Earnings Transcript for GNFT - Q2 Fiscal Year 2020

Operator: Greetings and welcome to the GENFIT Half Year 2020 Financial Report and New Corporate Strategy Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note that this conference is being recorded. I will now turn the conference over to our host, Stefanie Magner. Please go ahead.

Stefanie Magner: Thank you, and good afternoon, everyone. Thanks for joining us for this first half 2020 financial report and corporate update. We just issued a press release providing our first half financial update, which also included details about our new corporate and strategic roadmap. This press release can be accessed on our website at ir.genfit.com. During our call, we’ll be making forward-looking statements as defined under the U.S. Private Securities Litigation Reform Act of 1995 with respect to GENFIT, our expected future performance, business prospects, events and plans, including our new corporate strategy and objectives, potential size of the market for PBC, commercial certainty within this market and the outcome of our later Phase 3 study of elafibranor in PBC, timelines for completion of the late trial, timelines for the success of the commercial launch of a diagnostic test powered by NIS4 by our partner LabCorp, success and benefits of corporate restructuring projects, including a workforce reduction program, our ability to significantly reduce operating expenses, our projected cash flow over the next several years and our ability to adjust the terms of our convertible bond. These forward-looking statements are based on assumptions and estimates by our management, which although believe to be reasonable, are subject to numerous known and unknown risks and uncertainties, which could cause actual results to differ materially from those expressed in or implied or projected by the forward-looking statements. For further discussion of the material risks and other important factors that could affect our business operations and financial results, please refer to those contained in our most recent filings with the SEC and AMF, including our half year report available on our website. These forward-looking statements speak only as of the date of this webcast. Other than as required by applicable law, the Company does not undertake any obligation to update or revise any forward-looking information or statements, whether as a result of new information, future events or otherwise. Joining me on this call is Pascal Prigent, our CEO. Following the prepared remarks, we’ll open up the call for questions that will be addressed by GENFIT management. Please limit yourself to one initial question to allow time for others. I’d now turn the call over to our CEO, Pascal Prison.

Pascal Prigent: Thank you, Stefanie, and good afternoon, everyone. Thanks for joining this discussion. The purpose of our webcast today is twofold

‘: Now, let’s move on to our diagnostic program NIS4. The NIS4 program, as you know, began during the initial work we did on premarketing for elafibranor in NASH. Our market research highlighted a major challenge with NASH patient diagnosis and also with a key question of which patients should be treated. The emerging medical consensus of treating patients with the disease activity of at least 4 and a fibrosis stage of at least 2 meant that the biopsy would be necessary to provide evidence of disease stage. But we know that these are expensive, resource-intensive and painful procedures. Furthermore, there might be the gold standard from a regulatory standpoint, but they are simply not scalable in real life to millions of at-risk patients. It is therefore evident to us that the potential NASH market could be huge, but that it would never truly materialize unless a non-invasive solution is developed that can easily be deployed at a large scale. Since the barrier is determining if a given patient with diagnosed NASH should be treated as opposed to simply diagnostic in with NASH, we launched the NASH diagnostic program to address that one question. Does this patient have at-risk NASH, meaning fibrosis stage 2 above and an activity score of at least? NIS4 as a diagnostic technology is a blood test, which is as simple and scalable as it gets. In the second half of 2020, the NIS4 program achieved two major milestones

‘: So, now that we’ve reset our corporate strategies, have clear priorities and are aligning our structure and cash burn accordingly, we need to also address our debt. So, to that end, GENFIT plans to propose to its convertible bondholders and its shareholders an adjustment of the terms of a convertible bond. The Company’s objective is to begin this process towards the end of the year in order to have a balance sheet, which is structured in line with its new strategy. I will now conclude by saying that GENFIT has readjusted its strategy in light of our analysis of the data generated in our NASH Phase 3 trial. We’ve built on our strengths, and we are confident in this plan that focuses on the development of elafibranor in PBC and the commercial launch of NIS4. Both programs have promising potential. For PBC, we see a clear regulatory and commercial pathway to significant market, and we see NIS4 as a key enabler of a NASH market that, yes, is challenging, but where the medical need is real, huge and in dire need of solutions. We are streamlining our organizational structure to focus on operational excellence and specialization in both, PBC and diagnostics. By reducing our workforce by roughly 40% and our cash burn by over 50%, we are creating a lean and agile organization that is aligned with our revised corporate ambitions. We now look forward to providing additional updates in the coming months on the development of our program and the implementation of this new corporate strategy. Thank you for joining us today. We appreciate your ongoing support of GENFIT. And with that, I’d like to thank you for your attention. And let me turn the call over to the Operator for Q&A. Operator?

