Paion AG (OTCPK:PAIOF) Q2 2021 Earnings Conference Call August 23, 2021 8:00 AM ET
Ralf Penner - Vice President, Investor Relations
Jim Phillips - Chief Executive Officer
Abdelghani Omari - Chief Financial Officer
Conference Call Participants
Simon Scholes - First Berlin
Disclaimer*: This transcript is designed to be used alongside the freely available audio recording on this page. Timestamps within the transcript are designed to help you navigate the audio should the corresponding text be unclear. The machine-assisted output provided is unaudited and is designed as a guide.
00:00 Yes. Thank you very much for your kind introduction and to everybody, ladies and gentlemen, thank you very much for joining us for Paion’s Earnings call on the financial results of the first half of twenty twenty one. My name is Ralf Penner, I'm Paion’s Vice President, Investor Relations and I’ll be moderating today's call. I am joined by Dr. Jim Phillips, Paion’s CEO, as well as Abdelghani Omari, our Chief Financial Officer.
00:30 Within the next half hour, we are going to highlight some of the first half year twenty one achievements, give details on the financial results highlights the most important events and provide a pipeline and strategy update and financial outlook. After this initial presentation, we'll be happy to take your questions.
00:51 I would like to point out that the slides for the presentation can be accessed by webcast in parallel to this conference call. The webcast details has been posted on our website and were also given in today's press release. If you have not already opened the webcast link, you may want to you may want to do so now. This conference call is being recorded and replay will be available later today. And will be then posted on our website.
01:21 Before we get started, I would like to remind you that today's call may include forward looking statements and that actual results may vary from Paion’s current anticipations. I would also like to refer to the disclaimer included in the presentation slide. After these initial remarks, I believe that we should now start right on with the presentation.
01:43 Jim, please go ahead.
01:46 Thank you. Good afternoon everyone. So, we're going to take you through again in a corporate overview what's happening with our commercialization strategy, the products. And then Abdel will take you through the financials before we conclude the presentation.
2:02 The firstly year reminder of our mission and that's to become a leading specialty pharmaceutical company in and critical care. And as you'll see through the presentation that's exactly what we're doing today.
02:16 Our strategy derived from that mission statement is to become a recognized leader in innovation in these areas over the coming three years, to build and create our leading commercial capabilities, which as you'll see we’re already some forward with doing and to launch our three products this year and next year, and those launches are now actively underway.
02:41 And by doing those three things, we then drive a rapid revenue growth for the company, and we want to reach profitability by the end of twenty twenty three or early in twenty twenty four. As we then recognize as the leading player in the field. And of course, we'll also be looking at other deals that we can do that can be synergistic to drive longer term growth.
03:05 Just a quick reminder of who we are. So, we’re a spec pharma company. We have commercial partners around the world, except in Europe. We have big three products Byfavo, GIAPREZA and XERAVA, all approved in Europe. And as of the thirty June, we had more than twenty million cash and cash equivalents on hand. And Abdel and myself, most of you will know, but I've been the Chief Executive now for the last coming up for two years. And Abdel has been with the company a lot longer and we're dedicated to driving the business growth forward.
03:42 Our listing on the Frankfurt exchange, the market caps sits around one hundred and thirty million euro, we're quite frequently traded now with more than thirty million shares traded in the last six months around just under fifty percent of our total free float. And we have one really significant shareholder in customer pharmaceuticals and the balance is basically split amongst many different retail and investment fund shareholders.
04:17 Key targets and news flow for us this year, so we had the launch in the U.S. at the end of January. We have the CHMP meeting to recommend approval for procedural sedation at the end of March followed by the formal approval in the European Union and then in the UK for Byfavo, and then we have the commercial launches and Byfavo and GIAPREZA, which have just happened and XERAVA to come.
04:46 Through the rest of this year, we're focused on both our own launch activities and starting to generate sales ongoing Byfavo partner sales growth throughout the territories of the world’s where we have approvals. And then at the very end of the year, we're planning to be filing Byfavo for approval in general anesthesia in Europe. And then we'll also be doing further licensing deals in our non-core markets.
05:14 So, a little bit more on the products. So of course, Byfavo our own product is approved in general anesthesia in South Korea and Japan it’s approved in procedural sedation in the U.S., Europe and China. And in ICU sedation as you'll see later there is still relatively early in development terms.
