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Edited Transcript of PA8.DE earnings conference call or presentation 8-May-19 12:00pm GMT

Q1 2019 Paion AG Earnings Call

Aachen May 20, 2019 (Thomson StreetEvents) -- Edited Transcript of Paion AG earnings conference call or presentation Wednesday, May 8, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Abdelghani Omari

Paion AG - CFO & Member of Management Board

* Ralf Penner

Paion AG - VP of IR & Public Relations

* Wolfgang Söhngen

Paion AG - Founder, Chairman of the Management Board & CEO

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Conference Call Participants

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* Dennis Hulme

Edison Investment Research Limited - Analyst

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen, and welcome to the PAION AG Conference Call on the Financial Results of the First Quarter 2019 hosted by Dr. Wolfgang Söhngen and Abdelghani Omari. (Operator Instructions)

I'm now handing over to Ralf Penner to begin today's conference. Please go ahead.

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Ralf Penner, Paion AG - VP of IR & Public Relations [2]

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Thank you very much for your kind introduction. Ladies and gentlemen, thank you very much for joining us for PAION's earnings call on the financial results of the first 3 months of 2019. My name is Ralf Penner. I'm PAION's Vice President, Investor Relations, and I'll be moderating today's call. I'm joined by Wolfgang Söhngen, PAION's CEO; as well as Abdelghani Omari, our Chief Financial Officer. Within the next half hour, we are going to highlight some of the first quarter achievements, give details on the financial results, highlight the most important events and provide the pipeline and strategy update. After this initial presentation, we will be happy to take questions.

I would like to point out that the slides for the presentation can be accessed by webcast in parallel to this conference call. The webcast details has been posted on our website and were also given in today's quarterly statement. If you have not already open the webcast link, you may want to do so now. This conference call is being recorded and our recording will be available later today and will be posted on our website.

Before we get started, I would like to remind you that today's call may include forward-looking statements and that actual results may vary from PAION's current anticipations. I would also like to refer to the disclaimer included in the presentation slides. (foreign language) After these initial remarks, I believe that we shall start right on now with the presentation.

Wolfgang, please go ahead.

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Wolfgang Söhngen, Paion AG - Founder, Chairman of the Management Board & CEO [3]

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Thank you very much, Ralf. Hello, everyone who is on the line. I would like to start with a brief overview of PAION.

For those who are not familiar with the company, we're a specialty pharma company with a focus on anesthesia products. The lead compound, the only compound that is -- that we have, but it has 3 indications, remimazolam. We already have 8 regional partnerships for this compound. We have 42 full-time employees in the first quarter. This is -- we're in a growth path again because we're preparing for commercial and that requires that we add on know-how that we previously hadn't on board. We have EUR 16 million of cash at the end of March, and our market cap is fluctuating around EUR 140 million. We are a typical German board -- 2-tiered board structure and the head of the -- Chairman is providing (inaudible).

We are listed in the Frankfurt Stock Exchange since 2005. Our share price has been moving more or less side-wise for the last period. We hope that we can change that with the news flow that we will talk about later in the near future, and the share price was EUR 2.18 when we reported.

As I said before, remimazolam has potential in 3 indications. The first indication is general anesthesia where our partner, Mundipharma, has filed for approval in December last year. Procedural sedation is a lead indication for the U.S. where our partner, Cosmo, has filed for approval in early April. And then ICU sedation, we still have to do a Phase II and Phase III program.

Remimazolam, because of its properties, can be used for very light sedation and to very deep sedation. This is from minimal sedation like anxiolysis before maybe a procedure and general anesthesia where you have the deepest level of anesthesia. The differentiator to propofol is that at deep level of sedation, there's less respiratory depression with remimazolam and also less cardiovascular depression, which is a very important differentiator and good safety feature. In addition, remi also has a reversal agent.

For those who are not familiar with the space, interventions that are painful are usually done in the combination of analgesic and hypnotic. Hypnotic, that's what remimazolam stands for and analgesia is remifentanil or fentanyl. And in some situations where the surgeons do not want the patients to move minimally even, we also use paralysis with a neuromuscular blocker.

