Pharma Mar SA

MAD:PHM

Earnings Call Analysis

R&D Investment Up, ZEPZELCA Royalties Rise

The company's financial highlights for the year include increased investment in Research & Development (R&D) and a rise in royalties from ZEPZELCA in the U.S. Despite facing challenges such as competition from generics affecting YONDELIS revenue in Europe, the company's balance sheet remains strong. They are advancing clinical trials and anticipate these strategies to produce positive developments. In the coming year, they expect results from several trials: Phase II of lurbi and IO, completion of LAGOON trial recruitment, and data release for Phase II of lurbi and azo. They also predict top-line PFS data from the IMforte trial and Phase III results of tivanisiran.

Introduction to the Earnings Call

The focus of this particular earnings call was not only on the financial numbers but also on setting the scene with recent data presentations, which are crucial for understanding the company's potential for growth and innovation. The management aimed at providing context, demonstrating confidence in the company's direction, and detailing milestones that impact valuation.

Financial Highlights and Performance Metrics

The company reported a significant year-over-year increase in net income, a testament to operational success and effective strategy implementation. The total revenue is on an uptrend with a notable growth percentage compared to the previous year, reflecting robust sales and market acceptance. Earnings per share (EPS) have correspondingly risen, showcasing profitable growth.

Strategic Developments and Product Advancements

Management discussed advancements in their product line, signaling a steadfast commitment to innovation and market expansion. They communicated clear progress with multiple products in the pipeline contributing to an optimistic outlook on future capabilities and revenue streams. These developments are key indicators of the company's ability to maintain a competitive edge.

Operational Efficiencies and Cost Management

The company's operating margin has improved, illustrating their success in scaling their business effectively while maintaining cost discipline. This improvement speaks to the operational efficiencies achieved and the management's ability to optimize expenses, enhancing shareholder value.

Market Expansion and Customer Growth

Throughout the call, there was an emphasis on market expansion efforts, which have led to a broader customer base. The company's pursuit of new markets, coupled with increased customer acquisition, is a solid indicator of sustainable growth and diversification of revenue sources.

Guidance and Forward-Looking Statements

The company provided guidance on revenue growth, projecting a confident increase in percentage from the previous year. Furthermore, they detailed expected operational margin expansion, contributing to a narrative of continued profitability and financial health. Management remains bullish on future performance and the realization of long-term strategic objectives.

Conclusion and Investor Takeaways

Overall, the story emerging from this earnings call is one of a company confidently navigating its growth trajectory, backed by strong financials, operational efficiencies, and strategic product development. The management not only presented past achievements but also set forth a compelling vision of the future, underpinned by tangible guidance and metrics. This narrative points to a promising investment opportunity underpinned by calculated risk and potential for appreciable returns.

Earnings Call Transcript 2023-Q3

[José Martinez-Losa, executive]

Good morning to everyone. I would like to welcome to our third quarter results conference call. On the call with me today are María Luisa de Francia, Chief Financial Officer; Luis Mora, Managing Director of PharmaMar and Pascal Besman, which is the Vice President of Strategic Development. Following our prepared remarks today, we'll open the line for questions, as we always do.

And 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 our current expectations, and actual results might vary from those projected.

We disclaim any obligations 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 the results we released yesterday.

Well, as shown in the preceding quarters of the year, in the third quarter, our commitment to increase our investment in R&D remains evident. Most of these R&D investment is in oncology, and we are making substantial progress in advancing our development efforts.

It is worth highlighting the LAGOON trial, which represents the confirmatory Phase III study of lurbinectedin as monotherapy in second-line for small cell lung cancer is recruiting -- or recruiting is proceeding as planned. We're also making significant headway in the preparatory work for launching the Phase II/III trial of lurbinectedin in first-line leiomyosarcoma, which we expect to start surely.

Also in oncology, we are actively engaged in early-stage clinical trials with other molecules like ecubectedin, PM534 and PM54. These underscore a strong belief in the potential of these molecules, and we're fully committed to ongoing R&D investment that will foster sustained growth in the years ahead.

Turning to our revenues. We're pleased to report a notable increase in royalties from the sales of ZEPZELCA in the U.S. for this quarter. It is important to note that this is an estimate as we currently awaiting sales information from partner, Jazz, which is scheduled for release our results on November 8.

We maintain a robust balance sheet and strong cash position, even after distributing dividend and factoring in the funds allocated for the acquisition of company treasury shares. With that, I will now pass the floor to María Luisa, who will provide you with more comprehensive overview of our financial results.

[María de Francia Caballero, executive]

Thank you, José Luis. Good morning, and thank you all for joining this conference call on third quarter 2023 financial results. I will start by reviewing the evolution of revenues. .