05:35 And GIAPREZA and XERAVA, the other two products are both approved in Europe, where we have the rights and GIAPREZA is now launched in Germany, and XERAVA will be launched very soon.
05:50 Now let's concentrate a little more on the products. So, is Byfavo is essentially remimazolam, the generic name for the product, which has been brought to market with rapid onset and offset with a very predictable recovery time and what we see is having less resources for supervision post procedure, which means patients can potentially leave the hospitals earlier with lower safety issues and reversal agent and therefore less resources for supervision required during procedures as well.
06:21 So we see it combines the best of the current drugs and usage and therefore, has a very attractive in-market opportunity, which we're beginning to see the signs of in the commercialization around the world.
06:35 What we also have in Europe is a very broad label for usage. So, it's indicated in Europe’s procedural sedation in a time independent manner, there's no limitation on the time you can patient for as no requirement for an anesthetist to be present which saves resources and it's not restricted to any particular procedure.
06:57 In terms of the intellectual property, so the key patents in the U.S. run until two thirty one in the Europe till twenty thirty three and Japan till twenty thirty three and we're still working now on lifecycle management that could deliver new intellectual property and therefore help us in terms of the longevity of this product going forward.
07:21 In our commercialization, so in Western Europe, our strategy is to commercialize ourselves. And in the states outside the European Union and southeastern countries we're planning and are working on partnering with other local companies.
07:39 The rationalization for splitting Europe in this ways is that we are developing ourselves into a specialty pharma company, gives us the highest margins in Western and North Western Europe. So our profits can be driven forward. And then in the countries where smaller countries where pricing is more of an issue, local champions can actually do a better job than we can and it allows us to concentrate our resources.
08:09 Ex-European Union, so far product revenues in the first half of this year in total amounts around two point seven million euro. China has been incredibly strong with Yichang Humanwell. Acacia Pharma just launched in January and the U.S. Market is somewhat restricted in access to doctors, but we're hoping it will pick up as hopefully the COVID rates decline. And Japan has had a good start to their commercialization.
08:40 Taiwan is a new licensee. South Korea has just launched and the countries of the Canada and [RPharm] for Russia, mean, we're still working on the launch plans and the agreements with those businesses.
08:56 In Japan and China. So in Japan, pricing is around seventeen euros per fifty milligram and more than four hundred hospitals in Japan have the product listed by the end of last year. It's a very strong market but a [battery call] (ph) had to be made last year and there's been a limited supply, which has hindered some of the sales in the market this year to date.
09:20 In China, similar pricing. It is currently our strongest market globally. There's very supportive network of Chinese key opinion leaders the Chinese partner, Yichang Humanwell have just filed for general anesthesia indication as well. They have already a four percent market share in colonoscopy usage in China, which is very strong for first four quarters of sales. And they last year won a very significant drug innovation achievements award in China.
09:54 In the U.S., so forty seven accounts have been opened as of the thirty June including the Mayor Clinics. Again it’s a full year expectation of one hundred and fifty accounts open formulary accounts. And so that's since March since the first month and a half that they were in the market. We've seen a very big increase in the uptake of – [by formularies] (ph).
10:22 One of the key success factors there seems to be avoiding the necessity for anesthesiologist to administer the product, which gives the required economic differentiation that we need for the pricing. And that is being accepted by formularies.
10:40 But what we have seen through our partner is that access to clinics and prescribers has been very limited because of COVID-nineteen and there is still a very, very large stress in the U.S. Healthcare system of COVID patients and intensive care units is limiting their ability, both to see key account management teams trying to promote the products and also the fact that they're not doing the procedures they would normally be doing. So we hope as things ease in the U. S. And the vaccination program gains more traction that will see accelerating growth in the second half of the year.
11:17 What we can report on there was one of the first letters to a journal in the U.S. where from a set of clinics in the Carolinas, and they were one of the early users. They used the product Byfavo on more than twenty patients in February. Interestingly they focused on geriatric patients who had concomitant medication and factors that would complicate potentially using sedatives and really what they concluded at the bottom of this slide is that they saw remarkably clear distinction compared to their historical pharmaceutical benchmarks, which we assume are propofol and midazolam.
11:57 So they've seen and this is an anecdotal evidence that is been their experience Byfavo of course peers to cause less [indiscernible] the patients near a psycatric function. So that's a little bit of real world evidence that maybe Byfavo is beginning to show in real life and real usage, the benefits that we've seen in clinical studies.
