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Edited Transcript of ORPHA.CO earnings conference call or presentation 28-Aug-19 9:00am GMT

Q2 2019 Orphazyme A/S Earnings Call

KOEBENHAVN Sep 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Orphazyme A/S earnings conference call or presentation Wednesday, August 28, 2019 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Anders Fink Vadsholt

Orphazyme A/S - CFO

* Anders Mørkebjerg Hinsby

Orphazyme A/S - Co-Founder & CEO

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Conference Call Participants

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* Anders Hedlund

Redeye AB, Research Division - Equity Analyst

* Jacob Lademann

Carnegie Investment Bank AB, Research Division - Research Analyst

* Thomas Schultz Bowers

Danske Bank Markets Equity Research - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Orphazyme Interim Report First Half 2019 Conference Call. (Operator Instructions) I must advise you that this conference is being recorded today, Wednesday, the 28th of August 2019. And I'd now like to hand the conference over to your speaker today, Anders Hinsby, Chief Executive Officer. Please go ahead, sir.

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Anders Mørkebjerg Hinsby, Orphazyme A/S - Co-Founder & CEO [2]

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Thank you, moderator, and welcome, everyone, to our interim results call for the first half of 2019. Well, Orphazyme has made substantial progress with all of our 4 clinical development programs during this first half, which has really moved us closer to our goal of bringing much-needed therapeutic options to patients with severe protein-misfolding diseases. And of course, importantly, we remain on track to reach a first approval in Niemann-Pick disease type C in the second half of 2020. More on that just in a few seconds.

But let me go through -- briefly through the 4 clinical programs, touching first on the Niemann-Pick disease type C program. So during the first half of this year, we have reported results from our pivotal trial in Niemann-Pick C, and we have followed that up with interactions with the respective regulatory agencies in both Europe and the U.S. And these interactions have gone well, and we remain committed and, in fact, encouraged to continue our preparations to file for approval in this indication next year.

Our team have worked closely with regulators and with a full focus on all the necessary processes and activities that will allow us to file in the first half of 2020 with the aspiration, of course, to receive an approval in the second half of 2020. Now we're not there yet. There's still a lot of work to be done and a number of moving parts ahead of the filing. And we look forward to present you with the details on the processes and activities at a Capital Markets Day in the near future. Along with the filing activities, we are also very excited to introduce an Early Access Program for arimoclomol in Niemann-Pick disease type C during the fall.

Now moving on to our trials in ALS and inclusion body myositis. They have also both progressed very well during the first half of this year. We've been working closely with investigators and trial coordinators to deliver on our enrollment targets in these 2 trials. And we were particularly pleased with the pace of enrollment in the ALS Phase III trial, which was completed ahead of schedule in July.

So due to the speed of enrollment in this trial, an interim analysis of the data is no longer necessary due to the close proximity of the full trial completion to the timing of the planned interim analysis. This is advantageous because it will save statistical power for the final analysis of the trial. Our inclusion body myositis trial also completed enrollment in April of this year. And that means that final results from both these trials will be available in the first half of 2021.

So moving on to our fourth clinical trial, the Gaucher disease program. After a bit of a slow start to this trial due in part to a very collaborative but laborious process of activating clinical sites in India, we recently completed enrollment in the Phase II trial, and we do expect to have headline results from the Gaucher trial in the first half of 2020.

In addition to the clinical programs, our research team is developing new lead molecules for protein-misfolding diseases of high unmet need. And they are, indeed, using our deep insight to the science of protein aggregation, cellular recycling systems and heat-shock proteins, of course. Protein-misfolding diseases, remember, affect millions of patients worldwide and counts hundreds of diseases, so there's a lot of opportunities in that space to pursue.

So just recapping on the report here. In summary, it has been a very busy first half of the year. We've made some significant progress on our lead program, which brings us closer to a potential approval in Niemann-Pick disease type C in 2020.

And this brings me to another key highlight, which happened shortly after the formal end of the first half of this year, with the appointment of Kim Stratton as the new CEO to Orphazyme. As previously announced, I will be handing over the position as CEO to Kim on October 1, 2019. The change in leadership is in line with our ambition of bringing new therapies to the market. And this will allow a timely transformation of the company from a development company to a company with commercialization capacity. As previously stated, Kim brings to Orphazyme more than 25 years of global commercial experience, most recently from Shire, where she was the head of international commercial for Shire's specialty and rare diseases portfolio. So I believe that she -- Kim is a great addition to the company. And I wish her, of course, every success in her new role.

So with this brief summary, I will now turn over the call to our Chief Financial Officer, Anders Vadsholt, to take you through the financials.

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Anders Fink Vadsholt, Orphazyme A/S - CFO [3]

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Thank you, Anders, and hello, everyone. So if you can go to Slide 5, you see a short snapshot of the financial position of the first half of '19. As Hinsby mentioned, we have 4 ongoing late-stage clinical trials. This high level of clinical activity has increased the cost significantly compared to the first half of '18.

