Earnings Transcript for ZEAL.CO - Q1 Fiscal Year 2022

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Zealand Pharma Results for Q1 2022 Conference Call. At this time, all participants are in a listen-only mode. And after the speaker presentation, there will be a question-and-answer session. I would now like to hand the conference over to your speaker today, Matt Dallas, Senior Vice President and Chief Financial Officer. Please go ahead

Matt Dallas: Thank you, operator. Welcome and thank you for joining us today to discuss Zealand's first quarter results for 2022. I'm Matt Dallas, Senior Vice President and Chief Financial Officer at Zealand. With me today are Zealand's President and Chief Executive Officer, Adam Steensberg. You can find the related company announcement and additional supporting information on our website at zealandpharma.com. I would like to point out that we will be making forward-looking statements that are subject to risks and uncertainties. These statements are valid only as of today and the company assumes no obligation to update them except as required by law. Please refer to recent filings for a more complete picture of risks and other factors. With that, I will turn the call over to President and CEO, Adam Steensberg.

Adam Steensberg: Thank you, Matt and thanks to everyone for joining today. Please turn to slide three. As you all know, at the end of the first quarter, following a thorough review of our business operations, we announced an organizational restructuring and received a strategic refocusing to transition Zealand into a more cost effective company focused on our core competencies, the research and development of innovative peptide therapeutics, addressing areas of high unmet medical needs. We believe this decision better supports our mission to change the lives of patients with next generation peptide therapeutics. With a new commercial partnership strategy and a more streamlined organization, we are financially well-positioned to achieve our goals in the next few years, which includes the potential for three more commercialized products and a highly valued product pipeline, including programs targeting diabetes, obesity, chronic inflammation, leveraging our strong and innovative peptide platform. Please turn to slide four. One of my top priorities since taking over as the CEO has been to execute on the announced restructuring, including securing a strong financial runway that will take us beyond near-term clinical milestones. The cost savings associated with the restructuring and amendment to our finance agreement with Oberland Capital have delivered financial stability, which enable us to deliver on our R&D focus as Matt will discuss later in greater details. We expect to have completed announced downscaling in the U.S. by the end of the third quarter. As announced today, Matt will be leading Zealand to pursue new opportunities by the end of August and we have initiated the search for a new CFO for the company. Matt joined Zealand in 2019 and played an important part in building Zealand's commercial operations in the U.S. and has created a very strong finance organization for the company. Personally, I've really enjoyed working with Matt and I look forward to work with him until the end of his tenure here at Zealand. Securing strong commercial partnerships is a fundamental element to our new strategy. Our business development team has been very busy engaging potential partners for V-Go and Zegalogue and I look forward to delivering on these negotiations in the coming months. Lastly, we look forward to topline results for our two -- for two of our Phase 3 programs, which, of course, depending on the data could lead to NDA filings. Please turn to slide five. We continue to make progress on our clinical pipeline. All programs are based on innovation coming from our peptide platform, which is the foundation of our Refocus Strategy. Our excellence in understanding peptides and our broad know-how in how to create innovative peptide therapeutics will be at the center when considering future strategic partnerships. Our clinical programs, we target type 1 diabetes, rare diseases, obesity, and we have a late preclinical assets targeting chronic inflammation. We have strong momentum across the pipeline and a number of upcoming significant milestones this year. Importantly, we have three major clinical data readouts approaching with pivotal Phase 3 results both Dapiglutide and SBS and Dasiglucagon in CHI both of which I will expand upon in a moment and Phase 2 data for BI 456906 in type 2 diabetes. This candidate is partnered with Boehringer Ingelheim and is the lead program in our obesity portfolio, which also includes Amylin analog in Phase 1 development and GIP analog in late preclinical development. Applying our peptide know-how and cutting edge platform to create the products to tackle obesity is an important part of our Refocus Strategy and I look forward to sharing updates from these programs with you later in the year. Turning to slide six, as I mentioned earlier, in the coming weeks, we expect topline results from our Phase 3 study evaluating Dasiglucagon for the treatment of congenital hyperinsulinism or CHI in neonates and infants. CHI is an ultra-rare pediatric disease characterized by recurrent and persistent hyperglycemia. Our randomized placebo controlled study of 12 children with CHI ranging in age from seven days to 12 months, we'll measure primary endpoint of reduced need for intravenous glucose. We believe Dasiglucagon has the potential to be an important new treatment option for children which CHI where there is a significant unmet medical need and we look forward to sharing the results from this Phase 3 study soon. With positive data, we plan to pursue an NDA submission, which will also include data from the Phase 3 trial in older children with CHI with the FDA. Please turn to slide seven. Let me now turn to another product in our pipeline where we look forward to share Phase 3 data later this year. Glepaglutide, our long-acting GLP-2 analog being investigated for the potential treatment of short bowel syndrome or SBS. We believe that a significant opportunity to improve the care for these patients and also believe that the packetize holds significant potential as a next generation long-acting GLP-2 analog. The once or twice weekly profile delivered via an auto injector provides a clear differentiation and the upcoming Phase 3 data will provide more insight into the clinical profile of the drug and the positive data will pursue an NDA filing with the FDA. Please turn to slide eight. Our TF data readout for EASE-SBS 1 of glepaglutide remains on track for data in the third quarter. Also later this year, we expect to see the data from EASE-SBS 2 and 3 as you can see on this picture and we look very much forward sharing the data with you later in the year. Please turn to slide nine. For our additional late-stage dasiglucagon programs, our partner Beta Bionics initiated the Phase 3 program for dasiglucagon in the Bihormonal Artificial Pancreas Pump for the management of type 1 diabetes in late 2021 and we expect that the first thousand patients will be dosed later in this year. Beta Bionics recently presented results for the insulin-only bionic pancreas pivotal study at the International Conference of Advanced Technologies and Treatments for Diabetes, achieving key primary and secondary endpoints and demonstrating improved outcomes for standard of care in people living with type 1 diabetes. While this trial did not involve dasiglucagon, it demonstrates the encouraging potential of the Bionic Pancreas Pump for the management of type 1 diabetes, and we look forward to advancing our Phase 3 program. In summary, we have a strong momentum across our robust preclinical pipeline and clinical pipeline and with the Refocus Strategy Prioritizing R&D announced at the end of the first quarter, we feel well-positioned to continue this progress. I will now turn our -- to our CFO, Matt Dallas to walk us through our quarterly financials and the ways in which our organizational restructuring has improved our operational efficiency.