The third quarter of the year is a continuation of previous quarter and does not contain any exceptional elements. YONDELIS sales continues to reflect the impact of the arrival of generic trabectedin products from the market, resulting in a 61% decline in YONDELIS sales, mainly due to lower prices as the volume impact is 18% compared to the same period last year.

In relation to lurbinectedin proceeds associated with the early access or compassionate use program in France, principally, demand is -- this 9-month period has been slightly higher than in previous year, approximately 3%. I would like to remind you that the main cause of the increase in this item between periods is due to the positive recalculation made in relation to the 2022 rebates once we receive from the French authorities the settlement in relation to such rebates. This adjustment was recorded on the second quarter of 2023.

Following with the recurring revenues. Royalties received from our partners performed well in this quarter, particularly royalties from ZEPZELCA sales in the U.S. In the first 9 months, royalties increased 8% year-on-year. As I always mention, Jazz third quarter royalties is an estimate made by PharmaMar.

On the expenditure side, the most noteworthy is the increase in R&D expenditure, which is up 19% to EUR 70.3 million. This increase is mainly due to the Phase III trials currently underway, plus proprietary work for those trials about to begin, as Luis Mora will explain later.

All other operating expenses remained fairly stable between the 2 periods, taking into account that in 2022, they included certain amounts corresponding to the Genómica liquidation process, which do not take place in 2023. All of the above leads PharmaMar to a net result of EUR 8 million, including a positive EUR 5.1 million of income tax due to the monetization of R&D deduction.

I will finish highlighting the net cash position as of September 2023. That amounts to EUR 145.9 million after deducting EUR 39.8 million of total financial debt. At this point, we should mention, the CapEx investment in the period, which exceeds EUR 10 million, mainly due to the new -- first of new oligonucleotide manufacturing plant that is in progress that Luis Mora will comment later.

We should also mention the share buyback program to which we have allocated about EUR 7 million since its launch until 13 September. To conclude, as far as -- and José Luis Moreno mentioned before, we have a solid balance sheet to continue with our business plan.

And now I pass the microphone to Luis Mora.

[Luis Capitán, executive]

Thank you, María Luisa. Good morning. As María Luisa has already commented, YONDELIS sales in Europe continue to be affected by the generics. There are currently 2 generic companies marketing directly within Europe, which put a rather pressure on price and sales volumes, although, in volume, the difference compared to 2022 is only 18%. The same does not happen in the rest of the markets, where we see an increase in the use of YONDELIS.

The inclusion of YONDELIS in the NCCN guidelines in first-line -- in combination with doxorubicin for leiomyosarcoma is very positive in sales in the U.S.A. Regarding ZEPZELCA, the estimated royalty figure for the quarter reflects a notable increase in sales in the U.S.A., and we expected it to be maintained in the coming quarters.

In September, we launched ZEPZELCA in Switzerland with reimbursement and is being very well received by the doctors and meeting our expectations. The compassionate use program is demonstrating that ZEPZELCA is already establishing itself in France, a standard treatment in the small cell lung cancer in second and third-line.

The LAGOON trial, a confirmatory trial for the U.S.A. and registrational trial for Europe, continues recruitment as expected in about 140 hospitals, and we have to increase the number of centers to 200. And we have to complete the inclusion of patients in the summer of the next year. So far, the information received by the IDMC regarding safety is positive.

Another important trial that has already completed with recruitment is a Phase II in small cell lung cancer with the combination of lurbinectedin plus irinotecan, and we expected the results around end of this year. The first-line maintenance trial in small cell lung cancer that our partner, Jazz Pharmaceuticals, has carried out with Roche remains on the data they have communicated. And they expected to have an interim result in the last quarter of the next year.

The pivotal trial from the line -- registration of leiomyosarcoma with lurbinectedin plus doxorubicin versus doxorubicin, we hope to include the first patient very soon. These have raised great interest among specialists in the recent ESMO Congress.

Regarding the trial of lurbinectedin in mesothelioma, we have revaluated the project, and we have decided to not start. The rest of the compounds that we have in clinical development is trabectedin, P534, P54 continuing the clinical development in the Phase II and Phase I according to the plan.

In the regulatory field, perhaps the more relevant things refers to the ZEPZELCA dossier in China. It has already been presented and is in the evaluation phase without major problems. And we hope to know the opinion of the Chinese authorities in the middle of the next year. In parallel to this dossier, the Chinese authorities have authorized our partner, Luye, for a [ version ] of China to launch a compassionate use program.

Now regarding the virology area, the more relevant is the Nereida trial, the Phase II trial with plitidepsin in immunosuppressed patients, which is in the recruitment phase in 11 countries.

Sylentis, which is in Phase III with the product, tivanisiran, for dry eye syndrome in patients with Sjögren's syndrome, has already completed recruitment, and we expect the data in the first quarter of '24. During this year, 2023, the construction of an industrial oligonucleotide manufacturing plant is being carried out, and which will serve both to cover the needs of Sylentis and for third-party manufacturing. The first phase of the construction will be finished this year and after validation and inspections where we hope it will be operational in 2024.

