Alligator Bioscience AB (publ) (ATORX) Earnings Call Transcript

Welcome to Alligator Bioscience's Interim Report Call for the Third Quarter of 2026. My name is Greta Hoog. I am the IR and Communications Manager at Alligator, and I will be introducing today's call. With me is our CEO, Soren Bregenholt; and our CFO, Johan Gileus. They will walk you through the events of the third quarter, after which they will be happy to take any questions that you may have. These questions can either be put into the Q&A function of this call or you can e-mail them to ir@alligatorbioscience.com. As you know, Alligator is a publicly listed company, and today's presentation may include forward-looking statements. Please refer to the disclaimer on this slide, which applies to the full presentation. With that, over to you, Soren.

Thank you, Greta, and welcome to this third quarter earnings call from Alligator Bioscience. It's a pleasure having you all on board. Let's move to the next slide, Greta. So key events during the quarter. You are hopefully all aware that in July, Alligator announced that we would discontinue our independent development of mitazalimab and refocus the company on Alligator's financial interest in HLX22. We'll spend some time on HLX22 later in today's call. The reasoning behind the discontinuation of mitazalimab development was discussed at the Q2 call and is also elaborated in the Q3 report, as you can find on our homepage. Also in July, we raised or announced a rights issue of approximately SEK 125 million and a bridge loan of SEK 19 million. And then we also announced that the first patient was dosed in an investigator-initiated study in early breast cancer. In August, we held an extraordinary general meeting. And in September, we announced that the outcome of the rights issue was subscribed until the guaranteed level of SEK 58.8 million before issue costs and bridge loan being repaid. And then we also announced that we had extended the loan maturity on our outstanding debt to Fenja Capital until June 30th, '27, and then also a number of warrants were issued to Fenja Capital. As a consequence of the refocusing of Alligator towards the financial interest of mitazalimab, we are reducing the headcount, and we'll talk about that in a second. But in October, it was also announced that in a planned leadership transition, I will step down as CEO by the end of the year. And instead, and I'm happy to restate that, Johan will take over the role as CEO, continuing taking good care of the company's interests and thereby also of the shareholders' interest. If we take the next slide, Greta, let's talk a little bit about where we are in -- in the refocused Alligator, we will now focus on ensuring the financial interest in the asset called HLX22, which is a HER2 antibody, a differentiated HER2 antibody that is in a number of clinical trials in China and globally, most prominently a Phase III study in gastric and gastroesophageal junction cancer. The product is developed and owned by Shanghai Henlius Biotech, a big global Chinese company. Alligator owns approximately -- or not approximately, Alligator owns 35% of the royalty and fees interest of AbClon, I'll come a little bit back to that. Altogether, these numbers gives an effective royalty rate for Alligator of up to 1.75% of the net sales of HLX22. And Alligator will not incur any development costs. Pivoting the company towards these interests, of course, requires less resources. That's why we have decided to wind down operations and reduce the organization. Accordingly, those activities already started in July. I've already said that we have discontinued the development of mitazalimab. We have given notice to all employees who will leave gradually over the coming month. And the operation cost that includes these wind-down costs will be reduced to be fully effect in -- to be in full effect around Q2 next year. So what will happen that? We will run an organization minimally staffed primarily by Johan, appropriately sized Board that will, of course, also help out as Boards always do. We are working hard to divest mitazalimab and hopefully maintain some long-term value of that asset in the company to the benefit of the investors. And likewise, we are working to maintain future rights in other of our assets, for instance, ALG.APV-527 that we are co-developing with Aptevo in the U.S. and also, some of our antibody technologies that are currently being assessed by potential partners under evaluation and option agreements. If we take the next slide, Greta, let's just spend a little bit more time on HLX22. For a deeper detail and a full overview of ongoing clinical trials with the molecule, please refer to the quarterly report, the Q3 report, which, as I said before, you can find on our homepage. So as I said, the antibody is a novel HER2 monoclonal antibody. It's targeting other epitopes than some of the already marketed antibodies and have increased efficiency in inducing HER2 internalization. The antibody was originally discovered in a collaboration between a now fully owned Alligator subsidiary, Atlas Therapeutics from Stockholm and AbClon and under those agreements, Alligator then have a 35% ownership of AbClon's revenue from Henlius, both in terms of milestone payments and most importantly, any future royalties. AbClon have themselves disclosed part of that royalty scheme, the upper tier. And when you merge these 2 numbers, it gives a royalty rate up to 1.75% effectively for Alligator. I know some of you might want to have more insights into the specific dynamics and potential royalty ladder here. Alligator is not allowed to disclose these information, as these are part of an agreement between Henlius and AbClon. So 35% and up to 1.75% is the level of detail that we can comfortably share and legally share, by the way. Then we have estimated an annual royalty -- and just to make sure that everybody gets this right. Alligator do not have specific insights into how Henlius will price or market HLX22. We don't have access to any nonpublic information. The market has not yet made specific detailed analysis of HLX22 sales available. So what I will share with you now is Alligator's own sort of assumptions, and we are not in a position to share these in any detail in writing. But what we can do is, of course, we can spend some time reviewing the facts that in gastric cancer and gastric esophageal cancer, there is approximately 1.1 million, maybe 1.2 million cases annually. Of these, the metastatic diagnosis range is somewhere between 40 and 50, giving us a combined number of patients of around [ 450 ] to 70,000 patients annually. And if you then add the rate of patients that are actually HER2 positive, i.e., the target that the antibody addresses, then we are at around 110,000 to maybe a little bit more addressable patients on an annual scale. How does that relate into the royalty rates that we are describing here. Alligator is working with a number of different assumptions about pricing and blended global pricing. And all that, of course, comes out to the readout of the data from the Phase III study that we are all eagerly expecting. We see 2 scenarios here for us. One that is based on a set of data that is positive, but maybe not as fantastically positive as the Phase II. Here, we are working with a low scenario with a relatively modest rate of adoption in market share, somewhere in the teens, so somewhere between 10% and 20% and a blended global price, which is sort of remarkable or sort of comparable to monoclonal antibodies. And that will give a sort of a revenue to Alligator that hits around the bottom of the bracket here. And you can do your backwards calculation what that would mean in peak sales. And then on the other hand, we are working with a scenario where the data is still not as good as in the Phase II study, but are significantly better than competition. And this market based on this scenario, you see a higher market penetration globally. You'd see a higher price up to 50% higher than what you see in the low scenario. And in that -- in that scenario, you will reach approximately the middle of that -- of that bracket that we described here. And then I also have to remind you that the Phase III is not the only shot on goal. The company is currently in other Phase III studies in breast cancer. And the company has also recently registered Phase II studies in other indications on clinicaltrials.gov, but has not yet announced the first patient dosed. And there's also a number of other Phase II studies going. So we have a relatively high level of confidence that the combined market potential of HLX22 will land us comfortably in this bracket here between SEK 150 million and SEK 450 million on an annual basis. And just to sort of asserting that the system works, we have, over the years, received payments from Henlius via AbClon, and we have a good and constructive dialogue with AbClon. So sort of the business mechanics behind this agreement are in place and functionable. Can I have the next slide, Greta? Yes. This was maybe a better slide to have discussed the gastric cancer indications on. You have some of the specifics here. We still believe that the top line data from the Phase III study are due in -- in second half of next year. It may be before, it may be later, but this is a good estimate, as we see it now. And the company has not been -- or Henlius has not been clear on the launch plans for the molecule. And again, we take a sort of a company or not a company, an industry sort of standard approach to this and say from the first top line data to the potential loss, it may be somewhere between 18 and 24 months, potentially shorter, but let's err on the side of caution here. And that would then result in the first royalty revenue to Alligator the year after that. And with those words, I will hand the floor to you, Johan.

