Cinclus Pharma Holding AB (publ) (CINPHA) Earnings Call Transcript

Hello, and welcome to Cinclus Pharma's Second Quarter 2025 Earnings Call. As already introduced, I'm Christer Ahlberg, and I'm the CEO of Cinclus Pharma. And with me today is our CFO, Maria Engstrom; and Head of Corporate and Business Development, Jesper Wiklund. We will present the latest developments from the second quarter 2025 and the upcoming news flow, after which we will be happy to answer any questions you might have. But before we begin, I would like to share a quick reminder with our listeners that during today's call, management may make forward-looking statements that involve known and unknown risks, uncertainties and other important factors beyond the company's control that could cause the company's actual results, performance or achievements to be materially different from the expected results, performance or achievements expressed or implied by such forward-looking statements. So please have a look at that. And with those formalities out of the way, let me begin with a high-level overview of the company, including key business updates and investment highlights before we go into other activities in this presentation. So what you know about Cinclus Pharma, I mean, we are a Swedish pharma company or late-stage development company. headquartered in Stockholm and listed in Nasdaq Stockholm. We have the global rights for our lead candidate, linaprazan glurate, where we have out-licensed and we have partners in Asia with Sinorda and sublicensed partner in China with Shanghai Pharma and the recent partner with Zentiva in Europe. We will come back more about that in the future here in the presentation. And linaprazan, as you know, is the next generation of PCABs and definitely potential -- a superior potential to become the best-in-class with a unique 24-hour acid control. PCABs, as you're aware of, is the first innovation and mode of action in the gastric and acid-related disorders in over 25 years. And we, as a company and our development is focusing very much on the high unmet medical need in patients with suffering from severe erosive GERD. And these patients are treated by specialists, the gastroenterologists, and that enable us to have a specialty commercial focus, which have many advantages in this area. And definitely, it also gives us a blockbuster potential. Our unique prodrug gives us a unique pharmacokinetic and pharmacodynamic profile, leading to this 24-hour acid control. And that gives us a very strong competitive edge and advantage compared to the old standard of care, protein pumps inhibitor, PPIs and the first generations of PCABs. I mean we have very fast onset. We have a long duration. We have a unique 24-hour acid control, gives us a superior healing in half the time compared to anything else. And our ambition is also to deliver superior symptom relief. We have already delivered a very good data in the Phase II study, and we are now ready to start the Phase III trial. And we are expecting the last responses from the authorities near term. And thereafter, we are ready to go to initiate and start up the study. So everything is according to plan. We have -- as we see it, and we have discussed that earlier, I mean, we have a very much scientifically but also a clinically derisked development program with already proof of concept, we have a very good Phase II data with delivering good efficacy and also good safety data. So this is the final now going forward with the Phase III trial, and that is the first study that we will initiate now is the first out of 2 healing studies that needs to be done before a potential approval. Also interesting to look at the market, PCABs, the first generation is growing globally. And we see that it has been launched in 30 countries globally and definitely gaining traction in the erosive GERD and symptomatic GERD, but also in the erosive GERD guidelines, which is definitely important. We see them in the guidelines in Asia. We also see them in the guidelines in U.S. lately. And from a sales point of view, we also see very good growth in Japan, close to USD 1 billion. South Korea, more than USD 200 million in sales and is growing significantly there. We also see a very good start for the first PCAB on the launch in U.S. And also in South America, it's very interesting growth of sales, but also from a pricing point of view with $2, $3 per tablet, which is very good and healthy pricing. Before now, we also want to give you a little bit more of some information about the treatment. And the key to success in this area is to control the acid production. And the more -- the longer you can control the acid production and have acid -- pH level above pH4 in the stomach, the better chances you have to heal the patients or actually, if you -- there is a linear correlation here. So if you can keep the pH above 4, 100% over the 24 hours during a longer period, you know that you will heal the patients. This disease is caused by acid. And what you do is to reduce it and -- or get rid of it and then you will heal the patient. It's not more complicated than that. And therefore, we think it would actually be interesting to plot the latest data from clinical studies into this line, as you can see in this linear line. So -- and if you do that as an example here, in the next slide, you can look at, for instance, the latest Phase III trial from linaprazan, where they actually also have an acid control, peak acid control approximately on 85%. And on the C and D patients, 8 weeks, they delivered approximately a little bit more than 90%. And that's spot on into the line here in the correlation that we already have shown. In the same study, they compared themselves with lansoprazole 30 milligram and they have 66% acid control. And if you look at the healing in these patients, 8 weeks, it's also spot on the line in the correlation here. We know the latest PCAB in U.S. and in Asia is Tegoprazan. They have less acid control than linaprazan, below 80%. And we expect them to be around 80% of healing. So it's very much perfectly fit into this line. Looking then into our drug, we have 96% acid control. And if you just put it on the line there, we are coming then close to 100% healing. So this is an interesting analyze to do. And I just wanted to give you that information now. And this is -- yes, that's the reason why we think the biomarker with acid control is so important in this case, and that gives us an indication of what we can expect in the future. Summary then of the key events for the quarter. Jesper will tell you much more about the strategic alliance and license agreement with Zentiva, which gave us a deal value of EUR 220 million in totally, but also with very good royalty of approximately 20% but Jesper will give you more information about that shortly. We also have received a waiver from both EMA and FDA for the requirement to conduct pediatric studies of linaprazan glurate for the treatment of Helicobacter pylori infection, which is, of course, gives us a better possibility to deliver that and make it more effective and faster. And also during the quarter, it has very much been clarified from FDA that an indication with H. pylori gives 5 years data exclusivity extension in the U.S. for all indications for the substance if you go with H. pylori as a first indication. So that's a good clarification, absolutely. We also have published the Phase II results, demonstrating high healing rates. I mean we are actually delivering 93% healing for the severe patient in 4 weeks. And we also deliver 100% of healing of departure responders after the PPI treatment. And this is, of course, very supporting and in the continued development of linaprazan glurate and also very promising, I would say, in relation to what I just mentioned about the acid control. We have also participated in the biggest congress, DDW in San Diego during the quarter, where we have presented new data confirming the potent and acid blocking properties of linaprazan glurate and the promising results from the optimized tablet formulation that will now be used in the Phase III and as well in the commercialization later on. We also -- it's interesting to look at the market now. It's getting more and more interest within the specialists about erosive GERD. And we have a sponsor. We have been the main sponsor of a gastroenterology conference organized of specialists in this area, and that was in France. And now we will also -- and that was focusing on reflux diseases, which is, of course, a very good sign for the future, the specialists starting to focus on this. And with that, I stop and hand over the word now to Jesper.