Operator: Thank you. [Operator Instructions] Our first question comes from Thomas Smith with SVB Leerink. Please state your question.

Thomas Smith: Hey, guys. Thanks for taking the questions. I have a few. I guess, let me start with the Phase 3 PBC trial. Can you give us a little color around the rationale for the Elafibranor dose selection in the Phase 3? And, I guess, what went into the decision to move forward with only the 80-mg dose level?

Pascal Prigent: So, I have here with me Dean, Dean Hum that you all know, our Chief Scientific Officer and COO. And I will let him answer that question.

Dean Hum: So Tom, thanks for the question. And to answer that question, I think we have to come back to the results of our Phase 2 trial. So, remember, the Phase 2 trial clearly show efficacy of elafibranor, not only on the primary endpoint, which is alkaline phosphatase but also hitting positively with high significance on a composite endpoint. And that composite endpoint was the one that was used as a surrogate endpoint for registration of the current second line therapy, but also the same endpoint, which is being used in our pivotal Phase 3 trial. Okay? So, remember, the Phase 2 was run at two doses, to your point, 80 and 120. And you saw, when we presented the data at EASL in 2019, that hits on those endpoints, but also hits on various different markers, and there was data showing a potential where we see a trend on pruritus, okay, where fiber had a trend to be beneficial on pruritis. So, at those two doses of 80 and 120, we consistently see equipotent activity across the different markers and across the different endpoints. Okay? There were some slight differences, but we think that those differences were related to slight differences in baseline. But having said that, clearly, equal potency between the two doses. And when you consider that, we decided to go with a single dose, which is the 80-milligram dose. There’s no other reason. Realizing the way nuclear receptors work, I think what you want to do is to find a dose, we get maximal activity and not go much beyond that to avoid any off-target effects and so on. That’s not to say that there we saw any issues. We did not see any safety or tox issues, consistent with all the other trials with elafibranor up to date. So, because of the equal potency that we see between the two doses, we decided to go with the 80.

Thomas Smith: Got it. Okay. Thanks, Dean for that color. I guess, also in looking on ClinicalTrials.gov, it looks like there’s a requirement for paired liver biopsy listed as one of the inclusion criteria. Can you talk a little bit about this requirement? Was this something FDA explicitly asked for? If so, why did they ask for this? And then, it’d also be helpful to hear your perspective around what kind of impact you think this could have on enrollment?

