© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good afternoon, ladies and gentlemen. Thank you very much for attending this online financial results briefing. We would now like to start the financial results briefing for 9-month period ended December 31, 2018, for Sosei Group.
Let me introduce the participants: Chairman and President, CEO, Tamura; Executive Vice President and CFO, Cargill. I will serve as the moderator. I am Head of Corporate Communications Department. I am Nishishita. Thank you very much.
First, Cargill will explain the overview of financial results; followed by Tamura, operational highlights and strategic update. After that, we will respond to your questions real time.
This briefing is planned for around 45 minutes. The material today is posted in the lower-right corner of the screen that says Download Material, so please take a look.
We would now like to start the briefing.
So let me first cover. I will now outline the financial results for the 9 months fiscal year ended 31st of December 2018. I'm Chris Cargill, CFO of Sosei Group. Please note, comparison of the financial results for the 9-month fiscal period with that of the previous reported 12-month fiscal period is affected by the change of accounting reference date to 31st of December 2018. To assist in understanding the current financial period's performance, supplementary unaudited summary pro forma information is additionally presented in the Appendix.
I will begin with Slide 4. This slide shows the group's revenues for the 9-month period ended December 31, 2018. Total revenues for 9 months were JPY 2,629 million, decrease of JPY 4,326 million versus the prior corresponding 12-month period. The decrease was primarily due to the timing of major revenue milestones. Revenue related to milestones shaded in gray color on the chart totaled JPY 340 million, a decrease of JPY 3.5 billion versus the prior period. The prior corresponding period contained major milestone payments from Allergan, AstraZeneca and Teva. Therefore, this was Allegan, USD 15 million; and AstraZeneca, USD 12 million; and Teva, USD 5 million. Therefore, the main reason for the decline was due to the absence of the major milestone in the 9-month period under review. This was previously disclosed in the group's forecast at the fiscal year 2017 full year results on May 10, 2018. The group did, however, receive a small milestone from FUJIFILM Pharma in relation to the approval of ORAVI in Japan. Revenue related to royalties shaded in turquoise color on the chart totaled JPY 2.104 billion, a decrease of JPY 457 million versus the period -- previous period. The small decrease is primarily due to the inclusion of contract-related deductions in the period that were not applicable in the corresponding period. Other revenue shaded in the light blue color on the chart totaled JPY 428 million and came from Daiichi Sankyo and other partners. These revenues demonstrate progress related to research partnerships in our platform technology business.
Turning to Slide 5 now. This slide shows the group's cash operating expenditure for the 9-month period ended December 31, 2018. Cash R&D expenses shaded in the gray on the chart totaled JPY 5.187 billion, an increase of JPY 369 million versus the prior corresponding period. This was primarily due to the increased proprietary spend related to our Phase IIa DLB study in Japan, which entered into voluntary hold on September 18, 2018, together with continued investment in our in-house drug development programs, platform and translational science capabilities. Cash G&A expenses shaded in the turquoise color on the chart totaled JPY 1,611 million, a decrease of JPY 1,361million versus the prior corresponding period, primarily due to a reduction in national insurance charges in the U.K. related to stock-based compensation, a short reporting period and supported by tight G&A expense management.
Now please turn to Slide 6. This slide shows the group's non-cash costs and financing costs for 6 (sic) [ 9 ] months ended December 31, 2018. Non-cash costs totaled JPY 1,070 million, a decrease of JPY 557 million versus the prior corresponding period. Primarily driven by a reduction in stock-based compensation. The increase in depreciation is due to investment in a state-of-the-art research facility in Cambridge, England, which opened in August 2018. Finance costs totaled JPY 955 million, a decrease of JPY 179 million versus the prior corresponding period. The main reasons for the decrease were a large contingent consideration credit as well as lower FX costs from more stable yen, U.S. dollars and pound sterling rates in the period. Finance costs also include a write-down of JPY 1,121 million related to the fair value of our exclusive option to further investment in MiNA, which was previously disclosed to the market.