Remimazolam has been described as the best of both worlds, not only by PAION but also by key opinion leaders. And the reason for that is that it has the best properties of propofol, which is rapid onset and offset; predictable recovery time and thus, less resources for supervision after the procedure; and on the other hand, the goodies of midazolam, which means it's in principle safer than propofol when used for even deeper sedation levels. It has a reversal agent and therefore less resources are needed during the procedure depending on what procedure you are performing. I'd now like to hand over to Abdel to give you a brief overview of the financials of Q1.

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Abdelghani Omari, Paion AG - CFO & Member of Management Board [4]

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Thank you, Wolfgang. Good afternoon, everyone. Ladies and gentlemen, I will now guide you through the financial key figures for the first quarter of this year. We'll start with the prior year period and also give an outlook for the full year 2019.

Let me first start with the P&L. In the first quarter of 2019, no revenues were realized as compared to revenues of EUR 0.3 million in the prior year period, mainly related to the remimazolam license agreement for Japan with Mundipharma. On the upper right-hand side, you can see that research and development expenses slightly decreased from EUR 3.4 million in the first quarter 2018 to EUR 3.1 million in the first quarter of this year, the R&D costs mainly related to the ongoing EU Phase III study in general anesthesia.

Compared to the first quarter 2018, general, administrative and selling expenses increased by EUR 0.2 million to EUR 1 million in the first quarter of this year. In total, a net loss of EUR 3.2 million was incurred compared to a net loss of EUR 3.1 million in the prior year period. The net loss includes income from tax credits on part of the research and development expenses in the amount of EUR 0.7 million.

Now I would like to move to the selected balance sheet items and an overview of [talent]. Total assets decreased by EUR 2.4 million compared to the end of 2018. This mainly results from an increase of the tax credit claim in the amount of EUR 0.7 million for the first quarter 2019 on the one hand and a reduction of trade receivables by EUR 1.5 million from the receipt of the milestone payments from Mundipharma and Hana Pharm for the filing in Japan as well as a reduction of cash and cash equivalents on the other hand.

As you can see on the upper right-hand side, cash decreased by EUR 1.6 million compared to end of 2018 and amounted to EUR 15.6 million as of end of March 2019. This reduction almost completely comes from cash flows from operating activity. As you can see on the lower left-hand side, equity decreased by EUR 3 million to EUR 17.8 million, mainly as a result from the net loss. The equity ratio was 81.3% as of the end of March. The staff development is illustrated on the lower right-hand side. Compared to an average number of 39 employees in 2018, we have staff of 42 employees on average in the first quarter of this year.

Finally, I would like to give an outlook for the full year. For the purpose of comparing, you can see actual figures for financial year 2018 in the left column. For the rest of the year, our main focus is on the development program in Europe, first approval processes as well as the manufacture and supply chain for remimazolam. Regarding revenues, we expect these to amount to approximately EUR 8 million. They are off EUR 7.5 million in connection with the NDA filing in the U.S. that took place in April this year, and EUR 0.5 million are related to the transfer of the Japanese filing dossier translated into English or transfer of the U.S. filing dossier to our partner, TR-Pharm.

Given the ongoing development activities, including the European Phase III study, we will continue to incur significant R&D expenses, which we estimate to be in a range of about EUR 13 million to EUR 15 million. SG&A costs will increase to approximately EUR 4 million to EUR 5 million mainly because of pre-commercial activities. Based on the estimate for the R&D expenses, we expect tax income from U.K. tax credits in the amount of approximately EUR 2 million. In total, we expect the net loss in the amount of approximately EUR 7 million to approximately EUR 10 million for the full year.

Regarding our liquidity, cash at hand plus the milestone payment in connection with the NDA filing in the U.S. that we expect to receive shortly and expect a tax credit secure a cash reach until approximately mid-2020 based on current planning. Until filing for market approval in general anesthesia in Europe, further funds of about EUR 10 million will be required based on current planning. Thank you so far.

Now I hand back to you, Wolfgang.

