesity and/or diabetes. And we expect Boehringer to conclude Phase I development this year.The second compound is a novel once-weekly amylin analog, also in the treatment -- in our development in the treatment for obesity and diabetes, which is heading into Phase I development this year.In our early pipeline, I would also like to call attention to 2 programs that we are particularly excited about. First, ZP7570, which will advance into Phase I later this year as a potential next-generation treatment for short bowel syndrome. Second is our complement C3 inhibitor program, which is progressing firmly towards Phase I initiation in 2020. And both these programs, they arise from our validated peptide platform as all our other drug candidates.Please turn to Page 13. So glepaglutide, that is our long-acting GLP-2 analog being developed in an autoinjector with potential for convenient weekly administration. In 2018, we initiated the pivotal Phase III trial, and I'm happy to announce that as of beginning of March, 12 patients have now been randomized into the trial, which is on track for results in 2020. The remaining clinical trial size will be activated over the coming months, which should then further boost patient enrollment.With an effective half-life of approximately 50 hours, glepaglutide has the potential to be best-in-class GLP-2 therapy and really allow SBS patients a fast, reliable and well-tolerated treatment option to reduce dependency on parenteral support.Moving on to Page 14. Dasiglucagon is a potential first-in-class stable glucagon analog invented and developed by Zealand in a ready-to-use HypoPal rescue pen for easy, fast and effective treatment of severe hypoglycemia. In September, we announced the results from the pivotal Phase III trial, which confirmed that dasiglucagon has a fast onset of action and is very effective in treating severe hypoglycemia. We also initiated a pediatric Phase III trial using the same dose as administrated to adults, and we expect to report results from this trial mid-'19. And as previously communicated, we are working towards submitting the NDA filing to the U.S. FDA at the end of '19.Turning on to Page 15. Our development of dasiglucagon in a 1 millimeter cartridge for use in dual-hormone artificial pancreas pumps continue to make firm progress. We're collaborating with Beta Bionics, who develops the iLet bionic pancreas system. And together, we are planning a Phase II study for the first half of this year. This study will compare the performance of the dual-hormone versus the insulin-only artificial pancreas pump in patients with Type 1 diabetes.Please turn to Page 16. This week, we dosed the first CHI patients with dasiglucagon in the first of 2 Phase III trials for this indication. This first trial will evaluate the potential of dasiglucagon as a new treatment for CHI children to prevent persistent episodes of hypoglycemia. And continuous low doses of dasiglucagon will be infused via a subcutaneous pump in the trial. The second Phase III trial for dasiglucagon in CHI is expected to start mid-'19 and will enroll up to 12 children with CHI, from newborns up to 1 year, and evaluate their ability to reduce dependency on intravenous glucose.Page 17 provides an overview of the development milestones expected to occur this year. We believe this pipeline offers a significant opportunity to create value for our shareholders. Zealand has a clear path ahead for what we need to accomplish, and we're excited about the progress being made.This concludes our prepared remarks. And I would like to thank you for your attention. And we'd now like to hand over to the operator and open up the lines for questions.

[Operator]

[Operator Instructions] We have questions on the line now. First question comes from the line of David Lebowitz from Morgan Stanley.

[Ishmael Izakiel Gyimah Asante, Research Associate]

This is Ishmael on for David. Could you run us through the design for the Phase III glepaglutide trial? And separately, how the study compares to the pivotal study from Gas-X?

[Adam Steensberg]

Yes, so it's a 3-arm study, which compares placebo with glepaglutide dosed once a week and twice a week. It's -- the duration of the study is 6 months, and the primary endpoint is the reduction in parenteral support, weekly reductions in parenteral support volumes over the course of these 6 months. Many of the design features are similar to what was done for Gas-X. The primary endpoint has been changed. So it's the absolute reduction rather than the 20% -- the number of patients who have a 20% reduction. That is a key secondary endpoint in our study.

[Ishmael Izakiel Gyimah Asante, Research Associate]

If I may follow-up quickly -- continue...

[Adam Steensberg]

No. We enrolled 129 patients.

[Ishmael Izakiel Gyimah Asante, Research Associate]

If I may follow-up quickly, are there any plans to potentially run a head-to-head study with Gas-X in the future?

[Adam Steensberg]

We will not see that would be feasible in a Phase III setting, at least, because of the rarity of the indication and the limited number of patients being available for clinical studies. One could consider smaller exploratory studies to highlight some of the key differences.

[Operator]

And your next question comes from the line of Lucy Codrington from Jefferies.

[Lucy-Emma Mary Sarah Codrington-Bartlett]

Just a couple. Given the time it's taken to start the CHI study and from what it looks like on ClinicalTrials' data probably not before the first half next year, and are we right in thinking that the likelihood of delaying the filings for these -- the hypoglycemia in order to get the priority review is now looking less likely?

[Adam Steensberg]

Yes. I think that's fair to assume that. And -- but of course, it is something we will keep evaluating, and ultimately, it will have to be a business decision. But I think that's a fair assumption.

[Operator]

And your next question comes from the line of Alan Carr from Needham.

