Calliditas Therapeutics AB

STO:CALTX

Earnings Call Transcript 2020-Q1

[Renee Aguiar-Lucander]

Thank you, and welcome, everybody, to our Q1 2020 webcast. I will take you immediately. There's obviously disclaimer on Page 2, which I'm sure you're all familiar with. On Page 3 is where we're going to just go through some of the key events that we saw in this quarter that just passed. The company got -- or basically PDCO, EMA Pediatric Committee, adopted a further opinion of our PIP plan for Nefecon which was announced in January. Also in January, the Board of Directors decided to explore a potential offering of the company's securities in the U.S. which would then, if proceeded with, would be by an IPO on NASDAQ. We also, in the same month, welcomed two new significant shareholders into our cap structure: Vivo Capital and Sofinnova Partners, through by way of a secondary purchase. And in -- towards the end of the quarter, the company also held an Extra General Meeting where authorization for the Board of Directors to issue new shares in the potential equity offering and listing in the U.S. as well as adoption of new articles of association and new incentive programs were approved. If you turn the page to Page 4. Obviously, this quarter, to no surprise, as we all know, COVID-19 has been the item or the development that has caught the whole world in partly by surprise and since then, clearly, has been flashed across all screens on a daily basis and clearly changed everyday life for the vast majority of the world's population. So this new coronavirus COVID-19 was originally reported from Wuhan in China, and the -- as the respiratory syndrome. And what we saw there in early January were obviously cases then reported from China and was followed by surrounding areas. There were cases reported from South Korea, Thailand, Japan, Hong Kong, Taiwan. And on the end of January, it was declared as a public health emergency of international concern by the WHO. And obviously, as we all know, the virus has been sweeping across the globe. And if we just look at some of these numbers, they're obviously quite astonishing, both in terms of the number of countries, which are reported cases, the number of cases reported globally as well as the deaths, which are now, unfortunately, a daily reporting item in all of our lives. If we look at some of these numbers, obviously, at the end of -- kind of the 20th of February, there were 27 countries with confirmed cases and about 75,000 cases globally. Deaths outside of China at that time were 11. Three weeks later, that had grown to 121 countries, over 142,000 cases and over 5,000 deaths with now half of those being outside of China almost. Only a couple of weeks later, there were over 1 million cases and over 50,000 deaths. And as we now know, there are over 4 million cases on a worldwide basis and over 290,000 deaths reported. This new virus seems to be fairly poorly categorized and understood at this point in time. We are all being provided with information, news items, reports, trials and other published information that does not always seem to be completely coherent. And I think we are all trying the best we can in a variety of settings to try and cope both with our daily life, our business lives, and obviously also trying to see what the -- what this will bring going forward. So we turn to the next page. Obviously, therefore, the company spent a fair amount of time this Q1, really with a focus on looking at what the potential impact of the COVID-19 would have on our clinical activities. As you are well aware, we operate in -- we have a trial, Phase III trial operating in 19 countries on a global basis, with over 146 clinical sites active. And from that perspective, we obviously focused our efforts on analyzing, identifying, analyzing and putting in place mitigating solutions in order to ensure patient safety and obviously, trial integrity in the trial NefIgArd. So I'm very happy to be able to report to you as we have also done through a previous press release that to date, what we have seen is limited impact on the NefIgArd study. Part A, as you may remember, was fully recruited in December 2019. This is an oral medication and does not require visits to hospitals in order to administer the drug. There also is a reasonably limited interaction with the health care system during the trial on a 3 monthly basis for patients. And I believe that we -- due to the fact that we obviously started this process early and have been working with a very clear strategy, which encompasses, obviously, our CRO or national coordinator, site staff, et cetera. We have so far been successful at minimizing the potential impact on the -- on this Phase III trial. There's also obviously been a helpful guidance received from regulatory bodies to help us in this work. And also with regards to Part B, this quarter, Q1, saw a very, very healthy recruitment pace and rate, continued pace into the study. But obviously, we would expect, and as we have seen, that recruitment rate has obviously declined as the COVID-19 continues to spread across the world and obviously, significantly impacting the health care system, both in terms of ability for patients to get access to hospitals, and hospitals allowing non-COVID patients to come to the actual sites and also, obviously, just the redirection of resources in general towards the pandemic within the health care system. However, based on where we -- based on kind of the number of recruited patients to date, and the recent increase in activities in China, because obviously in China where the pandemic supposedly started, have obviously seen a positive development of that pandemic and there has been significant increase of activities across China in order to allow that economy to open up and pursue its business. And therefore, on that basis, we still would see the full recruitment is still planned to be completed before the end of the year based on the information we have to date. If we then turn to Page 6. We have also listed a couple of post-quarter events. Press release has gone out again stating that we are very happy to welcome Dr. Philipson to join us as Chief Medical Officer. He will be starting here in early July. Dr. Philipson has a very strong background from orphan drug development in general. One of the positions that he has held in illustrious career also had been Head of GSK rare disease unit. And he has recently managed an FDA filing process of an orphan drug candidate and has, in general, a lot of extensive experience really from working from kind of preclinical all the way to marketed products within the orphan space. And also the combination of both big and small pharma background. So we're excited about this and very glad to welcome him to the team. Also, as some of you might have seen this morning, the company issued a press release today. Actually, not on the morning we issued just before this call, where we state that we have publicly filed a registration statement with the SEC for a proposed initial public offering in the United States. And this is -- again, this has been a fairly constant message from me and from the company since we actually initiated the press release that we did in January, where we informed everybody that we had filed confidentially with the SEC that it is something where we would like to create some optionality with regards to a potential capital raise, and this action basically puts us in a position to potentially exploit that optionality should the company choose to do so over a period of time. So with that, I will hand over to our CFO, Fredrik Johansson.