Okay. Thank you, Christer. So the partnership that we did with Zentiva, it's for the commercialization and manufacturing of linaprazan glurate in Europe. So we out-licensed the European rights in this deal. Most importantly, really, it's -- we really view this as a strategic alliance, and it's very much -- a very important transformation really of the company of Cinclus and our capabilities if you look at it from a capability point of view. And we now have, together with Zentiva, our partner, who we already have developed a very close working relationship with, we now possess every single expertise, every single thing that you need to develop, register and commercialize this product in Europe. And we have this at sort of the level which any company that would be involved in this area would be very happy to have. So it's -- it's a very, very strong set of capabilities that we have together with our partner. And this now maximizes both the likelihood of the development success, but also registration approval and commercialization. So it's really a derisking of the -- from a commercial -- from an operational point of view of the probability of us actually reaching the market and being successful in the market in Europe. And a few words about Zentiva. Zentiva is a very successful company now in Europe. They were formerly a part of Sanofi, were divested -- were actually bought by Advent International in 2018. So Advent, which is, as everyone on this call, I'm sure knows, one of the world's really foremost and leading private equity companies, acquired the -- essentially the manufacturing and generics business of Sanofi in 2018. They have since then, together with the management team of Zentiva really created a very, very strong operationally successful execution-oriented company that has now a commercial presence in all relevant European markets, and they have a special focus in gastro and metabolic diseases. So it's really a perfect partner for us in terms of both where they are in their development and in terms of where they are sort of commercially focused. We can say a few words here also about Zentiva and in terms of how this was very much a validation for us of what we're doing and of the commercial value and the future positioning of our product. We know, of course, because there's no other PCAB that's currently being developed or being registered and being prepared for commercialization in Europe. We know that Zentiva looked at every single PCAB. And they chose ours after a very significant due diligence. I mean they were really in there and looking for well over 6 months. It was an extremely thorough due diligence, turned over every single stone. And at the end of that, they came out and decided to go with us, not because we're the furthest along because we're not, but because we're the best. And they really believe in Europe that you need to have something that is truly, truly a step forward and truly addressing the unmet medical need to have a strong commercial future to be able to get the pricing, et cetera, that one needs in Europe. If we look at the deal value and some of the numbers, as Christer already mentioned, it's a EUR 220 million total milestone deal, which is a very good number. These are divided up in development milestones and in commercial milestones. Most importantly, though, if you, as we do, believe in the commercial future of this product, we have a very attractive royalty rate. It's clustered around the 20% mark. It's a staggered royalty starting slightly below and ending slightly above 20%. But if one considers the profitability of a product like this in the European market and you think about what 20% of net sales means, we are getting a very significant portion of the profitability of this product, and it's really a very sort of sharing of both the profits and the entire commercial future of the product. Importantly for us, of course, also is that we had close to EUR 20 million approximately $20 million in upfront and near-term payments, $13 million of which were received as an upfront payment. We already have received that and EUR 5 million will come once we have delivered the first set of Phase III data. As mentioned also, we retain full commercial rights outside of Europe, particularly in the United States, of course, not in the territories that we've already out-licensed to Sinorda. But over the rest of the world, we retain full commercial rights. And if we take a step back and sort of consider what does this deal, what are these numbers guide us to or tell us about what a future deal might look like or what is the commercial value of this product in the United States, which is, of course, the large remaining market that we have still 100% control of. We know that there's multiple -- the sales potential in the U.S. is a multiple of the sales potential in Europe. So that's one very strong thing to consider. The second is that this deal that we now did was done with Phase II data. We were able to demonstrate and show the Phase II data. And based on that data, Zentiva after this thorough due diligence, decided to do the deal. When we go out to look for commercialization partners or commercialization options based on the Phase III data, which will be the next time that we do go out. So we will then have Phase III data, and we will have the remaining market being multiples higher than this current market. So we believe that this indication gives you some sort of guidance about what the future might look like if we were to do a deal for the U.S. rights. And as an indication also of the importance of that to our company, if we were to do a deal for the U.S. rights, that in and of itself could be sufficient to fund more than fund the entire development program all the way to approval. So that's one potential way that we can finance the entire development program. And given the fact that we already now have enough resources and financing, et cetera, to see through this first Phase III trial, that could put us in a very interesting position from a financing point of view.