So on the following slide, we go through the numbers for H1 in more details. So if you should take the next slide, you can see the profit and loss. As can be seen, the net result for the first 6 months was a loss of DKK 164 million compared to a net loss of DKK 108 million last year. The higher cost was primarily due to the increased research and development activities as well as general and administrative expenses.

When we look under research and development costs, it totaled DKK 142 million for the first 6 months compared to DKK 94 million for the same period of '18. The increase was primarily due to the steady progression of enrollment in the 2 largest clinical trials: specifically ALS, which only launched in the second half of '18 and was nearly fully enrolled by the end of H1 this year; and sIBM, which was fully enrolled in April this year. We also initiated the open-label extension trials on the ALS and IBM in the first half of this year, which also added to the R&D expenses. Furthermore, the number of FTEs in various R&D functions has increased from 40 FTEs at the end of first half of last year to 60 FTEs at the end of first half this year.

On the general and administrative side, the expenses totaled DKK 23 million for the first half of this year compared to DKK 15 million for the same period last year. The increase was primarily due to the ongoing cost of setting up the entity in the U.S., where we're doing commercial activities in the U.S. front, and then also an increased G&A FTE counts in Denmark.

And when we look on the net financial items, a total of DKK 1.3 million compared to DKK 1.4 million in the same period last year. The increase is primarily due to the interest paid on our cash balance in the bank as well as interest expense recognized on our office lease liabilities that is recognized on the balance sheet as of 1st of January this year following the adoption of new lease accounting standard, IFRS 16.

So if you go to the next slide on the -- which is the balance sheet. You can see how we have adopted the new lease accounting standard, IFRS 16. It is shown under noncurrent assets as a right-of-use asset and as well as a lease liability under noncurrent liabilities, so nearly offsetting each other but not whole. And then if we look on the cash, as of June '19, we have cash and cash equivalents of DKK 226 million compared to DKK 513 million at the end of first half of last year and then DKK 395 million at the end of December last year as well. So you can see the development in the cash position.

Yes, so we can explain the cash development on the next slide. The net cash from operating activities amounted to an outflow of DKK 166 million -- almost [DKK 167 million] for the first 6 months this year compared to DKK 118 million for the first 6 months of last year. Our net cash from operating activities was caused primarily from the initiation and progression of clinical development activities as well as general and administrative costs as described earlier.

Yes. And then going to the next slide, I'll provide a few comments to the outlook. We maintain our outlook for '19 on the operating loss, which will be in the range of DKK 315 million to DKK 345 million. And our cash position will now be DKK 110 million compared to what we've communicated earlier, DKK 50 million at the end of the year.

So given the ongoing clinical trials of arimoclomol in sIBM, ALS, NPC and Gaucher disease, we expect to continue to incur cost over the next 12 months. So for that reason, we have explored various funding alternatives and continuously, of course, being -- they're being considered to support these planned activities. This week, we entered into a structured debt facility with Kreos Capital to secure funding of EUR 9 million. And additional funding opportunities are being explored and well considered by management and the Board of Directors, of course. We'll come back to that later on during the year how that is being considered.

And then I'll pass over to the moderator to conclude and open up for Q&A. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) First question comes from the line of Thomas Bowers from Danske Bank.

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Thomas Schultz Bowers, Danske Bank Markets Equity Research - Analyst [2]

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A couple of questions here. Just to kick off with the loan facility, I note that Kreos has a stake in your IP as a sort of security, which I initially understood that you wanted to avoid. So I'm just wondering if it reflects that you have rather limited options for new deals. I guess you are looking to at least do at least one other. And then maybe also if you could comment on the situation with the European Investment Bank, if that's a possibility still. And then on -- second question, just in regards to the Gaucher indication and the small delay. So anything from this study that you actually plan to submit as part of the NDA on NPC both from a safety perspective but maybe also to add some better understanding on the dosing in the clinic?

And then my last question, just as we've seen recently with the CRL issued to Sarepta in DMD, I'm just trying to get a feeling on whether you see a sort of a raised bar for some rare disease approvals in general. So what has your interaction with the FDA been here in the pre-NDA meetings compared to what they focus on when you initially discussed the trial design with them? And maybe also on top of that, if you could give us any color on the FDA feedback that they gave on the CGI co-primary endpoint, if there was anything specific on that part.

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Anders Fink Vadsholt, Orphazyme A/S - CFO [3]

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Yes. So yes, just to start on the new venture debt. So yes, taking the control of the IP is a condition for this kind of loan. So this is prerequisite for getting this financing. And the reason why we decided to take this one was, of course, the combined set of criteria and then also the situation of less dilution of this kind of instrument. So I think we thought it was very attractive for us to take it. Other options are, as we described, being considered. But at this time, this was definitely the best option for us to take. We continue to evaluate the other options. And we'll come back later during the year on our thoughts on that. So yes, this is standard, Thomas, for this kind of debt to take the IP in as a collateral.