[Fredrik Johansson, Chief Financial Officer]

Thank you, Renée, and good afternoon, everyone. I will present to you the financial overview for the first 3 months of this year. And all the numbers presented to you are million SEK as usual. So let's start with the revenues. We had SEK 0.5 million in revenues for the period, and this is due to a delivery of Nefecon to China as part of the license agreement with Everest Medicines. It's our performance obligation origining from the signing of the agreement last year. Our total operating expenses for the period amounted to SEK 72.8 million (sic) [ SEK 72.3 million ] compared to SEK 42.7 million for the last period. And out of the total operating expenses, the cost for research and development increased by SEK 23.4 million to SEK 54.1 million for the period, and this is to be compared with SEK 30.7 million for the same period last year. The majority of the increase in R&D expenses continues to originate from the clinical activities in the NefIgArd trial. And this is natural since we, of course, have more activity in the trial in the first quarter this year compared to last year, having completed the Part A recruitment in Q4 last year. The sales and administration costs amounted to SEK 18.0 million for this period, to be compared with SEK 9.8 million for the last period. The increase of SEK 8.2 million in the period is mainly related to the pre-commercial activities in the U.S., including personnel expenses, which were almost nonexistent for the same period last year. And this leaves us with operations loss of SEK 72.3 million as planned for the period compared to operating loss of 42.7% for the same period last year. The cash flow from operating activities for the period amounted to negative SEK 18.8 million compared to minus SEK 49.4 million for the same period last year. An improvement in the operating cash flow is due to our received payment from Everest of $5 million for the Q4 IND milestone we recorded in Q4. The net cash effect from investing activities and financial activities was minus SEK 13.5 million, and this is primarily due to transaction-related costs for the potential use offering. Our cash position was SEK 728.6 million at the end of the period, so we continue to have a solid cash position. That was all for me. And now back to you.

[Renee Aguiar-Lucander]

Thank you. So if we then go to Page 8 of the presentation. I have already extensively covered, obviously, the coronavirus outbreak. What we have obviously then done is we've seen through all kinds of reports existing trials have been put on hold. And we also know that there are -- have been an inability really to start new trials in a lot of areas and geographies. So in order to be more conservative in our outlook, we have assumed that there will be a time impact in terms of our ability to start our extended dosing trial potentially and also any kind of second indication trial that we might start. And this is obviously due to the general impact that this virus has had both on ethics committees, regulatory authorities, institutions, like every part of the chain, obviously, has been impacted by that. And so we are assuming that there will be a time lag in order for new trials to be able to go through the process that's required and be able to start-up. And so for that reason, we have chosen to move them out into kind of the 2021 time frame. And with that, really kind of on the next page, it's really the very familiar investment highlights that you've seen many times. So from that perspective, we are happy to take any questions to the extent that there are any.

[Operator]

[Operator Instructions] Our first question is from Ludvig Svensson from Redeye.