Please turn to Slide 7. This slide shows the group consolidated balance sheet as of 31 December 2008 (sic) [ 2018 ]. The balance sheet is well capitalized. We have gross cash at hand of JPY 18,760 million and a net cash of JPY 11,796 million.
Slide 8, please. And this slide shows how our results for the 9-month period ended in 31st December 2018 compared to the guidance, which we presented at the interim result in November 2018. We came in significantly below our FY' 2018 financial guidance on all 3 metrics provided above. In respect of R&D, we continued to exercise care when allocating capital to R&D programs. We do this to ensure the assets we invest behind have sound commercial prospects. This prudent approach reduced our spending run rate. We also benefited from some very large one-off accounting credits in the period after the guidance was issued. In respect of G&A, tight cost management helped to reduce our spending run rate. We also benefited from a very large U.K. national insurance accrual release linked to the sharp reduction on our share price. Consequently, the cash earnings loss was improved significantly.
Turning to Slide 9 now. This slide shows the group's forecast financial guidance for the 12-month period to 31st December 2019. We continue to strengthen our business and are well positioned to capitalize on a number of strategic opportunities. After the year-end, we announced significant progress with AstraZeneca receiving a $15 million milestone. Furthermore, we joined with the world leader, Medicxi, to create 2 new asset-centric vehicles for value creation: Orexia and Inexia. Our StaR technology and drug discovery platform remains in as high demand as ever. We expect this trend of new deals to continue through 2019. As such, the group expects an improved outlook for FY '2019 as we target a more sustainable balance of resources and capital in order to prioritize the pursuit of profitability. Our guidance for the 12 month to 31st December 2019 is unchanged since our announcement in November 2018.
This concludes the financial update section, and I will now hand over to Mr. Shinichi Tamura, Chairman, President and CEO of Sosei Group Corporation.
Hello. My name is Shinichi Tamura, Chairman, President and CEO of Sosei Group Corporation. I will provide an overview of our FY' 2019 operational highlights for the 9-month period ended in December 31, 2018.
Please turn to Slide 11. This slide summarizes the key operational updates for the 9-month period ended in December 31, 2018. We have made excellent progress in strengthening our wider business and are well positioned to capitalize on a range of strategic opportunities. We have extended our GPCR leadership in 2 new platform technology collaborations: the first with DyNAbind to further advance our technology capabilities; and the second with the University of Cambridge to deploy artificial intelligence adopted across our entire platform. And we have generated the next wave of novel candidates that will drive a new phase of partnerships and progression of selective in-house programs. We recently announced our in-house asset, mGlu5, enter into Phase I development with multiple other in-house assets soon to follow suit. We have seen excellent progress with partnered programs, in particular, our A2A next-generation immuno-oncology program with AstraZeneca and M4 program with Allergan. Finally, we launched our new corporate branding, Sosei Heptares, and completed our R&D relocation to Cambridge in U.K., the world-leading innovation hub and catalyst for the business, despite a voluntary hold of M1 program, but all in all, a period of significant achievement which has successfully created huge momentum leading into FY 2019.
Turn to Page 12, please. This slide highlights our key operational achievements in relation to our platform technology division. We further extended our technology leadership with the announcement of 2 exciting collaborations: the first with DyNAbind to deploy the very latest advances in DNA-encoded library technologies with StaR proteins; and the second with the University of Cambridge to deploy artificial intelligence and machine learning across our entire drug discovery platform. These 2 collaborations represent how we successfully seek out cutting-edge technologies to strengthen our platform and discovery capabilities, thereby maximizing the long-term value we can derive from StaR proteins. Our high-experienced team of scientists were also recognized multiple times this year with the publication of several high-resolution crystal structures of GPCRs in prestigious scientific journals such as Nature. This recognition continues to be a key factor in driving multiple partnership with pharma companies. Finally, we saw excellent progress of our technology collaborations with several of our compounds advancing towards preclinical candidate nominations with Daiichi Sankyo, Pfizer and others.