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Wolfgang Söhngen, Paion AG - Founder, Chairman of the Management Board & CEO [5]

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Okay. Now I would like to change to the overview of remimazolam. Every innovation in sedation and anesthesia is more or less about safety because efficiency is not a problem, it is rather -- efficacy is not a problem but rather efficiency, and these 2 things are somehow connected. Because if you have a low -- slow acting drug, your efficiency is less, but you may have less safety issues. Therefore, in some situations, propofol for example, is not the ideal agent. The reason for this is significant hypotension and significant respiratory depression, which is not the case for benzodiazepine like remimazolam.

Also what is nice about most of these hypnotics is that they cause amnesia, so you forget about the negative experience, if any. And what we have shown is that remimazolam brings patients much quicker back to normal several hours compared to midazolam, which is a great improvement.

Remimazolam is a first-in-class so it's not like what many people think, just a variation of midazolam or a different formulation. It is a genuine new drug that was invented by GSK in the 2000s. We have added additional IP to what we have acquired in 2008 by making certain patents or inventions on the formulation, on the salt that's being used, on dosing and also on production and we continuously expand this market exclusivity protection in major markets.

We right now have more than 2,400 volunteers and patients on drug in our safety database with very promising results. I've already indicated that there are 3 different indications. Important to note is that each of those indications according to our assessment has a peak potential of USD 500 million, and as I said before, so far the results of remimazolam have been and we also hope will be continuing very reassuring both on the efficacy and safety side.

Let me briefly talk about procedural sedation, which the U.S. market is the biggest one because of that special situation that colonoscopy screening is being done to the highest level or compared to all other countries in the world, which has led to a reduction in the occurrence of colon cancer and therefore even more screening procedures are currently being recommended. In total, we assume some 20 million colonoscopies are being performed in the U.S. market per year. So it is a very attractive market for which we assume the peak sales potential of around USD 300 million alone in the U.S.

Let me also talk briefly about the results of the Phase IIIs, which were completed in 2016 and 2017. On the left hand, you have the bronchoscopy study; in the middle, the screening study in healthy colonoscopy patients; and on the right side, colonoscopy that were performed in very, very sick patients. If you look at the graph, it is self-evident that these trials have very comparable results. This is on the efficacy side on the defined key points, but this is also true when we have -- when we look at safety. We have reached -- achieved our target that remimazolam has a comparable and if not slightly better safety profile to midazolam.

And when you look at the next slide, this is the efficiency that I've mentioned before. While midazolam is quite a safe drug, it has the downside that time to bring the patient to sleep and the time it takes for the patient to wake up is longer than propofol, which is the main reason why people are using propofol and we will show that we have wake up times with remimazolam and induction time with remimazolam which are comparable to propofol. And therefore, we assume that with remimazolam, we can more or less do the same amount of patients as you can do with propofol. And that's the important business proposal in the U.S.

So where are we in the approval process? Filing for market approval by Cosmo was effective in early April. Now the FDA is looking at the documents, and we assume that market approval if everything goes according to plan can be expected in 2020.

The variable data of the FDA we have discussed with the EMA as we were under the impression that many experts have told us that probably for European approval, we would be required a separate Phase III trial. But to our surprise, the EMA indicated that the package looks complete. And therefore, we are currently evaluating the best strategy to come to submission in the course of this year. Once we have completed that assessment, we give a clearer guidance, but you should expect this not to happen before the fourth quarter. So it's not imminent around the corner, it requires some -- and very intensive work.

In general anesthesia, where we're currently running a Phase III trial in Europe. As you know, there is an emerging sensitivity to a problem. The problem is hypotension because hypotension has been identified to be related to increased mortality and morbidity. On the next 2 slides, you have some excerpts of literature that confirm those assumptions, and it is quite clear that prevention of hypotension can improve outcome. And this is how we have designed our Phase III trial. We plan for approximately 500 patients. The study was initiated in 2018 and performed in -- the plan is to perform in all countries, Germany, France, Italy, Switzerland, Netherlands, U.K. and Belgium. And the primary objective is of course to show non-inferiority to propofol, which has been repeatedly shown already in clinical trials not only in Japan but also recently data from Russia also came to the same conclusion.

