Pharma Mar SA
MAD:PHM
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Pharma Mar SA
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Welcome to Pharma Mar's First Quarter 2023 Results Presentation. [Operator Instructions] Now I give the floor to José Luis Moreno, Director Capital Markets and Investor Relations. José Luis, the floor is yours.
Thank you, Morena, and good morning to everyone. I'd like to welcome to all of you to our first quarter results conference call. On the call with me today are María Luisa Francia, Chief Financial Officer of the group; Luis Mora, Managing Director of Pharma Mar and Pascal Besman, Senior Vice President of Strategic Development.
Since we had a presentation conference call just a few weeks ago, today, we'll have an update mainly on financials. So María Luisa will present the first quarter results. And Luis and Pascal will also be with us to answer those questions that are relevant to them. And as always, following our prepared remarks today, we will open the line for questions.
I would like to remind you that today's conference call may include forward-looking statements regarding future events or the future financial and operating performance of the company. Such forward-looking statements are only predictions based on current expectations, and actual results may vary from those projected. We disclaim any obligation to update any information provided herein. And we refer you to our safe harbor statement on our corporate presentation, which is available on our website together with the press release and the report of every source that we released yesterday.
We've already gone through the first quarter of this year, '23, which is a year where we are increasing our R&D investment compared to previous years. And it is going to be explained in a few minutes, and this increase comes mainly from investment both in late-stage and early-stage clinical trials. We have currently faced 3 Phase III trials ongoing, and we expect to have up to 5 Phase III trials throughout the year, of which 3 of them will be in oncology.
To that, we should also add the Phase III trial, that our partner, Jazz is doing together with Roche with Zepzelca in combination with atezolizumab to go to first-line maintenance in small cell lung cancer. Our strategy is clear in our commitment to R&D, which is ultimately about investing in the growth of the company.
About financials, as it was expected and has been -- and we've been talking about for months, generics of Yondelis trabectedin arrived to the market in Europe and of course, that had an effect in our P&L. This was perfectly forecasted in our strategic plan, and we have cash and finance to overcome this particular situation and continue with our investment plan without any stress. We expect some news flow for this year. And certainly, as we move on, we are approaching to the day when we'll have data of all these trials ongoing.
But now I will turn over to María Luisa, who will give you more details about the financial results of this quarter. María Luisa?
Thank you, José Luis. Good morning, and thank you all for joining this conference call on first quarter '23 financial results. I will start by analyzing the revenues for the period. Total revenues declined 36% year-on-year, mainly due to the arrival of the generic of trabectedin into the European market. Regarding volume, Yondelis only lost 9%, but price pressure led to a total decrease in Yondelis net sales of 53%. This translates into sales of EUR 8.1 million at March '23 versus EUR 17.5 million at March '22.
With regard to early access marketing of Zepzelca in Europe under the authorization, Access Compasionel in France, it's the same situation. The number of units or grams made available was the same as in the same period of previous year. But the adjustments made due to the new regulation of the mentioned program resulted in EUR 5.6 million in first quarter '23 versus EUR 8.7 million in first quarter '22.
Sales of the active product ingredient are lower than in the first quarter of '22. This is a temporary effect. Our partners have made their stock in previous quarters, and there is a lag in purchase order. So it is expected that in the coming months, this difference will be reduced. As far as diagnostic sales are concerned, test sales committed to our customers were completed in March, and production was closed down accordingly.
In relation to the Yondelis -- to the royalty, sorry, received from Jazz, the actual growth of royalties for the first quarter '23 is 7%. Our estimate of the royalties for the first quarter of '22 was higher than the actual royalties corresponding to Jazz sales in that period. This is why in the report of this quarter, there is hardly no difference between periods. But as just I mentioned, the actual growth between years is 7%.
In terms of expenses, there was 11% increase in R&D expenses as a result mainly of the ongoing trials and the preparation of the coming new Phase III. Other operating expenses, commercial, general and administrative corporate expenses, et cetera, on the whole remains at the same level that in the previous period. So the increase in R&D expenditure plus the lower revenue figures that we have just explained leads to a net result of EUR 1.4 million. Income taxes, that includes the monetization of R&D deductions received in '20 -- in the first quarter of '23 amounted to EUR 4 million.
Finally, it's important to note that in 2023, operating activities generated cash flow -- a cash flow of EUR 7.7 million. Net cash position as of March '23 amounts to EUR 191.4 million after deducting the EUR 39.8 million of total financial debt. Both figures remain at similar levels as that at the end of 2022 -- year 2022.