Slide 13, please. This slide highlights our key operational achievements in relation to our drug discovery division. In addition to the 4 in-house assets approaching Phase I, our investment in technology has created 15 new discovery programs across high-value therapeutic areas such as immuno-oncology, GI, inflammation and neurology. The out-licensed and in-house assets are tentative. And depending on the situation, the category may change. We disclosed some of these new targets recently, including GPR35, EP4 in the GI space; Apelin, H4 and PAR2 in the inflammation, immunology space; and OX2 in the neurology space.
Slide 14, please. This slide highlights our key operational achievements in relation to our development division. Fiscal year '18 showed our very first dedicated in-house asset enter into Phase I development last December, mGlu5 negative allosteric modulator for neurological disorders. Our second in-house asset, SSTR peptide agonist for endocrine disorders, received U.K. regulatory authority and ethics committee approval in December and will soon enter Phase I development in Q1 this year. ORAVI, our mucoadhesive tablet for oropharyngeal candidiasis received marketing approval in September and recently launched in Japan this year. Lastly, our next-generation cancer immunotherapy candidate, AZD4635, continued to progress through patient-based clinical studies.
Slide 15, please. This slide highlights developments in other areas of business during the 9-month period to December 31, 2018. In the clinical development space with regards to our M1 program with Allergan, investigative work is proceeding with Allergan as planned, and we expect to review the status during 2019 when the work is completed. We have now had the benefit of seeing interim Phase Ib data from EU study, which continues to provide clinical data supporting the hypothesis for selective M1 agonism. Allergan is fully committed to this program. With regards to MiNA Therapeutics, we are pleased to hear that enrollment of first patients treated with MTL-CEBPA in combination with sorafenib is progressing very well.
In terms of group structure, we have strengthened our executive management team with the appointment of Chris Cargill to CFO and myself to Executive Chairman, CEO and President. We also made a strategic decision to close our Zurich research facility which should simplify our R&D structure and improve the allocation of capital going forward. CHESS and SaBRE technologies assets will be transferred to our Granta Park R&D facility in Cambridge. As announced last year, in fall, we successfully completed our move to Steinmetz Building in Granta Park, Cambridge, and also launched our new corporate identity as Sosei Heptares across all our operations globally.
I will now provide an update of our growth strategy. These include the subsequent events that happened after January 2019. Slide 17, please. Just to recap our growth strategy for fiscal year 2019, which we presented at our interim results, we will form more partnerships and focus R&D expenditure to pursue profitability. This slide shows the design of growth pillars for the future and our objectives for each division. We will continue to exploit our platform technology, which serves as our foundation, in 3 ways. First, we will advance candidates into drug discovery targeting therapeutic areas with high unmet needs that are attractive to us and to big pharma partners. Next, we will keep some of the very best drug candidates for ourselves, pushing them deeper into development to drive greater value for the company. And lastly, we will manage the progress of existing partnered programs and look to execute new programs.
Please turn to Slide 18. As promised at our last interim results, forming new partnership is a major focus for us in 2019. We are executing on our promise and recently announced a highly innovative collaboration based on our orexin agonist program with Medicxi, a venture fund dedicated to financing asset-centric companies. As part of this deal, Medicxi will invest up to EUR 40 million in 2 newly created asset-centric companies, Orexia and Inexia, to develop novel therapies for neurological diseases. In return, we will receive an equity stake in both companies, receive R&D payments as well as potential development milestone payments in the future. This deal allows us to seamlessly transfer our ongoing activities and intellectual property into these 2 special purpose vehicles. We see great promise in the orexin agonist program and believe it can be advanced significantly with the focused funding and within these new structures in which we retain a significant stake.