[Ludvig Svensson, Life Sciences Analyst]

And it's nice to see that everything is going according to plan despite the virus outbreak. My first question is related to the commercialization plan for Nefecon in the U.S. and then I wonder, how many sales reps that you expect to process this market with? And to what extent do you think you could leverage these sales rep from Budenofalk sale?

[Renee Aguiar-Lucander]

So I think that in terms of the commercialization in the U.S., we've obviously -- we've continued to build an organization over there. We now have 5 people, more or less over there, 4 to 5 people. And part of that, obviously, we have done some market research and used third party to do that. And one of those third parties, actually, we did do one of these kind of concentration analysis. So looking at physicians and nephrologists in the U.S. who -- to treat IgA nephropathy patients and then really looked at what kind of concentration did the top 200 of those nephrologists have with that community. That showed us there were about 3,800 nephrologists in the U.S., dealing with IgA nephrology -- nephropathy patients. And that the top 200 nephrologists really had what's called first-degree connection with over 90% of that group. And first-degree connection means that you're co-authors in a paper or you're working the same organization, you're seating on the same Board, et cetera. So there's a definition of that. So it's a fairly concentrated market. And so with that type of estimated number, we're looking to have about 40 salespeople in order to then have the required reach and frequency that we would look for in order to commercialize the product. So that's really kind of how we've looked at the kind of the commercial situation with regards to Nefecon in the U.S. With regards to any kind of commercialization of AIH, it's probably a little bit early at this stage to discuss that or share that kind of information as we're still really awaiting. We're going to have conversations this year, as we've said with FDA, and so we'll have to kind of wait for any regulatory feedback before we really can develop a kind of a relevant development plan. And then that, after we haven't done that piece, we will start turning our attention to the commercial side there.

[Ludvig Svensson, Life Sciences Analyst]

All right. Yes, I understand. And in the trial you're pursuing for Nefecon in IgA nephropathy, how many times -- you say that you have a limited impact currently. But how many times during the trial that the patients actually have to physically interact with their nephrologists?

[Renee Aguiar-Lucander]

So the actual kind of -- the interest between this is that you would see the plan is, or the protocol would say that you would go and actually interact on an every 3 months basis. But as this obviously is not a 3,000 patient trial, it's about 200 patients that we are looking at. And so we have a very good view on when there are interactions, where they are, and that actually allows us to be very proactive and work very closely with the sites or with the CRO or with whoever we need to work with in order to ensure well in advance of any such interactions. But if there are any kind of issues or potential problems, that we can find a way to work around that and to provide alternative ways to address any issues. And that's really why we've been very successful in doing that. And so as I'm sure you can realize that the whole health care system has obviously change to a far more digital interaction model and samples are being both taken, shipped, analyzed, et cetera, in different ways than what they were before. So it's a combination really of just leveraging these new ways of managing these trials that has enabled us to do this.

[Ludvig Svensson, Life Sciences Analyst]

All right. Perfect. Perfect. And my last question is, do you think there are any countries that you still see a decent patient inflow to this trial despite the coronavirus?

[Renee Aguiar-Lucander]

Yes. There are quite a few countries actually where there's very, very limited impact from the virus, at least on that country's health care system or at least in the clinics and in the regions that where we are active. So yes, there are quite a few areas where the impact seems to be very limited.

[Operator]

And our next question is from Max Herrmann from Stifel.

[Max Stephen Herrmann, Head of European Healthcare Equity Research & MD]

A couple of questions. One is just on China and the recruitment there. Obviously, you recorded some revenue for shipping products to China in the first quarter. I wondered whether you had started patient recruitment. Or is that -- or have a plan, a time line when that might be happening? Obviously, the market there has opened up much more now compared with the rest of the world, I guess, with COVID-19. And then forgive me, people like to get some clarification again on AIH and PBC. How Budenofalk and Nefecon, how you see those 2 products for each of those indications? That's more of a recap. So I can have a -- quite get exactly which indication you're targeting with which product.

[Renee Aguiar-Lucander]

Okay. Sure. So with regards to the entry into the financials, Fredrik, why don't you just cover what that relates to?

[Fredrik Johansson, Chief Financial Officer]

Yes. That is correct. We see the study right to China this quarter, and the revenue comes from performance obligation under IFRS 15. So it was sort of carved out from designing [ seat ] last year, and we recognize that revenue this quarter instead, yes.