And now I pass the microphone back to José Luis.
Thank you, María Luisa. And with these, we conclude our prepared remarks for today. And now we'll open the line for questions. Morena?
Thank you. Ladies and gentlemen, we will now begin the Q&A session. [Operator Instructions] Our first question comes from the line of Ami Fadia from Needham & Company.
This is Eason Lee on for Ami. Maybe if I can ask 2 on Zepzelca. First, I guess, regarding the Zepzelca royalties, I guess I'm curious if the number you have there for 1Q '23, is that kind of like your base case estimate for Q1? And then you make kind of the appropriate corrections in the subsequent quarters if needed. Maybe if you could provide a little bit more color on how you arrive at that estimate. That would be helpful.
At the moment, we know the actual royalties. We made the correction in the following quarter.
So the adjustment from the first quarter, you were mentioning, it was done the second quarter of last year.
Got it. And then I guess once Jazz reports the sales, you will make for this quarter, you'll make the appropriate adjustment next quarter. Is that right?
Exactly.
Exactly.
Okay. Understood. And then maybe more generally on kind of U.S. Zepzelca sales and the royalty revenue you get. Maybe as we're looking at the 2023 year versus the 2022 year, I'm curious, from your perspective, what do you see as kind of the drivers for Zepzelca growth.
Yes. Well, this is [indiscernible], we don't -- cannot say nothing about that. We are so happy with the partnership. In our opinion, the right now is under standard of care in second line in USA. We see the global sales, the trend is extremely positive. We are so happy.
The next question comes from the line of Alvaro Lenze from Alantra Equities.
The first one is on the royalty count. So just to clarify, the adjustments, is it possible that the relatively low number of Q1 is due to adjustments of the high number that you reported in Q4? Or have there been no adjustments to Q4? And if that is the case, this would actually mean that the trend -- yes, yes, go ahead.
No, no, in Q4, we didn't have any adjustments.
But did you adjust in Q1 2023 -- have you adjusted for excess revenue recognition in Q1 -- in Q4 last year or not?
No, no, no. The adjustment was done in relation to first quarter '22. We accounted for a higher amount. And then we correct that difference once we knew from Jazz the exact number of royalties or figures from royalties, we adjust in the second quarter 2022. That's why the comparison with the first quarter 2023 is not exact.
Understood. That's perfectly clear. But then the question would be why are we seeing a decline quarter-on-quarter compared to Q4. Is there some seasonality in treatments for lung cancer? Or because you would expect given that the product is still in ramp-up phase and you are rolling out the product to more countries, I would expect sequential improvement in revenue contribution, not a decline.
I repeat the -- my answer explained before. This is just sales, we haven't figured the royalties and the market -- the USA market is a Jazz market. In any case, if you see the trend, which is normal to see in any analysis, the trend in the last 4, 5 quarters, you can see the very, very high positive trend, okay? Then we are so confident, so happy like we'll be [indiscernible] a standard of care now in second line and [indiscernible] then that's it, okay.
Okay. And last question would be on the financial expense from -- so I wanted to know if you could provide some additional detail on that EUR 1 million net financial loss in context in which you have a significant amount of cash that should be generating some interest given the interest rate environment.
Yes. It's due mainly because we have mark-to-market some deposits we have in dollars and the exchange rate this quarter compared to the December closing was -- make us to finalize that.
And could you indicate how much would the underlying net financial income from your interests would be excluding this FX impact?
Yes. The financial income is strictly because of the interest of our deposits, it's close to EUR 1 million.
The next question comes from the line of Joseph Hedden from Rx Securities.
Just one more on the Zepzelca royalty and sales. We know it's become standard of care in the second-line setting now. Could you just remind us of what percentage that Jazz thinks or you think of the second-line setting that has and what are the kind of levers that can be pulled to increase that percentage?
And then secondly, I noticed that marketing and commercial expenses are as high in Q1 this year as they were last year, but you're discontinuing the Diagnostics segment and Yondelis has essentially gone generic now. So I'm just wondering why expenses are continuing to be at the same level.
Regarding the first question, the Jazz market share, Zepzelca in USA, I don't know. Clearly, this is Jazz information. The second one, regarding the marketing expenses is more or less stable, March '23, March '22. But we launched a campaign in order to defend Yondelis in several markets. This is one shot we expected will decline in the following quarters. Instead, it's a very successful one because the number of units only decreased 8.5%, 8.8%. Then this is a good signal. The impairment was very good at all in this setting and to only decrease the market share for the brand product about 8% regarding our market share.