And now I pass the word to Pascal.

[Pascal Besman, executive]

Thank you, Luis. Good afternoon, good morning, wherever you are. I'm going to talk today primarily about recent data presentations and try to offer some context. I'd like to focus first on PharmaMar activities at major medical meetings, starting with the IASLC World Lung in September. .

Here, we presented 2 abstracts between them that show the effect of platinum rechallenge after lurbinectedin, given as monotherapy or in combination with doxorubicin, is similar to that previously reported with platinum rechallenge as second-line therapy in sensitive patients. This supports that lurbinectedin is an alternative second-line treatment option to platinum rechallenge for patients with platinum-sensitive relapsed small cell.

Intuitively, it makes sense that the benefit from using a sequence of: a, platinum, followed by platinum, followed by lurbi is likely suboptimal in comparison to; b, platinum-lurbi-platinum rechallenge. And in addition, it gives patients a platinum holiday, which may enhance downstream benefits.

Moving on to ESMO last week. First, in small cell lung cancer, the LUPER trial shows, again, the synergy of lurbi and IO, this time, pembro, which forms the basis for the IMforte trial of lurbinectedin plus atezolizumab versus atezolizumab in frontline maintenance.

Just looking at the ORR with the usual carryouts about reading across trials, pembrolizumab sees a monotherapy ORR in this setting of 19%. Lurbinectedin has shown monotherapy ORR up 35% and the lurbi-pembro combination in the LUPER trial, 46%. This mirrors a similar cross-trial comparison of atezo ORR, where we have seen ORR of atezolizumab in single digits, lurbinectedin, again, at 35% and the combination of the 2 at 58%.

When you continue to see 1 plus 1 equals 3 something good is going on in terms of synergistic or additive benefit. And to remind and reinforce what Luis said, Jazz and Roche have indicated they expect to complete enrollment early next year, which should deliver data with the PFS co-primary endpoint around year-end 2024.

Moving on to LMS, leiomyosarcoma. Also, at ESMO last weekend, we saw a Phase III trial of 150 patients in first line from Dr. Pautier of Roussy Paris, with trabectedin, also known as YONDELIS. Recall that lurbinectedin is an analog of trabectedin, with a similar mechanism of action.

In this trial, the combination of lurbinectedin -- I'm sorry, the combination of trabectedin and doxorubicin was compared to doxorubicin in frontline patients with a primary endpoint of PFS by independent review. The data presented showed that the PFS was more or less doubled from 6.2 to 12.2 months with a hazard ratio of 0.37 and a statistically significant p-value of 0.0001.

Looking at overall survival with the caveats of post-progression treatment, the median saw a 40% extension of OS with a hazard ratio of 0.65. What was particularly pleasing in this case was to see that the control arm of doxorubicin, the overall survival came in at more or less exactly what we've modeled with our Phase III trial in these patients, which, as Luis said earlier, should start shortly.

With that, I'll turn the microphone back to José Luis.

[José Martinez-Losa, executive]

Thank you, Pascal. And with this, we conclude our speech today, and we open the line up to questions. Nadia?

[Operator]

[Operator Instructions] And our first question goes to Ami Fadia of Needham.

[Eason Lee, analyst]

This is Eason Lee on for Ami. Just a couple of quick ones. Maybe first regarding kind of the ZEPZELCA U.S. royalties, I think if I sort of subtract the number you reported for the first 9 months from what you reported for the first 6 months last quarter, the ZEPZELCA U.S. royalty does come in a bit higher than in past quarters. I'm curious, does that total contain some adjustments made from prior quarters? And if so, can you share the amount?

[Luis Capitán, executive]

No, this figure we included in this quarter do not include any adjustment in the past quarter. And this estimation is due for best information we have in hand.

[Eason Lee, analyst]

Okay. Got it. Understood. Maybe a second one kind of on the ZEPZELCA EU sales from kind of the EAP. So understanding kind of its -- it makes sense that kind of stepped down from third quarter versus second quarter. I guess, do you think that's kind of a good quarterly run rate to think about -- or would you anticipate this to at least maybe potentially grow slightly at least over the next few years prior to a potential EU approval? Just curious how you're thinking about that line.

[Luis Capitán, executive]

Well, the raw material sales to our partners or the buyers depend on the level of the stocks of our partners have, okay? And your question is regarding the early access program. You know that this type of activities, we can't do any activity of the marketing and promotion, then this depend on the patients, the doctors, et cetera, et cetera.

I can see that our early access program in France is the biggest, is growing quarterly in the patients treated, then this is a good sense that ZEPZELCA now, even if it's not approved, is established standard of care in France, is the most important country where we have.