[Alan Carr, Senior Analyst]

A couple of them. You got, well, a couple open positions in the management team. Wondering if you can comment on timing and strategy for filling those? And then also with respect to the HypoPal program, can you go through which trials are running right now and your expectations. You say they're all be done by mid-'19, but maybe can you give us a sense of your plans for disclosing results from those.

[Adam Steensberg]

Okay, thank you. Maybe I'll just start with the transitions in the management team. And it's correct that we -- of course, we have a search for a CEO and a CFO. And I can reassure you that it has the full attention of the board, and we -- and they are making good progress. There's a good list of strong candidates. And I think it's always difficult to communicate on timing, but we are making good progress in that search. And on the CFO role, for sure, we will have the CEO in place before we will announce a CFO. And in the meantime, we will have an interim solution to support me and the rest of the management team with those activities. I would highlight, it's a highly attractive time to join Zealand so it's also an opportunity here to get new competencies in. On the second question, HypoPal rescue pen, so we have actually 4 ongoing clinical activities. One is a second pivotal study in adults which actually test the autoinjector. The first pivotal study will use the prefilled syringe. That is probably the study that will read out first before summer. Then we have the Phase III trial in pediatrics down to the age of 6 years which we thought and have believed all the time was important. That study will potentially allow us to get a label all the way down to the age of 6. Again, that study, we expect will read out around summer. Then we have, you can say, a safety study or a regulatory required study, which you always have to do. And that is an IV study, where we just test PK and safety of IV dosing of dasiglucagon. And lastly, we have a technical study, which is being conducted to expand the shelf life, room temperature stability shelf life for the product. And all of these we expect will read out mid this year or before, and then we will submit the NDA in the end.

[Alan Carr, Senior Analyst]

A follow-up on the last trial. Can you remind us what the current shelf life is? And where you expect to get it? What you expect -- or actually, what you expect it to be?

[Adam Steensberg]

Yes, so ultimately this will be a negotiation with FDA. But we expect 6 to 12 months shelf life at room temperature and much more in refrigerated temperatures. And the study that we are conducting here is to support those arguments and something that we have discussed with FDA.

[Operator]

And your next question comes from the line of Graig Suvannavejh from Goldman Sachs.

[Graig Suvannavejh]

I have several. My first question has to do with the CHI opportunity, very intriguing. Can you help us understand how you're seeing the commercial market opportunity? And specifically, can you help us understand the potential magnitude of revenue that you think this indication could bring to Zealand? And a follow-up on CHI is what's the current annual cost of care for these patients? And then separately, I was hoping you could provide an update on partnering discussions around HypoPal in the U.S.

[Adam Steensberg]

Thank you. Maybe if I start with CHI. So as we also put forward in our presentation, that we believe there are around 300 newborns with CHI every year. It is actually one of the most severe conditions that you can be born with. And these children, they suffer from persistent episodes of hypoglycemia, and many would develop a number of sequelae in the early time of their disease including neurological sequelae, et cetera. So what we are addressing here is a very, very large unmet medical need with dasiglucagon because there are no good alternatives. So our estimate is, if you look into the annual cost of care, if you just look into the direct cost, that would probably be in the range of $300,000 to $500,000 a year. But then you also have to count in the lifelong impact of developing type 1 diabetes if you have pancreas -- pancreatectomy and also the neurological impact. With regard to our, you can say financials or pricing strategy, that's something that we have not developed fully yet, but it's clear that considering what we are trying to demonstrate here with regard to efficacy, it would be an investment we would see in other ancillary therapy. So it could be significant revenues product despite the fact it's a rare indication. On the partnerships with HypoPal rescue pen, I can just confirm that we are in dialogue with several interested parties, and we also evaluate the best time to also engage in such partnerships. And right now, our key focus is to conclude the clinical studies, also get the NDA submitted, and then we will update, I would say, the market once we have agreement in place.

[Graig Suvannavejh]

Okay, I do have a follow-up question. So you have a competitor in Xeris, and I believe they have filed their Gvoke HypoPen or -- and there's an action date of June of this year. So my question has to do with, is there anything that you've learned recently about that product? Or can you remind us as to why you feel comfortable that your HypoPal product can be at least competitive, if not better than the Xeris product?

[Adam Steensberg]

Yes, thanks for that question. And ultimately, of course, we would have to do a head-to-head study to make any firm claims around this. But with the data that we have seen so far, we actually believe that our offering offers the potential for the fastest and most effective treatment of severe hypoglycemia. So I can again remind you that we had a mean time to recovery of 10 minutes, and we had 99% of our patients in the pivotal Phase III trial who recovered within 15 minutes. And I think there are data out there that suggest that it's substantially longer for the Xeris opportunity, and we believe the time to rescue is a key differentiator within this area since you have -- you're dealing with patients who are potentially unconscious, small children, so that is a 5 minutes or 10 minutes, that's something that really matters here.

[Operator]

We have no further questions at this time. Thank you. Please continue.

[Adam Steensberg]

Okay. So as there are no further questions, then I would like to thank everybody for participating here and have a nice day.

[Operator]

Thank you. And that does conclude our call for today. Thank you all for participating. You may all now disconnect. Speakers, please standby.