IDRSF - Idorsia Ltd (IDRSF) First Nine-Month 2023 Earnings Call Transcript
2023-10-25 05:47:04 ET
Idorsia Ltd (IDRSF)
First Nine-Month 2023 Earnings Conference Call
October 24, 2023 9:00 AM ET
Company Participants
Andrew Weiss – Senior Vice President, Head of Investor Relations & Corporate Communications
Jean-Paul Clozel – Chief Executive Officer
André Muller – Chief Financial Officer
Tosh Butt – General Manager and President of Idorsia U.S.
Conference Call Participants
Peter Verdult – Citigroup
Brian Balchin – Jefferies
Rajan Sharma – Goldman Sachs
Sushila Hernandez – Van Lanschot Kempen
Presentation
Andrew Weiss
Good afternoon, good morning to you all. My name is Andrew Weiss, and I want to welcome everyone to our webcast today to discuss the Nine-Month 2023 Financial Results. Presenting today, we have our CEO, Jean-Paul Clozel; and our Chief Financial Officer, André Muller. Then, joining for the Q&A session, we will also have our new General Manager and President of Idorsia US, Tosh Butt; and our President of Idorsia EUCAN region, Jean-Yves Chatelan. Next slide, please. Before handing over the microphone, I need to remind everybody that we will be making forward-looking statements. You have, therefore, been appropriately warned about the risks and opportunities of investing in Idorsia shares.
With that, I hand over to Jean-Paul for his introductory remarks. Next slide.
Jean-Paul Clozel
Good morning, good afternoon, everyone. The third quarter was a very active time for us as we implemented numerous measures to adapt the company. Today, I'd like to run through these measures and then describe the current performance of QUVIVIQ around the globe. Then André will take you through our financial results. Next slide. In just the past few months, we sold our Asia-Pacific business, not including China, for CHF400 million. We reduced the workforce at headquarters by around 50% and received a number of research projects. We changed the leadership of our U.S. commercial operation, which Tausif Butt taking the reins in September. Tosh has hit the ground running and is already joining us on the call to answer questions on the performance of QUVIVIQ in the U.S. And very importantly, we reacquired the worldwide rights to Aprocitentan.
Next slide. I am very happy that we came to the agreement with Janssen for the return of aprocitentan to Idorsia. Recently, the WHO has characterized hypertension as a key public health issue. Aprocitentan is the first antihypertensive drugs, which works via new mechanism of action in 30 years and has been shown to be effective in patients with resistant hypertension. With this deal, Johnson & Johnson, which remains a significant shareholder of Idorsia, continues to have a vested interest in the success of aprocitentan and Idorsia. The review process with the U.S. FDA is progressing well. Following the provision of additional REMS materials to support the streamlined REMS, designed specifically for aprocitentan, the company is working towards the PDUFA date of March 19, 2024. We are laser-focused on gaining approval and getting ready to provide aprocitentan to patients as soon as possible.
Next slide. Let's move to the performance of QUVIVIQ in the U.S. Since the launch of QUVIVIQ in the U.S., more than 275,000 prescriptions of QUVIVIQ have been dispensed. As explained previously, our approach at launch was to drive demand for QUVIVIQ for both early product adoption and payer negotiation. In January, ESI added QUVIVIQ to the national preferred formulary. This was followed by CVS national coverage in July to begin within Tier 3, but in September we were added to Tier 2 formulary of CVS Caremark, putting us at parity with the other two DORAs available in the U.S. Additionally, through the quarter, QUVIVIQ has been added to several employers' plans.
We also expect the first Medicare Part D coverage to begin in January 2024, which will open an entire new channel to the team. With the improved access, we decided to move our specialty pharmacy partner from VitaCare to KnippeRx, which is better positioned to pull through paid prescription as they can dispense both commercial payer paid and consigned Idorsia paid prescriptions. VitaCare could only dispense consigned prescriptions and rely on partner pharmacies to dispense commercially.
Next slide. As you can see here, prescriptions volumes were flat quarter-on-quarter, so temporary product volume volatility was experienced during this transition period, which is to be expected from a major business model adjustment in addition to the seasonality impact. Already QUVIVIQ prescription volume is returning to growth, which is expected to accelerate from this new prescription volume baseline. I can tell you that in the last couple of weeks, we have seen weekly growth of 8% in total prescription, so I am confident that the impact of the decision to transition to this new model is now behind us.