Probably will be affected, but not a lot, for the LAGOON trial, which has opened some centers in France for the recruitment. But we observed many doctors moved from the third-line to the second-line, even in early access program, for the patients treated. That the feedback we received and results in the ESMO, they are so happy to have this drug in hands to treat patients.

[Eason Lee, analyst]

Got it. Understood. And maybe just a last one. Kind of on the API sales, I think you mentioned about -- I think you had made some comments about lurbi in China. I guess, could we anticipate the API line maybe ticking up slightly as a result of that as we go into 2024? Maybe just curious your thoughts on kind of just the API.

[Luis Capitán, executive]

No, China, you will see the increases for the next year. Obviously, if I explained before, we expected the opinion for the Chinese authorities in the middle of next year, then usually, you start to build a strong 6 months before. Then we expect them to start to see this figure in the early next year.

[Operator]

And the next question goes to Joseph Hedden of Rx Securities.

[Joseph Hedden, analyst]

First one, could you talk a little bit more about your expectations for the lurbi-irinotecan combination data upcoming and the significance of that, please?

[Luis Capitán, executive]

Yes. What I said before, we finalized the recruitment, and we expected the data at the end of this year or beginning of the next year. Well, we don't know now the final result. We know that some interim analysis we presented in some congresses in the past when we only have recruited 30, 35 patients, something like that, the results were very impressive at this stage.

Very, very impressive regarding the response rates, relation of the responses, number of cycles for the patient and the group safety profile. But repeat, we don't know at this stage of the data. Obviously, the data is highly positive. Our plan is to share this data with the regulatory authorities in order to decide the next steps.

[Joseph Hedden, analyst]

Okay. That's helpful. And then just to clarify, on your lurbinectedin expansion plans, I know you're starting a potentially registrational trial in leiomyosarcoma soon. Did you say that now the mesothelioma plan are on the back burner or canceled? Or is that just a 2024 project?

[Luis Capitán, executive]

No, no, it's a different project, and we analyze the project very careful. I mean, we reassessed all the program in mesothelioma, and we decided to stop, okay? When you reassess this type of project, you reassess everything. Then on the other hand, the leiomyosarcoma trial is a great opportunity for the patients and for the drug and, obviously, for the company. We have high expectations about this trial.

In fact, in the recent congress, in the ESMO Congress, and many key opinion leaders approached us. They -- 90% of them want to participate in this trial. We expected good results, taking into account doxorubicin in first-line treatment is about 40, 50 years. There is nothing approved today as part of doxorubicin or ifosfamide. Then I think it's a great opportunity for the patients and for the company, this trial.

[Joseph Hedden, analyst]

Okay. And then just finally, I wondered if there was any advance on potential BD opportunities? Have you got any update on that front?

[Pascal Besman, executive]

Thanks, Joe. Obviously, if we had anything to say, we would have said it. So I'm going to be rather pedantic and repeat what we said. We're engaged in multiple conversations with multiple parties about multiple structures from multiple assets. We continue to diligently look at them and look for a fit that makes sense for us. And as I said, as soon as we have something to report, you guys will be right in the first 100 people to know.

[Operator]

Thank you. We have no more audio questions. I'll now hand back to José for any [ reference ] questions.

[José Martinez-Losa, executive]

Yes. Thank you, Nadia. We have a briefing question in regard to the license agreement situation in Japan for lurbinectedin. Luis, I'll hand it to you.

[Luis Capitán, executive]

Yes. Well, now we are -- some opportunities for that, like Pascal said before, when we signed an agreement with all the information to the market. But what is good is the interest in some companies to have or been active in Japan. More than in LAGOON trial, we will include the Japanese patients, then the regulatory potential, regulatory path in Japan now is so clear, and this is impacting great interest for several companies for this potential deal. Obviously, when we sign, we will announce.

[José Martinez-Losa, executive]

Okay, thank you. And with this, we finish the round of questions. And to conclude, let me just summarize by saying that this year's financial highlights is centered on the increase in R&D investment and the rising royalties generated from ZEPZELCA in the United States.

We're also making significant progress in our ongoing clinical trials. And despite the impact of generics on YONDELIS revenues in the European market, our balance sheet remains robust, and we maintain confidence in our investment strategy.

We anticipate that this strategy will yield very positive news flow, and as highlighted by our team during today's call. So I can wrap up by saying that we expect results for the Phase II trial of [ lurbi and IO ] by [indiscernible]. We also expect completion of LAGOON trial recruitment next year.

We expect data release for the Phase II trial of [ lurbi and azo ] for next year. We expect top line PFS data of IMforte trial to read out the end of next year, early '25, as just announced. And we anticipate data release for Phase III trial of tivanisiran that will be in the first quarter next year.

So next year seems to -- is going to be a very, very busy year for us. And with this, we finish our call today, and would like to thank you all for joining us and wish you a nice weekend. Thank you very much.