Turning to Slide 19 now. Progress with existing partners is also a core focus for us in FY 2019, and I will elaborate on other strategies as well. Earlier this year, we announced a new progress milestone of $15 million from AstraZeneca related to our partnered next-generation immuno-oncology program. This is the first milestone we have received since exclusively licensing the compound to AstraZeneca in 2015. AstraZeneca is thoroughly testing AZD4635, and we have 2 studies ongoing across multiple tumor types, evaluating the compound as immunotherapy or in combination with durvalumab or oleclumab. There is a strong preclinical evidence that high adenosine concentrations in the tumor microenvironment are immunosuppressive, and preclinical data in tumor models support AZD4635 in monotherapy as well as in combination with other immuno-oncology therapies. We are very excited and pleased with the progress that AstraZeneca is making in the future.
Turning to Page 20 now. As you can see from this chart, as demonstrated by these 2 announcements this year, we are successfully executing on our business development targets to pursue profitability in FY' 2019. We will continue to steadily and strongly promote growth in our platform technology, discovery and development businesses to further drive new and existing partnerships, and we will do all this while strongly managing costs, as reflected in our FY '19 guidance, with tight R&D and general and administrative spendings. We believe that creating business with a lean cost structure, even during a rapid growth period, is the best way to accelerate value creation and enable us to prioritize the pursuit of profitability.
Turning to Slide 21 now. Our royalty business is robust. And with Japan's launch of ORAVI in February this year, our royalty income will continue to be strong. Next year, we will see European launch of QVM149, which will significantly enhance our royalty streams in the future. We are in a fantastic position to advance our business.
Turning to Slide 22 now. Patients and shareholders are the top of mind in everything that we do. We are executing on our growth strategy for FY 2019. This year, you should expect to see from us, first, new platform technology collaborations; second, further prioritization of high-value pipeline programs; the third, in-house candidates entering Phase I development, starting with our SSTR peptide agonist in near future; new discovery and development partnerships; further progress related to our existing partnered programs.
Slide 23 now. We understand that bringing a large amount of investment on R&D can be inefficient and is increasingly identified as unsustainable. With the new management, we have sought to forge a new paradigm in our approach to value creation. No longer we'll be spending unsustainable amount on R&D for unknown return. We will maximize the productive output on the StaR technology to create novel targets of high interest to big pharma and biotech. This is how we will achieve a significant return on invested capital quickly, shift substantial cost and development risk off our P&L and balance sheet, retain capacity to forge ahead continuously to create relevant next-generation targets and enable the pursuit of profitability. This is the core of our value-creation strategy. Slide 24 now. We recently inked a collaboration with the University of Cambridge to deploy AI across our entire drug discovery platform. We will use this artificial intelligence and machine learning, powerful computers that identify links and patterns across a vast quantity of data to generate viable drug targets and leads more rapidly than conventional means. AI will streamline components of drug discovery and in reducing research timing costs in driving our R&D productivity and efficiency. We already have productivity rates that far exceeds the industry averages. With AI and machine learning, we can improve them even further. Machine learning could also lead to an increase in R&D success rates. AI will allow us to extend our GPCR leadership and continue to create novel targets of high interest to big pharma and biotech, remaining confident in executing multiple partnerships over the next few years.
Thank you very much.
Now we would like to have a Q&A session. There is a text box column on the lower-left corner of the screen, so please enter your questions and click Send Question button. We will take questions as much as time allows, but please understand that we may not be able to take all questions in the interest of time.
So let me introduce the first question. Tamura-san, welcome back to the CEO role. Can you please update us on your strategy for the company?
Yes. 2.5 years ago, I became the Chairman. And the reason was, after Heptares acquisition, we did many large-scale acquisitions. And Allergan, we had many alliances with Allergan, and so I handed over. But we did some big investments with U.S. bios, and R&D became large. But 90% of the investors are in Japan and so this was not welcomed, so we decided to change our policy. We need to turn profitable. We need to focus on raising profit, and so we shifted gears. Of course, we will continue R&D investment, but we need to invest in more selective manner and partner early on Pfizer type or form alliance on lead compound. There are various patterns to maximize our profit and also manage our costs rigidly and eliminate inefficient costs, including R&D and G&A expenses so that we can be supported stronger by the Japanese investors and focus on the profitability.