12:19 Next, our commercial build-up in Europe. So, we've had successful partner launches around the world, which confirm to us that there is high potential in the market for Byfavo. And we've also learned from our partner launches that targeted sales teams is the right approach to getting the highest benefit for the least risk in terms of selling.
12:44 The launch of the product is coming in a time where COVID has caused significant backlogs for surgery and routine procedures in hospitals all over the world, and that is both a restriction in terms of market access to all the markets are open, but it's also an opportunity in that when those markets open up the advantages of our shorter onset and offset mean that they can potentially treat more patients in clear backlog. So it helps in our markets with our marketing messaging.
13:16 We also see ongoing shortages in multiple countries for the existing therapies and that puts us again in a strong position to be able to enter those markets and gain market share.
13:28 With our other two products, GIAPREZA and XERAVA, we have very good overlap for our selling teams around Europe. And so we're very confident our team is very confident in their ability it cross sell products during calls into hospitals going forward.
13:46 Where we are in terms of commercial organization in Europe, as we invest for growth now, as you can see the countries in green are the commercial entities that we have operating. So, we have obviously our European and GlobalHQ here in Aachen in Germany. We have in London in the United Kingdom now, a commercial operation in the Netherlands, just outside Amsterdam.
14:09 In Copenhagen, for the Nordic countries. And then in Aachen we have essentially our core German functional though we're still beginning to stuff that up. Other countries yet to be decided to launch time frames, but we're concentrating on getting it right in the countries we're already active in first.
14:31 We have dedicated field based commercial teams. The green ones are again are already in place. So he Netherlands where we have a total of five in the field. Denmark, where we have three, and the UK where we have ten mixture of key account managers and medical science, liaison managers, which give us the focus and the territory break-outs that we need to be able to successfully market in those territories. And others will follow in due course. The next plans would be for Sweden, Norway and Finland, then Germany, and then potentially France and Italy.
15:10 So with staggering launches over time, and these are aligned with our sales and profit expectations. So in July, GIAPREZA was launched in Germany and in August by, just recently was launched in the UK. We'll be looking to launch XERAVA in the next month or so, and we'll be following those launches with other launches in other markets through the rest of the year and through next year.
15:38 What you see in terms of preparing the market is that after we got the European authorization we had to then get a UK authorization because of Brexit that's a separate Authorization, established local management, which was done in March, deploying the field force ready for launches in June so they can be trained and start to work out their territory mapping, have our supply chain up and running and ready to put product into the territories where actively marketing and then start to work on formularies and formulary submissions starting in July.
16:16 So it's been a complex process, but I can now happily say that we are now launched in GIAPREZA and Germany and also in the UK, and the Netherlands and Denmark will be following very swiftly. And just to remind you of the market opportunity in Europe is around between fifteen million and twenty million procedures using procedural sedation a year.
16:40 Roughly half of those up gastrointestinal, colonoscopies and endoscopies and ninety percent plus of those require procedural sedative and the other areas of course, can be important from [across the] (ph) cardiac procedures, interventional radiology, Cataract surgery and even dentistry where we have a big investigator initiated study starting in London soon.
17:06 Our market research shows a high willingness to use the product amongst both anesthesiologist and gastroenterologists and I think it's very encouraging for us that the doctors are willing to start using the product early in many cases.
17:25 A little bit more about and GIAPREZA and XERAVA. So GIAPREZA is approved for septic shock, treatment of septic shock in Europe and the U.S. It's a vasoconstrictor used in refractory hypertension in adults who have distributive shock, which could be septic or otherwise, and he remain hypertensive despite being given volume, volume fluids, restitution or giving catecholamines or other vasopressor first.
17:53 So it's a third line therapy. It's a life saving therapy and we see that pricing and reimbursement work very supportive premium pricing. And we already have managed to [choke our first] (ph) sales in Germany.
18:09 So, it was launched last month in Germany and can be ordered and delivered to customers through direct sales mechanism. What we see for this market is that distributive shock is one of major healthcare major unmet medical needs. It has a mortality rate between thirty five percent and fifty four percent And that's a very significant burden on the health care system and patients.