Next slide. Despite the negative impact for a few weeks, we start to see the benefit of this transition from VitaCare to KnippeRx. In the third quarter, we were at 18% paid prescription, an increase of 11 percentage points from the previous quarter. As you see here on this slide, a year ago, we were only at 24% payer paid prescription. Actually, in September, we were at 57% paid prescription, so we are clearly seeing the results of the increased coverage and the switch of the specialty partner. And as our access continues to grow, so will our percentage of paid prescription. We now have an effective model in place to grow both QUVIVIQ revenue and volume.
Next slide. We have seen also some great milestones for QUVIVIQ in Europe this quarter. Remember that QUVIVIQ is the first and only dual orexin receptor antagonist in Europe. We have now made it available in five European countries, Germany and Italy last November, Switzerland at the end of the last quarter and most recently in Spain and the UK.
Pricing and reimbursement processes are progressing well in key European markets. In the UK, the recently published final guidance from NICE means that patients in England and Wales will have broad, unrestricted access to QUVIVIQ on the NHS. In Germany, the GBA review of the four-week prescription limitation so called Anlage III, resulted in the limitation being lifted and we anticipate the official publication in the coming weeks. This makes QUVIVIQ the only sleep medication in Germany that can be prescribed for long-term treatment.
In addition, we can now plan the submission of a second AMNOG dossier for the treatment of chronic insomnia disorder beyond four weeks, reflecting the indication in chronic insomnia disorder granted by the EMEA in 2022. We aim to make this submission in February 2024. This great progress enables European patients with chronic insomnia to fully benefit from a treatment that has robust clinical data demonstrating improvements in sleep quality and quantity as well as daytime functioning.
Next slide. As you would expect, we see a sustained sales growth momentum in this quarter in Europe. Despite the insomnia market seasonality usually impacting the third quarter, QUVIVIQ absolute volume increased significantly from Q2 to Q3 in every market. QUVIVIQ market share also increased in every country despite entrenched conventional hypnotics [ph]. In total, already 55,000 months of treatment of QUVIVIQ have been prescribed to patients with chronic insomnia in Europe.
Next slide. I am fully aware that Idorsia needs additional funding in the coming months. As you can see from this slide, we have a rich portfolio, which give us strategic flexibility and multiple avenues to explore potential fundraising through partnerships of one or a combination of products. That bring me to the end of my prepared remarks and I will now hand over to André for the financial results.
Andrew Weiss
Please André. Next slide.
André Muller
Thank you, Jean-Paul. Good afternoon or good morning, everyone. As Jean-Paul mentioned, my primary focus is on the near-term funding to extend the cash runway beyond mid-February 2023.
Next slide Nadia, please. Here you can see net sales also reported so including PIVLAZ Q1, Q2, you’ve seen 18.5 – CHF13.5 million, CHF18.9 million. And So CHF1.3 million for Q3 is actually first 19 days until we close the transaction with Sosei. And this will be the final number for the full year regarding PIVLAZ, because as Jean-Paul mentioned, we sold the Japanese business to Sosei.
Now, coming to the scope, we operate, you see QUVIVIQ growing CHF4.3 million, CHF7.4 million, CHF8.4 million in Q1, Q2 and Q3, leading to a total net sales of CHF20.2 million. And as Jean-Paul explained and Tosh will also give you more detail, we had a hiccup with the transitioning between VitaCare and KnippeRx, which explain the modest increase in Q3.
Next slide Nadia, please. On this one that you see the impact of the Sosei Deal, which of course has a huge impact on the reported numbers in Q3, so for the nine months, and of course it will also be valid for the full year. So we have already received CHF396 million cash, CHF10 million in June, CHF396 mid-July and we expect plus or minus CHF4 million in October – later October or early November we see a true up we see a closing balance sheet at the date of the closing.
The impact on the P&L is a total of CHF363 million. You get an impact of CHF68 million on the contract revenue. You get a gain on the sale of disposal, which comes as a reduction of the OpEx for CHF302 million and an impairment of intangible assets this was relating to clazosentan specifically with the license with Roche which has been assigned actually to Sosei of CHF7 million.
Next slide, please, Slide 15. So here you see the non-GAAP operating results as reported in blue and pro forma in green. So revenue CHF131 million but actually CHF29 million, CHF20 million sales you saw a few slides ago in net sales and CHF9 million of contract revenue.