Then we're also happy about that. Taking account the Yondelis not only in Europe, Yondelis is a worldwide drug and the measuring we do in Europe is reflected in other parts of the world. Then this is what is included in this figure. And we expected now in following quarters, we will decline if you compare with 2022.
Okay. That makes sense. If I could just have a follow-up on Yondelis. You mentioned that the impact so far in declining revenues is mainly a price effect and that actually you've got a stable, if not slightly growing share in terms of units. What do we -- what can we expect for the remainder of '23 and going into '24. I know at the last results meeting, you mentioned in several countries, you -- the drug is sold by the 10 other contracts. Are we going to see outcomes of that? And do you expect any actual decline in unit sales this year?
Well, this is a difficult question because generic market is very [indiscernible]. Today, there is only one generic in the market. I don't know if in 3, 4, 6 months, it is only one, this is difficult to focus. But if we maintain this market share and this level of units, probably the sales will be stable around the year, across the year, okay? We will see. It's different country-by-country. In Europe, it's a huge difference. In fact, in some countries was on launch, in other countries yet. Other countries are more [indiscernible], in other countries no. That is very difficult to see what the generics company will we do.
But we're also happy because now we only declined 8.9% in number of units, and we will, okay? In other countries around the world are some level of protection. And in '23, we don't expect that in other countries the generic center in short period of time.
The next question comes from the line of Guilherme Macedo Sampaio from CaixaBank.
Two, if I may, both related to the Zepzelca royalties in the U.S. The first one is whether there was any other over and the recognition of revenues in the remaining quarters of 2022 in order to help us to model going forward? And second, if you're seeing the 7% underlying trend maintained over Q2 in terms of royalty loss.
Guilherme, I don't think we got your first question. I got your second -- we got your second question about if we can maintain that 7% in the following quarters. But I'm not sure we got -- we didn't get your first question. Can you repeat that one, please?
Yes, sure. So the first question was -- is a bit more for modeling purposes. So I just wanted to know whether there was some under or over adjustment in terms of revenues, similar to what we've seen in Q1 2022 in the other quarters of the year, okay? Now that is for us to have a better base to estimate revenues for 2023.
Okay. Got it. María, you want to take that one?
Regarding the question, we don't know early because we improved our best estimation. And then with Jazz, when we have the final figure, then there's not a big difference in many quarters. This was more previous, but we don't know our estimation is our best estimation.
And the main adjustment we did in 2022 was the one on the first quarter. So the rest of the quarters was immaterial totally.
Which means that we're going to have a tougher comparison base on the second quarter because you have -- I assume that all the adjustments were made in the first half of 2022. Correct?
Yes. Yes. Yes.
And the next question comes from the line of Christian Glennie from Stifel.
Maybe just a couple on your clinical trial progress with Zepzelca. And anything to note with lagoon and the complementary trial in terms of recruitment, I know you're not going to comment specifically, but in overall terms, that's still on track for readout and the timing of the readout. And then secondly, preparations for the mesothelioma trial and anything you can add there on that side of things?
Regarding the lagoon trial, it is on track. We are open that more than 90 centers around the world. Then the regarding with our estimation. As it is on trial, we are very confident we arrive to the goals of finished the treatment and the readout data, the commitment with the FDA. Then we are so happy about this.
And the other question is we having the live trial for mesothelioma, we expected to start this trial this year of the [indiscernible]. We start -- the protocol is already approved in some countries, and we have started all the administrative procedure, we opened centers, et cetera. Then, according with that, we expected around September to [indiscernible]. This is the expectation.
Okay. And then maybe just -- I know this is always a perennial question, but worth just getting your comment again, obviously, the prospect of using your balance sheet for new product licenses, acquisitions, any particular update on the status of that pipeline of work.
Well, regarding of [indiscernible] conversations, we will see obviously this always is an agreement in the some drag in the past with closed the potential deal after the due diligence that we will perform, and we expected in the years' time some arrangement. We are working hard in that our teams. And this point is not canceled absolutely and is ongoing.
So still some expectation of a deal within the next 12 months. Is that what I understood perfectly?
Yes. We work with that.
There are no further questions at this time. I will now hand back to José Luis.
Thank you, Morena, and I'd like to thank you all for joining the earnings call today. With this, we'll conclude our conference call and wish you good day to everybody. Thank you.