Our primary focus, however, is to show that there is an improved hemodynamic stability compared to propofol because if you can prevent significant hypotension to occur during anesthesia, this will lead to improved outcome for patients. And that's the claim that we want to have.

Let me show you on that left on the next slide about what kind of hypotension we're talking about. So a lot of patients under propofol have a hypotension as low as below 60 millimeters mercury mean arterial pressure. We could reduce these incidents to happen by 40%, which is significant. And this is also then leading to less requirement for vasopressors and some people assumed that too deep sedation is frequently also associated with.

The launch of our program is targeted towards the same population that we included in the trial, namely the more sick patient population, which is around 40 million across Europe. These are patients that you would -- ideally that to simplify, patients usually about 60 with a significant comorbidity, assume someone already had a heart attack or a stroke or significant -- or cancer or other severe diseases. These are the kind -- this is the patient group that is obviously growing in these days, number one because of the aging of the population and also because of better medications, so patients gets very sick at higher age compared to when I was young.

ICU sedation is an indication that we still have to develop. It is of course a pure-hospital indication. Our database show approximately 40 million ICU patient based between the U.S. and the EU. In ICU sedation, the sedation level is somewhat between what is used in procedural sedation and general anesthesia and often given for several days, which is, for example, a limitation of propofol. Because of the heavy lipid load, it is limited to 3 days of application in ICU sedation, then patients have to be switched to midazolam, which leads to a very long wake up times. Here we have we believe significant advantages and also as we previously mentioned, hypotensive effect of propofol is something that we can mitigate by remimazolam.

Last couple of slides are dealing more with our existing partnerships across the world. We always say if we look at the globe, it's half blue now. We want to turn the whole world blue. That means that remimazolam would be available in every country in the world. That's our -- the vision of how remimazolam will be in the end.

So where are we exactly? In Japan, lead indication general anesthesia filing happened in December. In South Korea, Hana Pharm is also working on filing, but they need to complete their production process before they can file, so we assume that they will file in 2020. Russia indicated R-Pharm, that they will be filing by the end of 2019. And so since they're a joint venture partner, TR-Pharm for Turkey. In Canada, we assume that Pharmascience will take the existing U.S. dossier to file for approval in Canada. And we have seen very interesting evaluation on the pharmacoeconomic advantages and specifically in the Canadian setting because there are very good data available for cost of colonoscopies in the a hospital situation and the outcome was that we can save about 50% of the cost, which is a huge step forward and will also allow us to make pricing that's attractive both for the users. And for China, it filed for procedural sedation in November 2018 and they're already entirely [overworking] on general anesthesia, and we hope that they can confirm the previous studies that we have seen by our partner and expecting for our own study in Europe.

As you look at the high-level number that what is the outcome of those partnerings, today we have received 38 -- EUR 37 million, and we expect to receive some EUR 84 million if all the planned milestones and [transactions] are successful in the current partner region.

So what are we expecting in the course of this year? We will see more filings by licensees. And we -- as we said before, that we will be able to file procedural sedation in the EU. And the EU Phase III trial is currently on track. And we believe that we can complete the trial by the end of this year, as we have promised. Potential market approvals in Japan and China, probably towards the end of this year or early next year. And also in 2020, we expect the U.S. market approval and maybe some other regions.

Going forward, we understand that of course, remimazolam is our key asset. And therefore, we need to focus on life cycle management already today. That also implies launching in as many countries as possible, the turn the world blue. Forward integration is a necessary step for us to become a more attractive company and also that should spill over into a more attractive valuation and that also requires portfolio enrichment. And we have refined our search criteria that any additional product should be either for critical care or acute care. That means being used in the emergency room, OR, ICU or by interventionalists.

Integration forward is sometimes debated. But we believe and history shows this that the model of biotech is moving more and more away from just being early-stage play. New funding in the U.S. usually starts with [50 million] sometimes [100 million] in Series A in order to allow companies to make much more progress than is the norm in Europe and eventually also all marketing is always on the agenda and in order to compete in that global environment, I think that's the right thing also to do for PAION. Thank you for your attention.