18:37 What the market environment is like is that simple Catecholamine’s like adrenaline, I used first line, roughly three quarters of a million patients per year in the EU received this therapy. And then in some countries as the second line therapy, normally, it is Vasopressin, and that's used in around three hundred thousand patients a year, but it's not approved everywhere.
19:01 And then for patients, you don't adequately respond to GIAPREZA we're looking at a third or in some countries, second line therapy for between one hundred to hundred and fifty thousand patients per year, but this is a new therapy entering the market. So the market size is a little bit – needs more understanding as we go forward.
19:22 And then XERAVA, XERAVA is a novel tetracycline anti-biotech called eravacycline approved to treat complicated intra-abdominal infections in adults; these are things like complicated appendicitis where you get peritonitis after the rapture of the appendix. And it was initially developed by Tetraphase in the U.S. It has the potential to be a first therapy and we will be pricing it competitively compared to other novel patent protected at antibiotics in the market.
19:58 What we do see in the red in the next chart has a very broad spectrum of action against multi-drug resistant pathogens, such as Klebsiella pneumoniae, and what you see with the other older drugs is that they have quite a high level of resistance amongst these antibiotics. So it clearly has a place for usage in the market.
20:21 What you see in Europe is first line empiric therapy tends to be generic, antibiotics, which of course [achieve] (ph). And then second line, you can either use a combination or you use the newer non-generic brands and we'll be looking to fit in that group. So other products would be ZAVICEFTA, ZERBAXA or VABOREM.
20:43 And now I'll hand to the financials.
20:47 Thank you, Jim. Good afternoon, everyone. I will now guide you through the financial key figures for the first half of this year compared with the prior year period and then also give an outlook for the full year. But first of all, let me start with the cash position and recent financing activity.
21:21 As of June thirty, we had cash and cash equivalents of EUR 21.2 million. This cash position includes the loan from the European Investment Bank of twenty million, which we have drawn in February and June this year.
21:37 In addition, we successfully completed our rights issue with gross proceeds of seven million in April this year. A total of close to five point one million shares were issued at a price of one point fifty four dollars per share. The subscription ratio was over ninety percent. Following this capital increase, the share capital now amounts to seventy million.
22:00 Our liquidity run rate into the first half of twenty twenty two based on current planning, we expect increasing revenues in the coming years from license agreements as well as from our own commercialization. However, in light of the necessary build-up of commercial infrastructure, we have a financing retirement in the mid double digit million range in the coming years until breakeven, which we expect towards end twenty three or beginning twenty four on a quarterly basis. The required funds could be raised through different financing measures and further partnerships.
22:38 Now let's go through the P&L on the next slide. Revenues amounted to million, of which two million resulted from milestone payments and one million euros from remimazolam API sales to licensees and royalties. Of these one million euros, zero point five million related to API sales and zero point five million euros to royalties.
23:05 In the prior year period revenues amounted to three point five million euros that mainly resulted from milestone payments. On the upper right hand side, you can see that research and development expenses amounted to two point nine million euros and decreased as planned particularly due to the completion of the EU Phase III study in general anesthesia in the previous year.
23:29 Compared to the first half of twenty twenty G and A and selling expenses increased by five point one million to now eight million in the first half of this year. General administrative expenses increased by zero point nine million to two point five million and selling expenses increased by four million to now six point two million The increase in general administrative expenses is mainly related to financing activities and the expansion of It systems and infrastructure.
24:04 Selling expenses increased as planned, particularly due to commercialization and supply chain activities for all three products. In total, we show an EBIT of minus eight million compared to an EBIT of minus six point seven million in the prior year period.
24:23 Now, let's move to the balance sheet and headcount. So total assets increased by twenty four point – twenty million compared to end of twenty twenty to now forty million. This results mainly from an increase in intangible assets to now twenty point seven million, mainly due to the acquisition of commercial rights for GIAPREZA and XERAVA. An increase in inventory by one point three million and a decrease of prepaid expenses by one million, as well as from an increase in cash and cash equivalents of one million.
25:04 The increase in cash and cash equivalents results from negative cash flow from operating activities of seven million and a negative cash flow from investing activities of eighteen million, mainly related to the product acquisition. And a positive cash flow from financing activities of twenty million related to the Loan and the net proceeds from the rights offering that I've mentioned.
25:34 As you can see on the lower left hand side, equity decreased by three point one million to eighteen million, this is mainly a result of the net loss for the first half year of ten million and the issue of five point one million new shares related to the rights offering.
