Molecular Partners AG (NASDAQ:MOLN) Q4 2022 Earnings Call Transcript

Molecular Partners AG (NASDAQ:MOLN) Q4 2022 Earnings Call Transcript March 10, 2023

Operator: Good day and welcome to the Molecular Partners Publication of Full Year Results 2022 Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Seth Lewis, Senior Vice President of Investor Relations. Please go ahead.

Seth Lewis: Thank you, Betsy and welcome everyone to the Molecular Partners 2022 full year results conference call. My name is Seth Lewis, Senior Vice President of Investor Relations and I am joined today by Patrick Amstutz, CEO and Robert Hendriks, Senior Vice President of Finance. If you have not had a chance to see the press release issued yesterday evening highlighting these results, it can be found on our website, www.molecularpartners.com. Before we begin, I would like to remind you that this presentation contains certain specific forward-looking statements, beliefs and opinions. Such forward-looking statements are subject to known and unknown risks, uncertainties and other factors, which may result in a substantial divergence between the actual results, financial situation, development or performance of Molecular Partners AG and investments and those explicitly or implicitly presumed in these statements.

If you haven’t accessed this morning’s presentation, it can be found on our website, molecularpartners.com under the Investors tab, News and Events and Presentations tab. If you are listening to this on replay, this call is recorded on March 10, 2023. Please refer to our latest news and filings as results may differ in the future. With that, I will pass the call over to Patrick Amstutz. You may begin.

Patrick Amstutz: Thanks, Seth for the nice intro and making everybody aware how it goes. So we will start with a few slides. I will then hand over to Robert and we will €“ I will summarize with an outlook and then open for questions and I think that’s the real the reason for the call that we can get your questions. So we are welcome and an exciting call for us as we will have backward-looking and forward-looking into €˜23. Thanks also Seth for pointing out the disclaimer. I add that I am just off the plane, so a bit of jet lag. So any unclarity I would assert to that.

Seth Lewis: So hopefully, I didn’t put

Patrick Amstutz: You did not and I am back from the Cowen Conference, so also a good chance to then maybe follow-up in the Q&A a bit on investor sentiment, the questions we are getting and how sort of we present also in the field with other biotech. But let’s kind of first zoom out and kind of what is this all about? It’s the breakthroughs of tomorrow that link back to the company purpose, building value for patients where value today is not possible. And so we have invented the DARPin technology to bridge the gap between the small molecules and large molecules and we have validated the DARPin approach in over 2,500 patients with 7 clinical stage compounds. And I think it is important to stress that, that this is a proven technology and that all of these compounds one not yet, because it just went in, but 6 of those are really showing the exact activity in patients that they were designed for by our protein engineers and biologists.

What is our strategy or how do we apply it? We have a very high bar on the unique DARPin solution. You can also call that differentiation. So every product we make should saw the problem that is not easily addressable with other technologies. The second is the true patient value that’s clear. I mean, we want to solve a meaningful problem and we want to see an early clinical readout. The early clinical readout goes to the return on the investment, because if we don’t see it, we can stop it. And that was one of the learnings as some of the earlier programs did not have that built in and let us then to also the ungood moment that we had to stop programs for strategic reasons as we could not further invest in them. That’s where the partner comes in we have and will partner and always to generate patient value for products that are not best in our hands but where we see the value and where a partner can help us bring it forward.

It can be early partnerships, it can be biology partnerships, it can be technology partnerships where payload, let’s say, a radionuclide DARPin, we all classify that as partners and we are always open to partner to bring our breakthroughs forward. Now I am going to Slide #4. That gives you an overview of how we think or structure our approaches in the center of this picture, you see a DARPin and what I like to say the DARPin is a therapeutic modality. It’s not in itself a platform. It is larger than the platform. But we have built sub-platforms and there is different ways you can classify that the way we like to do it is, on the one hand, the multi-DARPin platform, where we have 533 or also Ensovibep, our COVID DARPin was part of that. Then we have the Radio DARPin therapy platform, that’s something I will also talk about.