And I now hand off to Ralf.

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Ralf Penner, Paion AG - VP of IR & Public Relations [6]

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Thank you very much, Wolfgang and Abdel, for the presentation. Now we are ready to start the question-and-answer session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We do have a question from the line of Dennis Hulme from Edison Sydney.

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Dennis Hulme, Edison Investment Research Limited - Analyst [2]

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My questions relate to procedural sedation in Europe. I was just interested can you talk a little about where you are seeing the main commercial opportunities in Europe and just talk about whether those business case replacing midazolam with remimazolam is any less compelling in Europe than it is in the U.S.

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Wolfgang Söhngen, Paion AG - Founder, Chairman of the Management Board & CEO [3]

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I recently have been touring the sites that are involved in the clinical trial, in the anesthesia trial, and I was surprised how much all the physicians, once they have learned to work with remimazolam, want to have this drug also for procedural sedation.

To give you an example, in our hospital in the U.K., like in many other countries, there is a shortage of anesthesiologists. So to perform procedures in a very short time is almost impossible in a U.K. hospital. So what they plan is they plan to build a special group of nurses. Instead for them remimazolam -- if remimazolam will be available, this will be the ideal tool. So even if we would work at a competitive price and at an attractive price, we would still would save a lot of money for the hospitals and allow them to use their facilities much more rational and efficient than they can do today. And that's worth a lot of money.

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Dennis Hulme, Edison Investment Research Limited - Analyst [4]

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Okay. That makes sense. And also interested in Europe. I understand that a lot of proceduralists are able to use propofol there. Do you see an opportunity in Germany? Or do you think it's a 0 opportunity through outside Germany?

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Wolfgang Söhngen, Paion AG - Founder, Chairman of the Management Board & CEO [5]

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The U.K. was just an example. I also visited German sites, and they also are as keen as their U.K. colleagues to get access to something like remimazolam. Of course, we understand that the German system is known for its low-pricing fights in the beginning. But I become more and more of the impression that if we have the support of the anesthesiologist and because anesthesiology is such a small budget now in the hospital that we have a very good chance to position remimazolam as an attractive alternative for the currently available medications. And once the hospital learn that they save money by using a more expensive drug, and that is something that -- the case that we have to build. And we are actively working on plans how to do that.

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Dennis Hulme, Edison Investment Research Limited - Analyst [6]

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Okay. All that is great to hear. And finally, can you -- are you able to update us at all about your plans to have a meeting with an EMA rep at all about further progress in procedural sedation in Europe?

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Wolfgang Söhngen, Paion AG - Founder, Chairman of the Management Board & CEO [7]

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I can tell you that the date has been fixed, but I don't tell you when. So you don't -- I'd say that we get a call every day, "Okay, how was it?" It's going to be in the course of the summer period. And when we have that feedback, not also -- only also from the rapporteur but also from the second party, then we will come back to the market, and this is not before the third quarter. So these processes take their time. And therefore, it is nothing that happens tomorrow.

But in the meantime, internally at PAION, we prepare everything to be ready to file submission towards the end of the year as I've said. The discussion for the rapporteurs is more about tactics and priorities and what to focus in the report and ask their -- address their questions, but it's not stopping us from working on preparing the dossier.

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Operator [8]

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(Operator Instructions) We have no further questions from our English-speaking participants. I'll hand back to Ralf. Please go ahead.

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Ralf Penner, Paion AG - VP of IR & Public Relations [9]

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So thank you very much, everybody, for these questions. (foreign language)

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Operator [10]

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(foreign language)

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Ralf Penner, Paion AG - VP of IR & Public Relations [11]

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This is Ralf, and thank you very much, everybody, for joining us for PAION's earnings call on the financial results of the first 3 months of 2019. I hope that we have been able to answer your questions. But of course, please feel free to give me a call afterwards.

If you would like to listen to this call again, please visit our website, where the audio recording will be posted later.

For now I'll say goodbye, and thank you very much for your continued interest in PAION.

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Operator [12]

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Thank you very much for joining this afternoon's conference call. You may now replace your handsets. Thank you.