[Renee Aguiar-Lucander]

And with regards to -- to say, if -- what we will do is, and I can assure you that once they actually have first dosing or randomization of first patient in China, we will announce that. So since we have not announced that yet, we would have to assume that, that hasn't happened, but we will certainly announce it when that happens. And I think that, yes, you are correct in terms of China. That was obviously very, very restrictive and rules that were put in place in China in January and -- but really kind of affected the country very significantly. And what we have seen, obviously, over the last kind of month or 2 is that the load type of restrictions are successively kind of changing across China. And also, that means that a lot of the backlog, et cetera, on processing and is now taking place at a reasonably rapid rate. So that's really kind of what we're seeing from China as of right now, anyway. With regards to the liver indications, what we've communicated is that with regards to AIH, we really have assumed or targeted that we would develop Budenofalk for that indication. That is mainly based on the fact that there has already been a trial that has been carried out, a fairly large Phase II trial with Budenofalk in AIH. So that's why we have kind of identified that for primarily to kind of have a conversation with the FDA around that with Budenofalk. With regards to PBC, I guess, technically, we could develop either a product for PBC. But at this point in time, we have been primarily focusing on Nefecon to take forward in a PBC scenario. So that's our plan as of today.

[Max Stephen Herrmann, Head of European Healthcare Equity Research & MD]

Maybe just a follow-up on China and the opportunity. Obviously, in your release, you talked about activities increasing in the NefIgArd study in China. So what sort of activities are you referring to specifically? Obviously, with products being shipped to China, but no sites are yet recruiting. Do you know how many sites you envisage there being opened up in China, and an estimate maybe of what number of patients you expect out of the total 360 to come from China?

[Renee Aguiar-Lucander]

So I think at this point in time, it's a little bit -- probably a little bit premature to provide that level of detail. We will be providing that detail or more in detail like that, but the activity that I'm referring to is the fact that just as you've seen kind of in the western world, you've had anything from asset committees and various levels of kind of approvals, where documents have just not been kind of interacted with them in a timely basis. You've also had institutions, obviously, which have been completely shut down or haven't allowed for any of the staff to really kind of process or interact with any kind of new study-related documentation or anything else. I mean I think it's a similar picture that you've had in China that we've seen in many of the European countries as well, that where just kind of the activity has just been -- I mean really moved away from kind of, I would say, normal kind of activity is really to focus exclusively on the infectious disease area. And I think that's really what we're seeing in China today is that all of these institutions are kind of over time opening up in all these kind of organizations and bodies are kind of, again, processing documentation and being responsive. And there's more -- obviously, there's also ability, therefore, for people to go to sites and interact with sites, et cetera. So it's a whole kind of chain, again, of all of those kind of components, which have been, week-by-week kind of improving or increasing in China.

[Operator]

[Operator Instructions] Our next question is from Ingrid Gafanhao from Kempen.

[Ingrid Gafanhão, Research Analyst]

I have two, if I may. So first, I was wondering, what is -- if you can provide any guidance on what is your expected SG&A and R&D for the remainder of the year, considering that we might be talking about scaling up or down some R&D or SG&A activities. And the second question is about the ongoing Phase II trial in the light of COVID-19. I understand it's probably premature to talk about that, but could we -- could you detail what measures you would foresee the need to be put in place when looking at the trial data? And in the long term, should we expect any changes to the trial design or this [indiscernible] analysis?

[Renee Aguiar-Lucander]

You're breaking up a little bit, but I think I got the gist of this. So in terms of the second part, I can take that, and Fredrik will take the first one. But I guess, just in terms of the trial design or anything, we do not expect to see any changes in terms of the trial design of NefIgArd. And I think it's communicated in terms of -- so far, we've seen very limited impact on the trial to date. And in terms of the time lines that we've communicated therefore kind of remain in place as of today. And we would not kind of assume that we, therefore, would have any -- see any kind of design impacts, et cetera, on the trial.

[Fredrik Johansson, Chief Financial Officer]

Yes. And for the first question, and if we could give some guidance on the R&D spending. And the answer is, sorry, no, we're not able to give you that at this point in time.

[Operator]

[Operator Instructions] And there seem to be no further questions. I will hand you back to the speakers for any final comments.

[Renee Aguiar-Lucander]

Thank you very much. Thanks a lot for joining us for this Q1 report. Stay safe, everybody, and let's catch up after the next quarter. Thank you very much.