And the newest addition is the SWITCH or the either/or, our gating platform that we have built. And that’s sort of the basis for then the product and the candidates that we move forward. Let’s move to the candidate level and look back €“ look into 2022. I would like to start with, let’s say, the poster child of last and this year, and that is 533. It’s a novel tri-specific T-cell engager in AML. We have dosed the first patient, and we have a lot of preclinical data that supports the mode of action and we will also generate more of that. I will have a slide later on and also touch on it in the outlook. MPO317, that’s the local CD40 agonist, proud to say that we have the safety that supported dose escalation. We are now at the highest dose and have not found any dose-limiting toxicities, supporting the mode of action of local immune stimulation over systemic immune stimulation.

Then a platform, so here, we have not yet defined the candidate while we have defined the first target for us, but it starts with a Novartis collaboration with two targets. And in the Radio DARPin Therapy Platform, that’s where it’s all about reducing kidney uptake as that is for many protein based approaches or even pepta-based approaches the dose-limiting organ, the problem zone. So if you can reduce the kidney uptake with a high tumor uptake, you are in business. Virology here is open-ended. A year ago, we were very heavily invested in virology with Ensovibep that actually had great data, right a year ago, went to EUA, but then we all know that from variance of SARS-CoV-2 virus came along and made the medical need much lower. So that program is quasi on hold.

Hopefully, not ever to be used but would only be used if a new variant of higher virement would appear again. At the same time, it did open the path for discussions with Novartis and we have Letter of Intent to look into a Research Framework Agreement also to establish pandemic preparedness. Next slide, in a way, is a similar overview. So you see here the stages, the programs, this is the pipeline view. We will talk about 317, 533, the DARPin platform virology, I did touch on and the immune cell engagers, you can put equal to the SWITCH platforms as those are likely going to be SWITCH. So that’s an area of activity on SWITCH. We also have abicipar and so that we list them below the active pipeline. We see them as options €“ optionalities that can happen, but we are not building on them as the future basis of the company.

Let’s take the time and just quickly talk through our key few programs that will be of interest in €˜23. I will start with 533 in AML. What is the problem in AML? And AML is one of the most deadly liquid cancers that there are liquid tumors they are. The problem in this disease is there are no clean targets like CD20 or CD19 on B-cell malignancies, but there are targets. And you see three of them here, CD33, 70 and 123. The problem of these targets is that they are also expressed on healthy cells. But our scientists found that they could with a lot of bioinformatics work in many databases, establish that mostly they are co-expressed, three of them or at least two of them. So what we built is a tri-specific T-cell engager with a long half-life and this will kill preferentially the dual and triple expressers, but not the healthy cells with mono expressing one of these targets.

This Phase 1 is ongoing and we are extremely kind of pushing forward to get the results. We are guiding towards more the second half for safety, but also initial efficacy. Let me point out we do expect on this one that we will see single agent activity. We added the preclinical work to support further development. So that is maybe a bit cryptic, but you can think if the first Phase 1 looks good, you will want to go into different settings, different lines, also different combinations. So that line is hint into additional work we are doing also for combination settings pre-clinically. Moving to Slide 8, here I will speak about 317, this CD40 by FAP. CD40 is a new stimulating target. It activates the new system. It, in simple terms, could turn a cold tumor into a hot tumor.

And when targeted systemically meaning with systemic antibodies, you get dose-limiting toxicities, so the highest dose you can reach is still below 1 milligram per kilogram. We have built a molecule that is FAP gated that goes to the tumor. It localizes its clusters locally activates. We are now in our highest dose far above the antibody doses even with smaller size. So the molar dose is like 30x higher at least than what you see with antibodies and we don’t see the toxicities. So, it seems that this texture really solves that problem. We have presented data showing localization initial data on activation. We will do more of that, complete the dose escalation and then depending on the data, obviously, enter partnering discussions. Here, I would also point out the indirect value inflection point as Roche has a similar molecule.