Thank you, Soren. So a little bit about the financials now for Q3 2026 then. I mean we still operate -- have an operating cost level that is higher than we will have going forward, and that's mainly due to that we still have incurred costs for closing down the OPTIMIZE-1 study, which is now in the very, very final stages. But there's also quite a lot of costs that we had ramped up during the spring to be able to start a Phase III, including CMC costs and other costs out for the Phase III that we are now are closing down and that, of course, has a trading effect both in this quarter and the quarters to come then. And there's also then some financial items then that I don't want to bore you with due to the rights issue and the TO 15 and warrants, et cetera, that we need to disclose and report in a certain way then. But moving over to the next slide is a little bit more forward-looking. And as you can see then going back a couple of years now, we have really taken down our operating cost level from the high SEK 250 million and above and then as expected, going down over the last couple of years now. And as you can see that it was -- it was starting to gear up higher and will, as I mentioned, and continue to be at a little bit higher level than going forward and before we turn it down to the really rock bottom, which is expected in the Q2 of 2027 and when we will primarily then cover or manage the interest in HLX22 then. After the rights issue, we have some SEK 41 million in our cash account, and that is then after the repayment of the bridge loan. So this is the net-net that we then can have for the spending then. And the obvious question is how long will this last? And the -- it's a little bit of a tricky question then because depending on how we will manage some of the outstanding obligations, including mitazalimab-related obligations, this will have very different effects on the runway. So I will need to defer that to the next quarter then, where we have better visibility on -- of the -- of the wind down and potential sales of certain assets have hopefully then been solved. So let us then move over to the next slide, please. Little bit around the rights issue that we completed in September and then also then there are some trailing effects in October then when I come back to that. And but we had some -- just shy of 50% subscription rate, and that meant also that the guarantors then came in, had to step in with some 29%, 30%, and that's predominantly 2 larger guarantors, we believe. And we haven't seen the details in the share ledgers yet because that will happen in October. But as soon as we can report on that, you will have it on our webpage then. It will also then mean that we have now issued first number of units, 1.4 billion units, and then this has been then transferred into shares, 2.9 billion shares should be available on your accounts if you hold shares. And then there is also warrants then for those who subscribe for units then for TO 15 and TO 16 then for '27 and '28, respectively. So next important event then will be the TO 15, and that is exercised in January '27. And we will then, prior to that, have a pricing period that goes from mid-December to early January then to set the price for the TO 15 then. And as agreed with Fenja in the recent negotiation, we are also then expected to do some repayments of the outstanding loan to Fenja out of the proceeds that we will hopefully then incur from TO 15 then. And as you hopefully know then, we still owe Fenja SEK 6.6 million then, as part of the initial loan that we had in from 2024. And TO 16 is 1 year later with the exercise period in January 2028. And the use of proceeds, I mean, we communicated before, both in the press release and the prospectus et cetera and it's to fund the wind down and the wind down, as Soren mentioned, is going according to plan. We hope to have some positive outcomes in certain of the discussions then. But as a prudent CFO, I am always count on the worst. So we need to really be careful with our cash, of course, but also to make sure that we have the visibility of our cash forecast going forward. And this all is just to preserve the future royalty potential of HLX22 as discussed earlier then. And we -- depending on the outcome and depending on a few other things, then we will -- I'm quite certain that we will not have enough money until we can see the first royalty income, and that is expected in 2030. So that's quite a long way. But hopefully, we can extend it to get at least a better visibility of the outcome of HLX22 then as expected in the second half of 2027 then. So Soren, over to you.