Matt Dallas: Thanks Adam. This last quarter we not only outlined our Refocused Strategy, but initiate our organizational restructuring and took steps to strengthen our financial future, ensuring that we can continue to discover and develop innovative new peptide therapeutics in 2022 and beyond. Slide 10 illustrates the immediate and long-term impact of the organizational restructuring. We are estimating an operating expense reduction from our 2021 level of DKK1.25 billion, up DKK200 million in 2022. This is primarily related to a 90% reduction in the workforce of our U.S. subsidiary and we anticipate that the long-term impact of the restructuring will result in a DKK400 million annual reduction in operating expenses, beginning in 2023. In addition, on May 10th, we completed an amendment to our no purchase agreement with Oberland Capital. This amendment was completed as a result of our change in strategy and helps position the company financially to execute on this strategy. With the amendment Zealand has paid down $50 million fee of the original $100 million principal balance and there are up to $75 million in additional capital available to Zealand following the completion specific events. The amendment removes any restrictions on use of cash and extends the company's cash runway into 2023. On slide 11, you will see Zealand's income statement for the first quarter of 2022 and how it compares to 2021. The total revenues for the first quarter was DKK15.1 million or $2.3 million. This was driven by net Zegalogue product revenue and partnership revenue from -- with Alexion -- collaboration with Alexion. The net operating results for the quarter was a loss of DKK302 million or $45.1 million. Sales and marketing costs mainly relate to the commercial infrastructure in the U.S. for Zegalogue. Our R&D cost mainly relate to our late stage clinical programs. And as a result of our announced restructuring, all gross margin and operating expenses related to the V-Go wearable insulin delivery device are accounted for as discontinued operations. Total discontinued operations for the first quarter of 2022 were a loss of DKK41.8 million or $6.2 million. Slide 12 illustrates our financial position and ability to support our growing business through continued investments. Net operating expenses for the quarter were DKK314.2 million or $46.9 million. Included in net operating expenses for the first quarter of 2022 are DKK75.8 million related to our announced restructuring. Cash on hand at the end of Q1 2022 was DKK1.1 billion or $167.6 million. Turning to our financial guidance on slide 13. On March 30th, Zealand updated the guidance for net product revenue from the sales of commercial products to be DKK115 million plus or minus 10%. This is a decrease of DKK120 million from the guidance issued on March 10th. Combined sales of V-Go and Zegalogue in Q1 was DKK39.2 million and were in line with the updated guidance. Following the company's announced intent to sell V-Go, net product for the device is to be accounted for as discontinued operations. As such, net product revenue reported in the Q1 earnings release only reflect sales of Zegalogue, which were DKK4.1 million with full year net product revenue projected to be DKK90 million excluding any potential partnerships or license agreements. In 2022, Zealand Pharma expects revenue from existing license agreements, however, since its revenue is uncertain in terms of size and timing, Zealand does not provide does not intend to provide guidance on such revenue. Net operating expenses for 2022 are expected to be DKK1 billion plus or minus 10%. This is unchanged from our guidance issued on March 30th, and is a decrease of DKK200 million from the guidance issued on March 10th. With that, I will now turn it back to Adam.