I will also come to that in the outlook. And the data of the FAP x CD40 of Roche will obviously have an impact on this one. If that data looks good, obviously, there is a cross validation of the mode of action. Let’s go to Slide #9. Now I am a bit in the conceptual part. So here, you have a cartoon. You see three DARPins. You have a green DARPin that targets the tumor antigen. You have a blue DARPin that is an effector function. In this case, CD3 and we have a gray DARPin that has two binding sites. It was made from two DARPins, actually a yellow and the dark blue one and they were put together into this gray DARPin that is now called two in one. The blue part binds the CD3 DARPin and with a very low affinity, but a high local concentration of the linker.

You can think of the blue DARPin and the blue part of the gray DARPin as on off, on off very fast, but mostly off in circulation. So if on healthy cells, you would even find the target €“ the green target nothing would happen as your CD3 is off. If you are now in the tumor, the green DARPin will accumulate this drug in the tumor. There is a yellow antigen. The gray DARPin with its yellow binding site will yellow antigen release the blue, because there cannot be simultaneous binding and with that set that activity free and recruit T-cells for local killing. For us, this is the first time we have seen or this has ever been described, such a mechanism. All others rely on protease cleavage like cytomics. They were a pioneer in this local activation field.

This is entirely based on binding. And we are excited to move this forward with one or two programs and also in our pipeline. With that, I will switch to Radio DARPin Therapy. This is, let’s say, a link to radioligand therapy, but we want to expand the ligand space with the DARPin space. So ligands can maybe target a set of targets that are on tumors, but DARPins can expand that set dramatically. It started with a collaboration with Novartis as they were or are the leader in the field and with us recognize the potential of DARPins as delivery agents or vectors. We did a deal a bit more than a year ago with the €20 million upfront, CHF560 million in potential milestones and double-digit up to double-digit royalties. And this is for two targets.

So, two targets are exclusive for Novartis. At the same time, there is many more targets out there and one of those is DLL3 and that’s what we have selected for our first in-house target and we are expanding to additional targets. The second one is being done and more are being evaluated. And as we don’t have the radioligands or the radionuclides at our disposal, so we are looking into partnerships to get access and partner with companies that have radioisotopes. Also, this will be one of the activities that you will see this year and we definitely want to sign one or two agreements with these companies. Let me show you some data. We wanted to make sure that our investors know of. Last time I presented that was the red part that was at JPMorgan and we did show that.

And what you see here on the left hand side is the kidney and the bars should go down. Lower bars are better, because it shows how much of your drug is in the kidney. Lower is better. You see the solid €“ the red solid, that’s a parental DARPin. Then you have the striped red that is a different approach on top of cells, that’s now blue and it again reduces by 60%. So, we are working on a suite of ways to reduce kidney €“ and they are additive. At the same time, if you look at the tumor side, you see the tumor accumulation stays the same. So we have no impact on that. So what we are doing is we are moving the tumor to kidney ratio into a favorable direction. And now switching a bit gear going from science to corporate sustainability and corporate sustainability is maybe a large abstract for it.

But it is something that we at Molecular Partners always live. So our company is almost 20 years in existence. And really with this purpose-drive and this understanding that we want to do good for patients, we want to do good for society, we want to do good for the world, ESG or corporate sustainability was always part of our culture and in our DNA. And now with the, I will call it, a bit more trends of ESG and reporting, we went back and we really were able to bring out what we always have in the company and it also is very much carried from our employees. So this is not just a tick-box exercise, but it really makes visible what is here. And you see there the different pillars that we are moving forward and some of them like human capital management, I mean, for us, people, talent, that’s our co-workers.

It sounds a bit dry, but for us, it’s not, but those are the titles that one uses in the ESG exercise. But believe me, these titles are really full of life and full of passion for our co-workers. And the same is for access to medicines, for product safe, service and safety business ethics. These are really dear and core to our heart, and we fill them with life at Molecular Partners, and it is really that what also makes up our culture. So for us, this slide is not just a dry tick-box slide. It really shows what is dear to our heart where we also are willing to show what we’re doing and kind of be a role model for the industry. With that, I’ll pause, I will hand over to Robert, who will lead us through the numbers. I think he has set an exciting year that we had, and happy to hear him talk about the numbers.