Cost of sales is also lower, because we no longer account for royalties paid on clazosentan to a rush, this is now assigned to Sosei. Research is, as you know, a group research effort we did not have any research activity in Japan, so CHF74 million. Some are development local specific development activities in Japan, which explains the difference between group reported CHF138 million and pro forma CHF130 million, excluding Japan.
And SG&A because in order to launch of clazosentan in Japan and also prepare for the registration of clazosentan in South Korea, you see a CHF22 million difference between group as reported and pro forma, excluding Japan and South Korea. So the main difference as we saw is the impact in revenue, which explain that the non-GAAP operating results as reported are CHF387 million, but on a pro forma basis Sosei scope of a business we currently operate is CHF456 million.
Next slide, Nadia, please. So on Slide 16, you see, we start again from the reported and proforma non-GAAP operating results. You see a little difference between reported and proforma except, of course, in the reported deal, the impact of CHF295 million, which is the addition of the, again, on sale of CHF302 million and the impairment of intangible asset. Again, this is offset in the OpEx in the U.S. GAAP numbers. So, yes, the U.S. GAAP operating results are shown at CHF145 million, but on a proforma basis, we are at CHF507 million.
Next slide, please. So here you have a comparison, we'll not spend too much time on this one. Again, on the proforma numbers, as comparing 2023 see a first nine months of 2023, see a first nine months of 2022. As you can see, we have curb on the OpEx. Research is going down CHF74 million versus CHF86 million. Development is going down CHF130 million versus CHF148 million. SG&A mainly marketing and selling is significantly going down CHF277 million versus CHF333 million and revenue are growing mainly through net sales, we see a launch of QUVIVIQ, because now we speak in proforma numbers only of QUVIVIQ.
And as a result, you see that we almost saved compared to comparative nine months 2022 almost saved CHF100 million, leading to a proforma non-GAAP operating result of minus CHF456 million.
Next slide, please. Same here. We see U.S. GAAP operating results impact we saw it on non-GAAP operating results, almost no difference with D&A and stock-based compensation. We booked restructuring cost at the headquarter following the cost reduction initiative launch in July, which is almost complete of CHF11 million, leading to a proforma CHF507 million.
Next slide. So now the cash flow. And here the cash flow, again, trying to give you a view of how the liquidity beginning of the year CHF466 million, how we went to CHF255 million by the end of September. You've seen a proforma revenue CHF29 million, again, excluding the impact of CHF68 million of the license of QUVIVIQ to Sosei. Non-GAAP OpEx, we discuss it at length CHF486 million. The cash so far from the Sosei Deal CHF396 million, CHF3 million to CHF4 million more expected in the coming weeks.
Working capital changes of CHF85 million and CHF65 million, which I put other in order to reconcile numbers with this waterfall with a proforma revenue. So CHF255 million cash by the end of September. Next slide, please.
I was on the road with Andrew over the last few weeks and months and I wanted to add this slide for the sake of all investors in Idorsia. The indebtedness as reported is CHF 1.293 billion. It’s mainly with two bonds, the bond that will mature in July 2024, CHF200 million convertible bond, which is true for CHF199 million. You have CHF597 million of the 2028 convertible bond, nominal value CHF600 million. And that’s really because the strike now both bonds are really out of the money with a strike price of north of CHF30. So this is, I would say, not a U.S. GAAP, as you can see, but these are really the convertible bond that we would have to pay, should we not be able to reach the strike price.
The J&J convertible loan of CHF335 million will mature at the latest in June 2027. And J&J can convert this loan at any time into new shares up to 29.1 million shares. The only reason why it’s a debt according to U.S. GAAP is that there is one single reimbursement of this convertible loan, one single feature, which would be a change of control of Idorsia. If not, this alone will eventually at the latest in June 2027, be reimbursed in additional shares, 21.1 million, as said.
And the other one is the sale and leaseback because of some features where we have an option that we’re buying back the buildings sold last year for CHF162 million. So the roughly CHF1.3 million debt as you can see, has a different nature with fundamentally CHF800 million in nominal value of convertible bonds, 2024 and 2028, CHF200 million and CHF600 million, respectively. This does not include the conditional consideration for the reacquisition of the aprocitentan rights.