Dean Hum: Yes. So, Tom, another very good question. So, yes, this was a request from the FDA. However, just to be clear -- and there are two points. Yes, it’s a request from the FDA, but it is apparent from our interactions and discussions from the FDA that this requirement is, first of all, not specific to elafibranor. And it’s also important to realize that in our ongoing discussions with them, it is also apparent that the FDA is currently requesting liver biopsies in the context of all pivotal PBC trials. The main reason for this is a -- to be able to assess the safety of different drugs developed in PBC. However, having said that, I think it’s important to note, although, this was not a specific request for elafibranor, and the main reason, it is based on safety. But remember, elafibranor has very clean safety profile. We have not seen any safety or tox signals whatsoever throughout the different trials, which have been conducted. But also keep in mind, of all the trials we’ve run up to date, we realize, and I think everyone realizes that we have a large extensive safety database, and again, the totality of the safety database in the case that elafibranor is very well tolerated with no specific safety concerns. Okay. Another important point is that we also have a lot of data coming out of the RESOLVE-IT trial, which is the Phase 3 trial in NASH. And if you think about biopsy, so remember, in the NASH trial was 120 milligrams, we’re going to PBC with 80 milligrams. But even with 120 milligrams in the NASH trial after treating patients, for 72 weeks, we have biopsies from over 900 patients in that trial. And when you look at the biopsy, I mean, it’s totally clean. There is no indication of any interface -- any problems of interface hepatitis or any other safety signal. So, I think with such a large database and now with this additional data coming from the biopsies in the NASH trial, of course, what we’ll be looking to do is to go back and continue our discussions with the FDA, because it’s also clear that the agency’s thinking regarding the design of clinical trials and PBC is also evolving. So, I think it’s important for us to continue to have this dialogue with them. The other part of your question, whether this will have an impact on the recruitment of the patients? Yes. I mean, I think, we’ll have to realize it’s -- and everyone knows that biopsy is not standard of care in PBC. But having said that, what we’re finding from discussions with many investigators is that once they realize the profile of elafibranor, based on the efficacy as well as the safety profile as we have shown in our Phase 2 trial, the investigators, by and large, most of them are very motivated to offer this to their patients in the context of our Phase 3. And as we all know, the motivation of the investigators play a big role for the patient to get enrolled into a trial. So, does it make it a little bit more difficult? Yes. However, we are cognizant of that. And as we continue our discussions with the FDA, we’re going to work hard to make sure that we address the recruitment, as much as possible. And so, I think we just have to get ahead of that and continue our discussions with the agency.

Thomas Smith: I guess, just quickly turning to the NIS4 diagnostic and the agreement with LabCorp. Can you just walk us through exactly how, I guess, you and LabCorp plan to commercialize the product? I mean, what steps need to be completed to gain regulatory approval in the U.S.? And then, what’s the strategy for driving adoption and reimbursement of the diagnostic?

Pascal Prigent: So, I’m going to take this one, Tom. So, first of all, we don’t need additional regulatory approval. So, no, it’s purely marketing. So, LabCorp is going to take that marketing effort. We anticipate that they’re going to launch probably early into the next year. And when I say launch, it’s really their sales force is going to offer this diagnostic to all of their customers in the U.S. first, at least. And essentially, what we’re going to do is also help them and try to generate that interest in the market. As I was saying earlier, from a pure commercial standpoint, it is clear that the presence and the launch effort of a drug would really sort of immediately make the need for diagnostic very acute. However, the market research we have and that obviously we’ve shared with LabCorp is that there’s already a need to be fulfilled, because it has some value to know whether you’re at-risk NASH, and it can be a powerful enabler for patients as well as healthcare professionals. So, LabCorp will handle all the marketing, the market access, also working to get this test reimbursed in the U.S. and we’ll then -- although we do not disclose the financial terms, because that’s our core policy, what we can say is that it’s a fairly standard licensing deal with like an upfront milestone payment and a royalty that’s linked to the central [ph] here. So, that’s how it’s going to open, and we are really excited to see what happens.

Operator: Our next question comes from Derek Archila with Stifel. Please state your question.

Derek Archila: Hey, guys. And thanks for taking the question. Just two on the ELATIVE study and then one on elafibranor more broadly. So, just on the estimated timing for ELATIVE study results, I think you said 2023. Can you give us a sense of how much buffer is in there for COVID but also how much you’re allotting for additional time because of the biopsy requirement? The second one on the study would be just around the cost and understanding your cash position. I mean, are you able to fully fund this trial through results based on the current cash that you talked about in cost reduction plan? And then, lastly, kind of the broad thinking of elafibranor now, looking at other indications, mechanistically, where do you think you can play with this molecule? And beyond elafibranor, would you look to in-license additional assets into the portfolio? Thanks.