Adam Steensberg: Thanks Mike. Please join me on slide 14. We expect 2022 to be a catalyst-rich year and we look forward to sharing data from our Phase 3 studies evaluating dasiglucagon in CHI and glepaglutide in SBS, along with updates from our ongoing Phase 3 study of the dasiglucagon Bihormonal Pancreas Pump and progress on our obesity portfolio. Partnering our commercial and late-stage assets will provide us with the financial strength to focus on the continuous advancement of our early stage pipeline, while leveraging our proprietary platform to -- for the discovery and development of innovative new peptide in 2022 and beyond. This will allow us to take full advantage of our work documented strength in research and development and enable us to deliver on our mission to ensure our mission -- our medicines meets the people who needs them the most. Thank you all. I'll now turn it over to the operator for questions. Operator?

Operator: Ladies and gentlemen, we now begin the question-and-answer session. [Operator Instructions] The first question from Thomas Bowers from Danske Bank. Please go ahead.

Thomas Bowers: Yes, thank you very much. Thomas Bowers from Danske. So, three questions here from my side. So, just kicking off with this financing agreement with Oberland, so you're paying a premium of $10 million to remove the liquidity covenant. So, can you maybe just help me understand why you had this construct in the first place? So, is there anything that has changed in regards to your original expectations of when you were supposed to breach this level? Would that be at about later stage originally? Because it seems a little bit strange when you know that the glepaglutide data would come out in Q3. And then just to understand with the updated agreement here. So the cash run rate into 2023, I'm just wondering, is that including the $75 million that you have additionally from Oberland? And also in that $75 million, you have $50 million as a sort of a dependency on M&A? Or how will you actually be able to get access to those additional $50 million without any M&A? So just help me understand this item here. And then second question, just on your pipeline and new strategy. So, assuming that you have positive readout here in very near term on CHI. So, firstly, will you still advance and submit and do all the regulatory stuff, and then aim to outliers afterwards? And how should we think about timing in regards to of course, the other trials that you're doing with basically going to mini dose and also the hormone pump. So anything here that you want to wait any catalysts that you want to await aside of course, from the very upcoming in near term here on the CHI? And then lastly, just on your dual listing. I guess you spent some money here, maybe $5 million, $10 million on an annual basis on the US listing and basically, fairer volume. So why haven't you also considered to delist in US in connection with the whole restructuring to save money? Thank you.

Adam Steensberg: Thanks, Thomas. Maybe I'll just start by addressing the pipeline question, and then Matt, he will address the Oberland question and also the dual listing. You're correct that we expect to see the Phase 3 readout from the CHI Phase 3 study within the coming weeks. And I can also confirm that, if it's positive, then we expect to submit an NDA late in the year, including the data from the first Phase 3 study. That also means, of course, that you can say our teams here at Zealand are completely engaged in writing that NDA already now in the anticipation of and hope, with the hope that we will see positive data. So we -- with the new strategy, we will still anticipate to submit the NDA, and then in parallel, seek a commercial partner for the program. Matt?