Okay. Good, Jesper. Should we go -- or anything else you wanted to mention?

No.

No? Okay. Then we go into the financials then.

Thank you, Christer. So the highlights for the quarter. Cash at the end of the period ended up at SEK 589 million, including, of course, the upfront payment from Zentiva of SEK 12.4 million post withholding taxes withdraw. The R&D expenses ended up at SEK 54 million, of course, driven by the Phase III preparation, which were a little bit higher in this quarter. That included the CMC activities and also the completion of some preclinical studies. The R&D expenses as a percentage of OpEx was 86%, which was higher than the average over the past 8 quarters. We also saw a slight increase in number of employees, which are now 20, and we have also, on top of that, 17 in-house consultants ending up at a total of 37 coworkers. And if we go to the next slide, where we see the year-over-year financials. And the net sales was SEK 34.1 million compared to last year, and that is then reflecting the part of the upfront payment from Zentiva contract as we recognized as income for the quarter. The remaining part of the upfront, which in total was SEK 135.1 million will be prioritized during the course of the Phase III study. The operating expenses was negative SEK 42.7 million compared to last year. And as I already mentioned, that was due to the Phase III preparation, a little bit higher this quarter and also including the CMC activities and the finalization of the preclinical studies. The G&A was also higher, and that was due to a onetime transaction expense for the Zentiva deal of SEK 18.5 million. EBIT ended up at negative SEK 8.6 million compared to last year, and that was reflecting the higher OpEx, but also the portion of the upfront payment recognized as income. Financial net, plus SEK 0.3 million compared to last year, reflecting interest income on cash, but offset by unrealized losses of current liabilities. Tax, as described in earlier calls, is due to corporate and cantonal tax in our Swiss affiliate. Net profit then ended up at negative SEK 8.1 million compared to last year and impacted of the onetime transaction expense from the Zentiva deal, but also the revenue income from the upfront and the higher R&D expenses. If we go to the balance sheet then, other current assets, positive SEK 27.4 million compared to last year. It mainly is prepayment to the CRO. Cash negative SEK 95.8 million compared to last year, reflecting the Zentiva deal cash distribution, but also the Phase III higher spending for the quarter. Noncurrent liabilities, a new item here, and that was positive or increased SEK 63.8 million compared to last year, and that relates to deferred revenue recognition from the Zentiva contract beyond 1 year. The current liabilities is for the same reason, increased with SEK 33.9 million compared to last year, and that is tied to the short-term portion of the Zentiva contract liability. So if we go to the next slide, we can see our shareholders at the end of June. The picture is pretty much the same as last quarter. We have our founders in the top and also our IPO cornerstone investors still with us. And with this, I hand over to you, Christer again.

Okay. Thank you, Maria. And here, you have some important dates for your diary. And also with that, I will continue to the Q&A session.

[Operator Instructions] The next question comes from Arvid Necander from DNB Carnegie.

So first off, it's very good to see that preparations are finally coming to an end. But just to clarify, I think last quarter, you said the study would start in Q3. Is this still the target? And secondly, Phathom seems to have sort of shifted their strategy to focus more on GIs where they've had much better success. On the one hand, I guess this would be supportive of your approach. On the other hand, it could mean that Phathom secures a stronger position in this setting ahead of your launch. So could you perhaps comment a little bit on how you see this impacting you? Do you expect to be able to convert a meaningful share of patients already on Voquezna? Or do you expect most patients starting treatment with LG to be new prescriptions? I'll start there.