Pascal Prigent: All right. Thanks for these questions, all interesting. So, the first one was related to the -- yes, okay, the buffer. Yes, sure. So initially, our vision was that we would need one year for recruitment. And as you can see from the guidance we’ve given, we basically have added about six months. That’s taking into account the COVID constraint. As regards to biopsy, as Dean mentioned, there are two things. So first of all, right now, we feel that the initial enthusiasm is not -- I mean, it’s compensating, I guess, for the burden of a biopsy. And going forward, and we hope relatively soon, we hope that requirement will change based on our ongoing discussion with the FDA and the sharing of the data that Dean alluded to. With regards to the cost, as I mentioned in the talk, there are two elements. Right? One element is the cost cutting measures, the other one is the restructuring of the debt. If we do those two things, then yes, we are financing to results. But of course, we need that refinancing of debt because the maturity of the bond currently is October 22, which is before the expected results. Regarding your last question, I will let Dean comment on where we can go mechanistically with elafibranor. With regards to in licensing, I would just say, we’ll be open to opportunity, but obviously, we also are focusing our cash towards those two programs. So, anything we do will have to be sort of cash-neutral. So, Dean, do you want to comment on the mechanistic...

Dean Hum: Yes. So, I think what’s important to keep in mind is that the mechanism of action of elafibranor is the dual agonist, which is activating both PPAR alpha and PPAR delta. And remember, in the past, we’ve spoken quite extensively that elafibranor, we have clear evidence that it is activating and hitting on both, PPAR alpha and PPAR delta. What does that mean is that this provides a pluripotent activity, meaning that as the -- two nuclear receptors are activated, works and varies with different pathways, and what that leads to is different beneficial activities. When we look at our data in the different trials and including the Phase 3 trial, we see that elafibranor does have different activities. We see the effect on different inflammation markers as well as different metabolic parameters and so on. So that pluripotent activity is there. So, when you think about Elafibranor in PBC, I think this pluripotent activity comes and to bear on the use and the potential benefit that we expect to see in PBC patients in the context of our Phase 3. I think, there are other indications where elafibranor through that mechanism has strong potential to provide some benefit. One that comes to mind is PSC. This is something that’s on our radar. We haven’t made a decision there yet, but that’s one that’s potentially interesting for Elafibranor. So I would say, some of the things we’re thinking about other, call static diseases. And I know before anyone asked the question, what about combination therapy and things like that? I mean, these are things we continue to think about, but realizing that the NASH space is not simple and easy straightforward space to move forward. However, that possibility is there.

Operator: Our next question comes from Ed Arce with H.C. Wainwright.

Thomas Yip: This is Thomas Yip, asking a couple of questions for Ed. So first, for the new -- for the two new entities, can you provide what are some of the opportunities there to facilitate partnerships for the NIS4 program? And would you consider spinning off the NASH diagnostics subsidiary at some point?

Pascal Prigent: Yes. Thanks for the question. So, I think at this point, it’s premature. We’re still early in that process. We have our legal team looking at different options. What we do know is that we want to have a separate entity because we feel it will really, as I said, enable a number of things. And the partnership is an important one. At the end of the day, it’s always about the value-creation for shareholders. And by doing this, we think we can really achieve this. When we say partnership in diagnostic, what we have specifically in mind is a number of companies are not going to go after the entire NASH market, right? They are going to target a specific patient. And the issue of how do you identify this patient is always going to be critical. And of course, all NASH patients look the same and they all feel the same, i.e., they have no symptoms. Because we have a solution that looks at both the activity of the disease and the fibrosis, we’re able to almost tailor or ID tool [ph] with great granularity to a specific patient. So we could develop a specific ID tool for anybody wanting to target a specific patient. Of course, it’s a little bit difficult for those companies to truly partner and engage with us if they also see us as a potential competitor. And that’s why by having a sort of separate entity developing that part of the business, we feel it’s going to be a lot easier. And then, of course, there’s a notion of specialization, driving operational excellence. Today, we have a number of personnel that are working on both, the drug and the diagnostic. So, sometimes there are competing priorities. You need to sort of readjust to a new reality when you move from project A to project B. And it’s sort of DNA. Sometimes we tend to over prioritize drug development. So, that’s why we felt by doing this separation, we would create a lot of value on the diagnostics side, obviously, but also on the drug side because now it’s all going to be a matter of operational excellence to get to those results as quickly as possible and execute on recruitment, for example. So, we need to get our mind fully aligned with that objective.