Matt Dallas: Yes. Thomas to get some of your financial questions. Let's start with the cash runway. The cash runway into 2023 that's just what we have in the bank based on our current operating plan, it does not account for any additional cash coming into this company. So it doesn't factor in any new business development or any additional funding from Oberland. And that Oberland additional funding, that $75 million, it's $50 million tied to business development, $12.5 million tied to glepaglutide positive data and $12.5 million for the mutual option. All right? And then the amendment with on the Oberland agreement that was driven by the fact that when we entered this deal, we were a commercially focused company and as such, that deal had components in it that were tied to net sales targets by the company that would release a liquidity covenant. Once we made the change and announced our restructuring, it would have been impossible for us to achieve those targets because we were no longer going to be the commercial entity for our programs. So with that, we did -- is the reason why this amendment, and it removed that liquidity covenant, we prepaid a portion of it down, but it frees up the remaining balance without any commercial ties. On the dual listing what I'd say there is you're absolutely right in the cost behind it. With the restructuring and also kind of as our normal course of doing business, we're always evaluating the cost drivers in this company. And with that, the dual listing is always something that is under our approach and we'll look at as we move forward is to not only that, but what everything else and how we operate what's the best and most logical way for us to be spending our proceeds.

Thomas Bowers: All right. Great. Thank you very much for the color.

Operator: Thank you for your question. We have the next question from Joseph Stringer from Needham. Please go ahead.

Joseph Stringer: Hi. Thanks for taking our question. First is on the Phase 3 SBS readout for glepaglutide. Can you comment on potential impact of missed injections due to COVID? And have you -- do you have a stock plan or sort of pre-specified rules for handling missed injections? And have you discussed -- or has this been discussed and then reviewed by regulators? And thanks for taking our question.

Adam Steensberg: Thanks. And if I understood the question correct then it was relating to the risk of missed injections of glepaglutide in the study so compliance to taking the drug and if we have statistics to account for that. It's not something we have observed and to be honest it's not something you can say we would expect would increase with the COVID situation. We have had a key focus here throughout the COVID to secure drug supply for the patients. And there's not been situations, where we have not been able to supply that product to the patient. So we do not see any issues here. So if that was correctly understood, your question, I don't think we have a specific issue here.

Joseph Stringer: Okay. Great. Thank you for our question.

Operator: Thank you for your question. The next question from Lucy Codrington from Jefferies. Please go ahead.

Lucy Codrington: Hi, there. Thanks for taking my questions. Just a few. Starting with the artificial pancreas, I just wanted to get more kind of on your thoughts about how the insulin-only data stacked up versus your expectations? And whether you see any implications from those for your planned dual trial? And then related to that, just what seems to be the delay in starting the dosing of that trial, particularly given we were expecting a significant proportion of the patients from the incident only to roll over into the dual trial? And then just to double check on the revised Oberland agreement, are there any changes to the royalty obligations with that? Thank you.

Adam Steensberg: Thank you. I'll take the first question and then Matt will address the Oberland. So as many of you probably saw and as we also shared here on the call, that, Beta Bionics They a few weeks ago shared the Phase 3 data for the pivotal study and the insulin only at ATTD. And the way, we see these data is that they are very confirming, they are confirming our ambition for this product in the sense that they are very much in line with what we could have expected based on the Phase 2 data of the insulin-only system. So of course, in our minds, it also speaks well for what we can expect for the bihormonal data. As you may remember, we did a head to head study, a small Phase 2 study, a few years ago. So it really -- for us, it's extremely encouraging data when we think about what the dual hormone iLet can how that could perform compared to existing systems. So we have really been reassured about the potential, I would say, seeing these data and perhaps even more importantly, also the fact that the device is now being submitted for a regulatory approval with the FDA. So that also confirms, you can say, the technical progress that Beta Bionics are making with the device. We would have liked to see the first patient being dosed yet. There has been slight delays as in that, as you eluded to we are happy with what we see right now. Beta Bionics wanted to make sure that the device that we apply in the Phase 3 bihormonal study is completely similar to the commercial device that has been submitted to the FDA, and we agreed to that strategy and accept that, that introduced a little bit of a delay with regard to dosing the first patient. Patients who are participating in the insulin-only study could, of course, still be eligible to enroll into the bihormonal study. So we are comfortable, but of course, we'd have like to see it happening a little bit before.

Matt Dallas: And Lucy on the royalty obligation, because we reduced the principal down from $100 million to $50 million, with that prepayment, the royalty obligation was subsequently reduced by half.

Lucy Codrington: Great. Thanks very much.

Operator: Thank you for your question. I will now hand back the conference over to Mr. Adam Steensberg. Please go ahead.

Adam Steensberg: Thank you. So with that, we would like to thank you all for attending and for your questions. We look forward to connecting in a few future announcements and updates. Have a great day.

Operator: That's conclude the conference for today. Thank you for participating. You may all disconnect.