Let’s go to see our next slide. As you have seen in the press release published early September, we reacquired the worldwide rights to aprocitentan from Janssen, Jean-Paul mentioned it, and change is entitled to up to CHF306 million. Only if the drug is approved in the U.S. for 90%, so we’re more or less CHF275 million and 10% to roughly CHF31 million if it’s approved by EMA in Europe. Idorsia will pay to J&J, 30% on any out-licensing deal of aprocitentan, 10% on any other out-licensing deals, and low to mid-single royalties on the annual net sales.
So just to give you also because we got the question why CHF306 million, quite odd number. This was the conversion of USD50 million. And this number of USD350 million. That’s more or less the amount which was invested by Janssen in the collaboration on aprocitentan with USD230 million optimacy back in December 2017 and 50% sharing of the development, filing and CMC costs since the opt-in until September 2023.
Next slide, please. As Jean-Paul mentioned, we had a busy third quarter, reacquiring the aprocitentan rights going through the cost reduction initiatives at the headquarter, closing at the Sosei Deal. And what is reflected in this new guidance, CHF600 operating loss, and CHF670 U.S. GAAP operating loss is reflecting the efforts made by the company in order to also prioritize the pipeline portfolio and reduce the spend.
Next slide, please. So as you can see, we are adapting the company to create a sustainable value. And with this, I hand over to Andrew.
Andrew Weiss
Thank you, André. Thank you all for your prepared remarks and we now have time to address questions. As mentioned at the beginning, we are now joined by our President of Idorsia EUCAN region, Jean-Yves Chatelan, who joined us already at the last call. We also have our new General Manager and President of Idorsia U.S. Tosh Butt. Prior to joining Idorsia, Tosh served as Executive Vice President and Chief Operating Officer at ChemoCentryx. Tosh has a rich expertise spanning complex operations and the commercialization of products across different disease areas and medical settings. Thank you for joining us today, Tosh.
In terms of logistics, I will ask the analysts to ask one question and jump back into the queue. Operator, please open the lines.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] And now we’re going to take our first question and it comes from Peter Verdult from Citigroup. Your line is open. Please ask your question.
Peter Verdult
Yes, thank you. Peter Verdult, Citi. One question for André on financing. Just in light of the liquidity position, can you give any comfort or color on the QUVIVIQ apro and/or pipeline deals that you have publicly stated you’re seeking to provide a cash runway to breakeven? I realize you can’t go into big details, but anything you can say on level of interest, confidence on getting something done in Q4 would be appreciated. And just to tack on André, this is a second part of the first question on financing. Just in light of the current share price, is it fair to assume that the backstop rights issue that you currently talked about is now off the table or is that still on the cards? Thank you.
André Muller
Well. Thanks Peter for your question. As you said, it’s premature to give you more – too many details. We have achievables [indiscernible] with different scopes. Nothing is excluded today regarding [indiscernible] scope of business assets that we could partner. Also we aim to assign right terms for such out licensing deals. I would say nothing is also excluded even if an equity raise or an equity linked deal based on the current stock price is not our favorite option. But as I said, it could be really a backstop option if need be. I.e., we would not be able to close a deal on a sizable deal with one of the assets that could be partnered.
Peter Verdult
Thank you. Very clear.
Andrew Weiss
Thank you, Pete. Thank you, André. Operator, next question, please.
Operator
Yes, of course. Just give us a moment. Now, we’re going to take our next question, and it comes from Brian Balchin from Jefferies. Your line is open. Please ask your question.
Brian Balchin
Yes. Thanks. It’s just on QUVIVIQ. Maybe it’s one for Tosh Butt. Can you just help us understand what gives you confidence in seeing inflection in 4Q, just as we’re not really seeing that pickup in IQVIA based on October data. And then I see that you said you’ve got 57% paid scripts in September, so that’s 11% up from 3Q. But we saw a 11% increase in paid scripts from 2Q to 3Q, which didn’t translate into a meaningful jump in sales. So what gives you confidence that 4Q is going to be different? Thank you.
Tosh Butt
Thanks. Hello Brian, you can hear me okay?
Brian Balchin
Yes. Yes.
Tosh Butt
First of all, thank you for the question. It’s a pleasure to be here. Yes, look – first of all, look, we’re given our new reduced TRx prescription volume baseline following a flat third quarter, we’ve had to have a reduction in promotional efforts. We’re expecting that and with continued market access improvement, we expect to see some consistent volume growth now from our new baseline.