Then may I take the next question? At the JPMorgan conference the other day, you emphasized that there, you have some new early-stage candidates in pipeline, GPR35, EP4, PAR2 and others. And could you elaborate on the potential plan -- your plans for the potential candidates?
Well, that relates to my earlier comment. In fact, this is at the very early stage and therefore lead compound or under the development compound stage. But it is always the case where with the enhanced business activities, we hired an executive with a track -- good track record. And at the earliest possible timing, we will find the good partners. We have to, of course, discern whether we should really partner up or not to an extent that we can develop ourselves versus partner up, but we need to confirm whether such candidates are attractive enough for the partners. And for that to happen, we need to continue our development. And also if there are convincing terms and conditions for us, we will explore other partners, and we will tie up with them as early as possible so that we can reduce our risk. So that's what we would like to do on these candidate as well. Thank you.
You announced the Medicxi deal last week. What do you think is the benefit for your company?
So I would like to have Chris answer this.
And I'll take that one in English if that's okay. So the Medicxi deal that we announced was actually very innovative, and it's really -- we really start at our company because it brings many benefits to us, but it also brings many benefits to Medicxi. So the way it came about was Medicxi, who are world-leading venture capitalists, they back life sciences companies. They were looking for a new asset to finance and take through to a value inflection point. As part of their search, we know them well, they know us well. They came to us and showed some interest in our technology, and in particular, our orexin program. And so we got talking to them and what we've set up is 2 newly created companies, one to prosecute the oral program for narcolepsy and the other 2 progress in intranasal program for narcolepsy. The benefits to us, there are many. But for a start, we get an ongoing revenue stream. They fund our full-time employees, scientists that are working on the project. We received an upfront for Inexia. We are entitled to receive development milestones going forward. We're also entitled to receive contingent consideration and royalties should an exit eventuate in the future. And most importantly, we have a small minority stake, which gives us the opportunity to share in the value that Medicxi can create in the future. So those are the benefits to us. For Medicxi and for the 2 companies that are being created, Medicxi get -- well, Orexia, Inexia, we put some IP into those business. And they have access to our scientists, and importantly, our drug discovery platform. And for Medicxi, whose motive here is to create value and take the company through to a Phase II proof-of-concept value inflection, it's great for them to advance this program forward whilst we've removed the costs from our P&L and also the development risk. It's separate to our company. So we think there's many, many reasons why this is a win-win deal for us. Thank you.
[Foreign Language] Thank you very much. Now moving on to the next question. Regarding M1 program, any updates that you could talk about? And when do you expect to have an answer on M1 program?
Well, I have briefly mentioned earlier that on the side of Allergan, M1 program is very important. And the whole company is fully committed to M1 program. Allergan will never leave us because of this voluntary hold, so they are very determined to make a great product out of this program. And we are currently analyzing and investigating the toxicity, so not a mediocre investigation will complete this study. So currently, we are working on animal tests, however, in vivo, in vitro. All kinds of investigation is ongoing. So the whole investigations are put into a packet, and we'll have to determine the very result. And probably in the -- later this year, hopefully, we'd like to reach to a certain kind of conclusion. There is a backup compound as well. So if this 381 (sic) [ 18318 ] is not successful, then we will have a follow-on candidate to continue this program. So what is encouraging is that Allergan, our partner, is shouldering all the costs, and they are taking initiative in investigation. That is all. Thank you very much.
Thank you very much. So next question. I noticed you have said you are closing the Zurich facility. Why is this? And what are your plans for CHESS and SaBRE technologies?
So let me respond to that question. As I said earlier, we will reduce costs as much as possible. As part of that, having a base in Zurich means we have the base in Europe, and that's good. So we think we can have Granta Park. If we have one in Cambridge, then this will have the overall integration and reduce costs as well. But G7 after Heptares Zurich, we acquired this because of CHESS and SaBRE technology, and therefore the experts were shifted -- transferred to Cambridge so that we can have further synergy going forward. That's all. Thank you very much.
About -- compared with your guidance in November, you have made -- significantly slowed down the rate of R&D and G&A spending. What is behind this?