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Anders Mørkebjerg Hinsby, Orphazyme A/S - Co-Founder & CEO [4]

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All right. Thomas, on your 2 other questions. On the Gaucher trial, short answer is we do not anticipate that the delay in the Gaucher trial will translate to a delay in the filing for NPC. That's not an expectation. The third question was, of course, on a broader scale, the reason -- on the -- whether the bar is raised with the FDA in terms of how they look at rare diseases. I think -- I don't think that we will make any general statements on how we see things. But I think it's very clear from these very recent meetings and particularly the very recent meeting we had with the FDA that they remain fully dedicated to moving and assisting efforts in rare diseases forward towards approval. And as you saw from our press release, that they are encouraging us, in fact, to move forward. So I think our expectation is generally unchanged on how they perceive rare diseases in particular or specifically, of course, our project. Difficult to make any general statements, I think.

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Thomas Schultz Bowers, Danske Bank Markets Equity Research - Analyst [5]

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Okay. And on the CGI, was that addressed in particular?

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Anders Mørkebjerg Hinsby, Orphazyme A/S - Co-Founder & CEO [6]

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In general terms, I think the outcome of the meeting was very clear that they agree with us moving forward with the dataset we have. So I think that's the message.

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Operator [7]

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(Operator Instructions) Your next question comes from the line of Jacob Lademann from Carnegie.

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Jacob Lademann, Carnegie Investment Bank AB, Research Division - Research Analyst [8]

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Could you talk about how long you expect your current cash to fund you and if you see any deadline in terms of when to close any deals for any additional funding? Also as I guess since you take the funding in sort of sequential steps here, do you have any, you could say, thoughts you could provide on whether or not you are more interested in partnerships potentially for some indications and whether or not that will be a way to fund your operations for the remainder of the indications? And then also a question on the Early Access Program. Could you talk -- I mean you mentioned that it will be initiated during the fall. Could you talk a little bit about where you are? Who will be in scope? And what kind of current interaction you have with the people or patients who potentially would be in scope?

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Anders Fink Vadsholt, Orphazyme A/S - CFO [9]

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Yes. So I'll start here. So the cash will take us into Q2 of next year. And then we'll do some kind of other financing in between from now until then. We're considering a number of options. So either debt or equity. I think that the partnering option is definitely also being considered and explored. But those activities take longer, so that's not something that we see on the short term, also to keep our strategic options open. So we'll come back later during this year on further financing for 2020.

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Anders Mørkebjerg Hinsby, Orphazyme A/S - Co-Founder & CEO [10]

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Yes. Jacob, Anders here. On your second question on the EAP program, so I mean very briefly, we are rolling out an EAP program very soon in the U.S. and Europe. And we're doing that together with a very experienced CRO in the field. I think the target is -- the prospect of this is, of course, to make the treatment available to patients, particularly in countries where we have been with our clinical trial. We think this is the right step for the company at the present time.

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Jacob Lademann, Carnegie Investment Bank AB, Research Division - Research Analyst [11]

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Right. So what you're saying is, if I understand you correct, it's not a precondition that you have actually been in the clinical trial and in the extension phase. I mean, theoretically, any patient could get access. Is that correctly understood?

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Anders Mørkebjerg Hinsby, Orphazyme A/S - Co-Founder & CEO [12]

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That's correct. It's correct. I mean it's correct that you do not have to have been part of our clinical trial to be in the EAP program.

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Jacob Lademann, Carnegie Investment Bank AB, Research Division - Research Analyst [13]

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All right. Could you talk a little bit about the economics involved here? What will be you could say -- yes, I mean, will you deliver it free of charge? Or will you take some form of payment? Or how does that work at this time?

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Anders Mørkebjerg Hinsby, Orphazyme A/S - Co-Founder & CEO [14]

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So an EAP program comes in -- as you allude to, comes in many designs and structures and indeed also in different stages. For this stage of our EAP program, it will be without charge. That may change over time, of course. But at this stage, it's a compassionate use program.

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Operator [15]

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(Operator Instructions) Your next question comes from the line of Anders Hedlund from Redeye.

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Anders Hedlund, Redeye AB, Research Division - Equity Analyst [16]

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Can you -- maybe I missed something here, but what is the status on the open-label extension in NPC?

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Anders Mørkebjerg Hinsby, Orphazyme A/S - Co-Founder & CEO [17]

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Yes. So I mean the open label continues. So that is -- the EAP program is in parallel to the open-label trial.

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Anders Hedlund, Redeye AB, Research Division - Equity Analyst [18]

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Right. So when will we learn about any data from that?

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Anders Mørkebjerg Hinsby, Orphazyme A/S - Co-Founder & CEO [19]

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From the open-label trial, yes, this will be in the second half of this year.

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Operator [20]

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Thank you. There are no further questions at present.

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Anders Mørkebjerg Hinsby, Orphazyme A/S - Co-Founder & CEO [21]

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All right. So thank you all, and want to finish out by thanking you and all of our shareholders. It has been a fantastic journey to be able to build a team in Orphazyme with such a perfect blend of experience and talent and commitment. And I think also all of us at Orphazyme have been fueled by our close collaborations with dedicated scientists, dedicated clinicians and these awe-inspiring patient organizations. It's been really a daunting task to match the courage and commitment and perseverance of these -- our very close collaborators. But with this, I thank you all, and nothing further from us.

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Operator [22]

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Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.