In terms of inflection points, you're aware that on September 1, we got CVS commercial access provided, and we're focused on pulling that through. We've also got a couple of regional plans that are given some additional access in the commercial space, and our Account Director team are working through to – working hard to pull that through. For example, Blue Cross, Blue Shield in Florida, which is the largest Blue’s [ph] plan has added QUVIVIQ, Blue Cross, Blue Shield in North Carolina, which is also a top five Blue’s plan, have added QUVIVIQ too. Our team continues to work on those every day. And then looking forward, the next and bigger inflection point we would expect will be in January where we win our first Part D access with the Optum United Group. I stop there.
Brian Balchin
Thank you.
Andrew Weiss
Thank you. Operator next question please?
Operator
Yes of course. And the next question comes from the line of Rajan Sharma from Goldman Sachs. Your line is open. Please ask a question.
Rajan Sharma
Hello. Thanks for taking my question. So just on apro [ph] the new PDUFA. So firstly, could you just kind of help us understand the streamlined REMS and the kind of additional color on that? And specifically, I guess, the rationale as to why that wasn't included in the initial filing. I guess has something changed since that initial filing versus now? Thanks.
Jean-Paul Clozel
Okay. So as we have mentioned, the REMS will be addressing the risk of teratogenicity. And we have provided data concerning the risk in human beings because macitentan and we could provide some data related to macitentan to the FDA. And we also provided some preclinical data, giving a rationale for the low risk, which we believe is the risk with aprocitentan. And the FDA has really indicated us that first; the REMS will be only for teratogenicity.
There is no liver REMS as to that's what we were informed about that. And the second thing is that we will try to make these REMS lighter, which means that this is still under discussion, but it should only be requiring the pharmacy and the mid doctors to register, so to be aware of the teratogenicity risk, but there will be no need for the patient to act in a way. This is just an information REMS and because of the other REMS with endothelin receptor antagonist, it requires time for the FDA to put that in place with us.
Andrew Weiss
Thank you, Jean-Paul. Thank you, Rajan. Operator next question please.
Operator
Yes of course. [Operator Instructions]. And now we're going to take the question from Sushila Hernandez from Van Lanschot Kempen. Your line is open. Please ask your question.
Sushila Hernandez
Yes, thank you for taking my question. Could you elaborate on your prelaunch activities for aprocitentan and in particular, your cash burn on debt? And also, what kind of scenarios do you have in mind for potential commonization activities? Thank you.
Andrew Weiss
Jean-Paul, you want to take the question please?
Jean-Paul Clozel
Okay, so this is really we just got recently the right back, so we are analyzing the situation, and we will take a few weeks in order to really decide the best way to create value with aprocitentan. We got a lot of information from the work done by J&J [ph] and we are analyzing and no decision has been taken. So for now, we are really more making a sort of analytical work, consulting with experts and also starting to consult for – with the payers, and we will take decision in the later stage.
Andrew Weiss
Thank you, Jean-Paul. Operator next question please.
Operator
Just give us a moment please. Dear speakers, there are no further questions and I would like now to hand the call over to Andrew Weiss for any closing remarks.
Andrew Weiss
Operator, can you call for another question, please?
Operator
Yes, of course. So now we're going to take another question, just give us a moment. And now we're going to take the question from Peter Verdult from Citi. Please ask a question.
Peter Verdult
Yes, thanks, me again, just my last question. Jean-Paul, just a long question for you. Given the predicament faced and the time lines you're working to, how committed are you or are you still very 100% committed to pursuing a stand-alone strategy for Idorsia or have you set yourself a sort of a gating factor when other considerations might be on the table? Thank you.
Jean-Paul Clozel
Well, I think that, we are evaluating many licensing, partnering and the question of the sale of Idorsia, especially at this price is not on the table.
Peter Verdult
Thank you.
Andrew Weiss
Thank you, Jean-Paul. Operator, was there another question that came in?
Operator
Dear speaker turnoff for the questions at this time.
Andrew Weiss
Thank you very much. So this concludes our call for today. Thank you for your ongoing interest in Idorsia, and we look forward to speaking to you again.
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Idorsia Ltd (IDRSF) First Nine-Month 2023 Earnings Call Transcript