25:52 The equity ratio was thirty seven point five percent. The staff development is illustrated on the lower right hand side compared to an average number of forty three employees, we had staff of forty seven employees on average in the first half of this year.
26:09 Now let's move to the outlook for the full year. For the purpose of comparison, you can see the actual figures for twenty twenty in the left column. What you can see is that we expect revenues of about eight to nine point five million euros, approximately four million to four point five million related to the sale of remimazolam API, as well as royalties from our licensees. Our previous guidance for that was five to six million.
26:40 We expect approximately four to five million from milestones and upfront payments, including potential new license agreements for smaller territories, the previous guidance for this was two point five to three million.
26:54 Revenues from the own commercialization of Byfavo, GIAPREZA, XERAVA in Europe are not included guidance since the commercialization has only just started.
27:06 Cost of revenues will amount to approximately three point five to four million, sorry to approximately three million, the previous guidance was three point five to four million.
27:19 Since our focus of activities is and will be on marketing and distribution; we expect SG&A expenses of approximately eighteen to twenty million. R and D expenses will come in between fourth point five and fiver point five million. So in total, we expect an EBIT of approximately minus sixteen point five to minus twenty one point five million euros.
27:47 That concludes the financials. Back to you, Jim.
27:51 So conclude, Paion has been transforming itself over the last twelve to eighteen months. And we can now say that with the commercial teams we have, we are a commercial stage specialty pharmaceutical company We have three strong products in our portfolio, they're exhibiting market need and usage all over the world, which gives us high confidence in being able to deliver a profitable company over the foreseeable future.
28:20 Our first commercial year really with the first launches was last year and it was a profitable year for the company. But now we need to invest for revenue growth in our commercialization capabilities and in successful launches of these products. After that, we become a high margin profitable business in the near-to-mid-term. So I think we're in a good place.
28:44 Clearly, we still need to raise further funds to conclude our transformation over the next two years and to become profitable, but I'm very pleased with the progress the company has made and the way which we're able to roll-out very, very experienced and strong commercial teams in the countries who we've already launched in.
29:07 With that, I think we can end the presentation and move to the Q and A session. Back to you, Ralf.
29:15 Yes. Thank you very much, Jim and Abdel for the presentation. And now I’m happy to start the Q and A session.
29:24 [Operator Instructions] And we do have a first question that comes from the line of Simon Scholes from First Berlin. Please go ahead.
29:55 Yes. Good afternoon. Thanks for taking my questions. I’ve got two. Firstly, on the reduction in guidance, the slight reduction in guidance on sales of the remi API and royalties, I mean, does that reduction relate roughly equally to both the U.S. and Japan or is it weighted to one of those two markets? And secondly, with regard to potential reduction in the royalty in Japan from mid twenty three onwards I mean, does that relate to the current capacity and supply shortages, which hopefully won't obtained from mid-twenty three onwards? Those are my two questions.
30:55 Yeah. I mean the first question regarding the changing guidance, so it relates to both markets. I mean, mainly the U.S., but it relates to both the U.S. and the Asian markets where the reduction comes from for this year in the royalty income, but it's mainly, but it's mainly the U.S.
31:22 And I think the second question around Japan royalties. So, we're very happy to conclude a mutually beneficial agreement with Mundipharma around future royalty for Japan which means there won't be an instance in the future where there is theoretically a zero royalty position for us, which was the case in the past. I think by mid twenty three that will be in a situation where we expect the cost of goods to fall in and therefore, we would hope that the royalty rate will remain as it is now. So, we would hope that the four royalties would continue to be payable after that point.
32:04 Okay. Thanks very much that's very helpful.
32:08 Thank you. There are currently no further questions in the queue. [Operator Instructions] And there are no further questions coming through the audio line. So I'll hand the call back to our speakers.
32:39 Yes. Thank you very much for handing over the closing remarks to me. And I want to thank everybody for joining us for Paion’s earnings call on the financial results of the first half of twenty twenty one. Thanks for your questions and I hope that we have been able of course to answer your questions, but please feel free to give me a call afterwards. If you would like to listen to this call again, please visit our website where the replay will be posted later today. For now, I say goodbye, and thank you very much for your continued interest in Paion.
33:20 Thank you for joining today's call. You may now disconnect.