So CFO, Chris, could you take that question?
Yes, certainly. Yes. That's a good question. And our rate of burn has slowed significantly. Now last year, we did say to investors that we would be focusing and prioritizing our investment in R&D only behind those programs which we see as having significant value to the group. Now we also had some slowdown because of the voluntary hold, which meant we didn't start the DLB study in Japan as scheduled. With regard to G&A, we have also said that we are going to take a very, very strict focus with regard to cost management, so those are the things that we said last year. Now in the period under review, there's been 2 events, really, that have given us further benefits at both the R&D and the G&A line. With regard to R&D, some of the moneys that we had spent, the upfront R&D moneys that we'd spent with our CRO in Japan in preparation for that DLB study, were returned to us in the form of a credit in December. With regard to G&A, what we've seen is a significant reversal in the provisions that we hold for national insurance payments related to our U.K. employees, plus furthermore, the strong cost management that I hinted at and some small reallocations of items from G&A to R&D. That's all. Thank you.
[Foreign Language] Thank you very much. Next question. The Novartis royalties are down because of the shorter period, but that looked like, on a pro forma basis, for the full year they could be up. Is this correct?
So CFO, Mr. Cargill, please?
Not a problem. Thanks for the question. I won't comment specifically on the royalties that we receive. However, it is definitely true that the gross sales of the COPD portfolio were up over the 12-month period. And therefore, we would expect, on a pro forma unaudited basis, that, yes, the royalties that we may receive for the 12 month -- versus 12-month period have increased. Thank you.
Thank you very much. In the Tanshin, at the time of Heptares acquisition, one of the program which were identified as a value were now recognized for impairment. In which program is it?
Then, Chris, could you take your question -- this question?
Well, thank you. That's a good question. Yes, we did impair one of our programs in the period under review. The program that was impaired was a PAR2 program. It's a small molecule program. So I want to be very clear this does not relate to our PAR2 peptide program, which we have with PeptiDream nor does it relates to the PAR2 monoclonal program, which we are also running. Those 2 programs continue on foot and are going well. The PAR2 small molecule was actually a program that was with AstraZeneca previously. We did a lot of chemistry, and we got to kind of the end of the road with that. We learned a lot from the PAR2 small molecule. However, it has been our decision to impair the program and not continue because we have much stronger programs: the monoclonal and the peptide. With regard to the size of the impairment, it's not material to the company, roughly, call it, $2 million, $2.5 million. Thank you.
Time is approaching towards the end of the briefing, so we'd like to take the last question, please.
Mizuho Securities, Mr. Nomura. We have a question. Thank you very much. So you mentioned as much as possible Tanshin, the new partnership and the important milestone from the existing partners, including that. It's shown in the Tanshin. But in the year ending December 2019, will they disclosed going forward, the initial milestone from AstraZeneca and OX program? Other than that, can we expect the progress in other deals?
As I said earlier, we are enhancing the business development team. They are moving around the world to negotiate deals. Until a while ago, we were trying to promote in-house as much as possible. But going forward, we will enhance the partnerships. And so in various areas, we are negotiating in parallel. Of course, not everything will materialize, but we will not fail in everything. So quite a few -- quite some amount can be expected. But if I say further, it may be misleading, so I will not mention specifics at this point in time. But some of them may be announced in the near future. I'm confident of that.
And there is a second question from Mr. Nomura. Daiichi Sankyo and Pfizer for December 2019, any progress that we can expect that relates to the earlier discussion?
That is all about the partnership. And therefore, we cannot make our discretional judgment. However, there are progress in a fast manner, and there are specific progress. However, because of the reasons on the side of the partnership, we are not able to announce publicly at this point. Out of that, 1 or 2 progress is going to be announced in the near future. You can expect that to happen. Thank you very much.
Time has come, so we would now like to stop and close the briefing for today. The video can be viewed from our website and company hotline archive, so please take a look.
With that, we would like to close Sosei Group Financial Results Briefing. Thank you very much for your attendance.