Robert Hendriks: Great. Thank you, Patrick. Currently on Slide 13, just to discuss some of the basics here. The numbers that we will present will be stated in million Swiss francs. Of course, the rest of the details will be in the press release as well as in the appendix of the presentation and the presentation is clearly also available on our website to finish Stage 1. My name is Robert Hendriks, I’m the VP of Finance here. And I’d like to take you through Slide 14 on the financials. When we are looking at these financials for the past year, I’d like to focus your attention to three numbers in particular. The first one would be the revenue number, almost CHF190 million in €˜22. And I will, on the next slide, provide more detail, but it’s clear that this was largely driven by the funds that we received early €˜22 from Novartis.

The second number I’d like to draw your attention to would be our operating expenses. The guidance that we provided during last year consistently was in the 70% to 75% range, and the CHF73 million ended up right in the middle of that guidance. And these costs have been stable over recent years. Combined, these two numbers clearly lead to the positive results that we achieved in €˜22. The third number I’d like to draw your attention to would be the cash balance of almost CHF250 million. This is the cash on the bank account, including the short-term deposits that we have with banks. So we are with close to CHF250 million. We think that this will carry us into €˜26. And this puts us in a privileged position in the industry. So these three numbers, the revenue, the expense and the cash are important to note as they tell the financial story of MP in €˜22 and fully reflect the healthy financial state of the company.

Moving to Slide 15. If we then look in more detail to the revenue numbers, it becomes clear with a remarkable year €˜22 was, with a revenue close to CHF190 million. You can see that in the recent years, the revenue mostly related, if not all related to the Amgen collaboration, and in €˜22, we see the impact of the Novartis collaborations. If I break down CHF190 million, CHF173 million of revenue relates to Novartis, and this can be broken down in a few buckets. The biggest bucket would be CHF163 million that were triggered by the exercise of Novartis on the license agreement, and this happened in the first week of January. A further CHF10 million of revenue then comes from the December 22 collaboration on as discussed earlier. Here, we can break that down to CHF2 million of FTE recharge and CHF8 million of the recognition of the upfront payments that we received following this agreement.

The balance of the upfront on the collaboration will be recognized into revenue in €˜23 and €˜24. Then following the notice from Amgen on MP0310, we were able to recognize in full the remaining contract liability or deferred revenue of CHF10 million that we still have on the books. This number is actually in line, as you can see with the most recent years when it comes to Amgen revenue. Then finally, and that’s the yellow bit on top. We were able to recognize CHF7 million into revenue from the amount that we received from the Swiss government, the as per the reservation agreement that we concluded with them in 2020. That agreement transitioned to Novartis upon the exercise the option exercise, so we were able to recognize the mute This revenue, together with the operating expenses, clearly resulted in a positive net result of CHF118 million in €˜22 and a cash balance of just shy of CHF250 million.

This then leads me to Slide 16 on the guidance on operating expenses for €˜23. In line with the past, we will not guide on revenue. For the year €˜23, we guided total operating expense of CHF70 million to CHF80 million, of which around CHF9 million will be non-cash. And as always, this guidance is subject to the progress and changes of our pipeline. So in summary, I think with almost CHF250 million in cash and no debt we are in a privileged position. We are funded into €˜26, and this is without clearly taking into account any possible money coming in from collaborations and future partnerships. I think that these numbers show the healthy financial base of us entering into €˜23 that will allow us to continue to invest and to bring drugs to patients in need.

Thank you for your attention. With this, I’d like to hand back to Patrick, who will tell you more about the R&D and scientific outlook for this year.

Patrick Amstutz: Thanks, Robert. Really a lot of numbers, impressive numbers, and I can only echo the health of the company, which is not a given in the current setting where not all biotechs can build on such a strong balance sheet. But before we open for questions, let me just quickly walk through the outlook. What can you expect from us in €˜23, what to look into? I’m now going to Slide #18. I do start a game with 533 and that is the key driver where we are focusing heavily on the execution that we are able to present you with safety and efficacy results in the second half of this year. Again, additional preclinical work, especially for combinations, but also understanding the drug where to develop it further is ongoing and will be presented over the year.