Thomas Yip: Okay. Thank you so much for aligning the rationale for the new entities. Perhaps a quick one for the Phase 3 PBC study. Should we expect any data point from DSMB reviews or interim analysis?

Dean Hum: Yes. I mean, DSMB will be put in place. I think it’s reasonable to expect reports or guidance from DSMB back. However, there’s no interim look on efficacy.

Pascal Prigent: It’s just safety -- just safety.

Thomas Yip: Finally, one short one financial question. At this point, can you tell us, roughly what will the restructuring charges to be in the next 12 months?

Pascal Prigent: Restructuring charges, from memory, let me get back to you on this. I don’t want to -- I have a number in mind, but I don’t want to say something wrong. But, we can -- we’ll find out and get back to you on this one.

Thomas Yip: Sure thing. Thank you so much for taking my questions. And we look forward to the progress in NIS4 and the PBC study.

Pascal Prigent: Sure, welcome.

Operator: Our next question comes from Geoff Meacham with Bank of America. Please state your question.

Unidentified Analyst: Hey, guys. It’s Aspen on for Geoff. Thanks for taking our question. So, maybe taking a step back and thinking maybe a little bit about longer term. So, within the context of this new restructuring plan, maybe you could talk about some long-term plans for your pipeline and maybe some -- maybe a timeline for earlier stage assets, maybe like the NTZ program, when we could see that moving to the clinic and when we might get like some preliminary data from that? Thanks.

Pascal Prigent: So, I will let you elaborate, Dean. But, with regards to the proof-of-concept, I think, we’re expecting data Q1 next year. So, of course, we’ll decide on the future of that program when we have that data. The rest, Dean, do you want to...

Dean Hum: Yes. I mean, for NTZ, there is -- that’s a proof-of-concept that’s going on. But, Tom, as we’re studying more about NTZ, looking at potential primary targets and so on, we’re learning quite a bit about this drug candidate. We’ll be coming out with some public guidance on results, which we are finding right now. But clearly, it’s interesting because when we started NTZ, this is coming from a phenotypic screen. And one advantage of doing a phenotypic screen is that you’re able to identify potential drug candidates, which work through different mechanisms, which is not necessarily dependent on a single primary target. And our one hypothesis we had was that fibrosis. Remember, we’re targeting fibrosis with NTZ. That fibrosis could be one of those things where you would get good efficacy by hitting on different primary targets, working through different pathways and so on. And so, as we’re looking for these primary targets, this is actually appearing to be the case where we are coming up with different mechanisms -- multiple mechanisms and multiple primary targets. And when we look into that, I think, there are other potential indications for NTZ, which we’re considering, not ready for prime time yet, but we plan to be working through some of those. So, above and beyond the readout on the proof-of-concept trial ongoing now, I think there are other possibilities for NTZ moving forward.

Pascal Prigent: The other thing I would like to add from a pipeline standpoint. So, on diagnostic, right now, we have a tool that essentially identifies patients with at-risk NASH. But, we have a number of R&D programs ongoing. One is trying to develop a way to monitor disease progression, which we believe is going to be absolutely key going forward because in disease where you have no symptoms, payers are going to want to know whatever they’re paying for is actually working. So, monitoring this progression is important. That’s one axis of research. And as I mentioned, the other one is developing specific ID tool, tailor-made to specific compound, based on demand from different sponsors or people willing to launch in NASH. So, those are the areas we are currently working on from a diagnostic standpoint.

Stefanie Magner: Thank you all for your questions. We’ll close the Q&A portion of the call now. And I’ll hand the call back to Pascal Prigent for closing remarks.

Pascal Prigent: All right. Thank you all for joining us today. We are thankful for our team. We appreciate your ongoing support of GENFIT during this transitional period as we implement our new corporate strategy. Have a great day.

Operator: All parties may disconnect.