Thank you, Johan. And here I am. Good. I think this was the last slide for today.

I think we have a number of questions from the audience here or from you. There is a number of questions, and I fully can sympathize with these about a wish to have a larger transparency in the royalty situation for HLX22. I would share it if we could, we cannot. I think what we can share is what we share today that the royalty for Alligator is 35% of whatever royalty is paid to AbClon. AbClon has a royalty rate up to 5% on the global sales of HLX22 across all indications. Currently, the drug is developed in several indications with gastric cancer being -- gastric cancer being the lead indication, and I try to illustrate for you that we believe that even in a low -- in a positive but low penetration scenario, we will, in that indication alone, hit the bottom of the bracket in a more -- I wouldn't say mediocre because that's not what I mean, but in a more positive but still modest scenario, a mid-scenario, you could say, we will hit the middle of the bracket and in a full scenario that may not be completely realistic for these indications -- for this indication alone, we will hit the top of the bracket. And I think it's important for investors and educators to also understand that beyond this, there are trials in breast cancer, there are trial in colorectal cancer being registered and coming up, the trials in pancreatic cancer and Henlius is really investing significantly in HLX22 and pushing it forward across a broad set of indications. as you would do with a drug that is as differentiated as HLX22. And you all know that if you follow other companies, their expectations is to HLX22 -- at least their expressed expectations to HLX22 is somewhat more aggressive than what we are describing here. So that, I think, was answer to quite a number of the questions for Alligator or from you. And without making commitments for the company, as you know, I'm stepping down, so not making forward commitments for the company, but it's clear that when sort of consensus analyst reports or even just single analyst reports becomes available, that would be all natural for the company to share those analysis with you as investors. Then there is a question, and I think it's a little bit hard to answer. But why is nobody interested in buying your shares? That I don't really have an answer for that. I have one -- my only observation is that this is now a share that has defined probably outcome, and that is royalties from mitazalimab. And as Johan mentioned, and I think I mentioned as well, that will take -- that will take some years for that to realize. And we, of course, see the next big value inflection point being the announcement of Phase III data for HLX22, giving us a very strong indication of whether the milestone or the royalty predictions are realistic or even maybe being too modest. But it's always hard to second guess other people's intention. How close are you with selling the mitazalimab project? And how much do you expect from that? We are making progress with that. I cannot comment closer than that. What can we expect for that? I think in deals when companies like Alligator have announced discontinuing their own development, there will be value in the agreements, but it will probably most likely be more backloaded than you would expect in a -- in what can we say, a traditional business development deal. Then we have a number of questions from Richard. Can you walk us through the assumptions behind the bracket of royalties? I think I already did that at least once. So I think we'll leave it at that for now. What is the target run rate for the minimal organization? And when will this cost base be reached? I think that's for you, Johan, if you have not already discussed that.

Yes. No problem. I think the current estimate is that we will come down to in the region of SEK 1 million per month in running cost for that minimal organization, and that will be reached in the Q2 of 2027. But that's a rough estimate, but still something that we are aiming for.

Yes. Thank you. And I can see others had that question as well. So hereby addressed. Yes. What is the runway of the current cash and what financing options are you working on? I think you've already touched on that a little bit, Johan, but maybe a reiteration.