317, that’s the completion of the escalation and safety trial first half of this year and initiating partnering discussions on the back of that and stressing again the indirect catalyst by the Roche FAP CD40, that’s Roche 6189. If you want to look it up, that would have a direct read through to 317 in good, but also obviously in negative data working therapy platform. So we will definitely advance the platform, working on that kidney to tumor or tumor to kidney ratio. It is about selecting targets and candidates. So that’s an activity ongoing and which of these kidney reduction approaches we build and put in that candidate. And last but not least, very importantly, the collaboration with radioligand companies that we can secure access. It is a cross talk, the better our results, the better our arguments with these companies are.

The aim is one to two of collaborations in that space. On the further opportunities, we have SWITCH DARPin. So immune cell engagers, where we are aiming to move a program forward for ourselves, but there is also partnering optionality there as these are platforms. And we have a rich pipeline, and we could add more in some partnerships on the SWITCH platforms and also update you on the virology projects, that’s kept a bit open because there is in-house activity and partner activity with Novartis. Let’s see where that goes, essentially an update over the year. With that, I would like to echo what Robert said, we’re well funded into €˜26. Nothing we take for granted, but we really take that as a mandate to work hard to push forward and generate the value for patients and the shareholders as we invest that smartly in our pipeline.

With that, happy to end the call it, formal presentation part and open for questions. Happy to take those as they come.

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Q&A Session

Operator: The first question today comes from Joe Walton with Credit Suisse. Please go ahead.

Joe Walton: Thank you. I have a few questions, but your line did seem to cut out a bit. So I do apologize if I ask you to repeat some stuff that you’ve already said, which wasn’t available certainly to us. But firstly, can I ask just how many people just took some idea on the recruitment? And any update on the size of your studies for MP0533 and 317? You last said that you would be looking at something like a 25 to 45 patients start and that those patients would start to be recruited in the back end of 2022 for 533. So just some updates there. On the Novartis radioligand collaboration, have you €“ what you have done for Novartis cut out for me. So have you delivered any targets to them or are you still trying to sort out this issue of the kidney accumulation before you can go much further?

And could you also just expand a little bit more on the sort of partners that you want? Are you absolutely confident you can sort out the targets and the linkers yourself? It’s just you need help with the actual radio activity, and you can do everything else yourself. And we’re very mindful that it’s taking Novartis a huge amount of time to actually sort out etcetera. The manufacturing is so incredibly complicated. Just wondering how you’re looking at that? And my final question on the funding side of things, I absolutely appreciate that if you keep at your current level of spending, you’re funded through to €˜26. But given the progress that you’re making and the extra people that you’ve taken on board, presumably, you would be looking to accelerate this level of spend over the next couple of years against, which you would need to get some partnership income?

Those are my questions. Thank you.

Patrick Amstutz: Jo, very good questions, and let me kind of go through. And I think your last €“ the first one was sort of linked. So maybe I’ll actually take that one last, which is like FTE guidance €“ spending guidance, I’ll take that last, but I will start with the 533 trial. As you said, we guided 25 to 45 patients that is absolutely correct. There is a slide on dose escalation. I think the one thing to point out there is that we have to start with low doses as we do not have reactivity. So we’re in a naval setting. So we have a few patients low doses then spend to higher doses and can recruit more patients. So that’s kind of the one end. We definitely want to €“ and pending also obviously the progress we can include more.

It is definitely something we want to do, especially then at the higher dose levels to include more patients. At this point in time, for this year, just given the time we will have initial safety data of a good handful. I think it’s 10 plus or so patients. I mean, we are recruiting now. And so €“ and then we will also see initial efficacy results as this cannot drag on for a month, the activity has to show itself in the first weeks when you apply the drug. The caveat we want to give here and just to be also clear is there has been success in AML where some drugs have shown early results, but it didn’t last very long. So even if we see an early response for the real value that we are aiming for and because we’re targeting also the leukemic stem cells, we want to see activity by on just 1 or 2 months.