Genfit SA (GNFT) 2021 Q2 法說會逐字稿

Good day, everyone, and welcome to the GENFIT First Half Year 2021 Financial Results and Corporate Update Call. Today's call is being recorded. At this time, I would like to turn the conference over to Stefanie Magner, Chief Compliance Officer, VP, International Legal Affairs. Please go ahead.

Thank you, and good afternoon, everyone. Thanks for joining us for our 2021 half year financial results call. We just issued a press release providing our 2021 half year results. This press release can be accessed on our website at ir.genfit.com. During our call, including during the Q&A session, we'll be making forward-looking statements with respect to GENFIT, including those within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our new strategy and objectives, size and relative or accessibility of the PBC market, anticipated time lines and dates for commencement of clinical studies as well as clinical data release, in particular for our ELATIVE trial, probability for successful results in our ELATIVE trial, regulatory approvals, expected commercial performance of our product candidates and our provisional cash burn.

Although the company believes that statements are based on reasonable expectations and assumptions of the Company's management, these forward-looking statements are subject to numerous known and unknown risks and uncertainties, which could cause actual results to differ materially from those expressed in or implied or projected by the forward-looking statements. These risks and uncertainties include, among other things, the uncertainties inherent in research and development, including in relation to safety biomarkers, progression of enrollment and timing of data release and outcomes of our ongoing and planned clinical trials, review and approvals by regulatory authorities of our drug and diagnostic candidates, impact of the ongoing COVID-19 pandemic, exchange rate fluctuations in the Company's continued ability to raise capital to fund its development as well as those risks and uncertainties discussed or identified in the Company's public filings with the AMS and the SEC. These forward-looking statements speak only as of the date of this broadcast. Other than as required by applicable law, the Company does not undertake any obligation to update or revise any forward-looking information or statements, whether as a result of new information, future events or otherwise.

Joining me on this call is Pascal Prigent, our CEO; and Tom Baetz, our CFO. Following the prepared remarks, we'll open up the call for questions that will be addressed by GENFIT management. Please limit yourself to one initial question to allow time for others.

I now turn over the call to our CEO, Pascal Prigent.

Thank you, Stefanie, and good afternoon, everyone. Thank you for joining us to discuss GENFIT's 2021 mid-year results. It has been a busy first semester, and I am pleased to report that we have made important progress on a number of fronts since we last spoke earlier this year.

But before I update you on where we are with our programs, I'd like to turn the call over to Thomas, who will provide you with a short overview on our financial results for the first semester.

Thank you, Pascal. So starting with our cash position. As of the end of June 2021, GENFIT had EUR 104.4 million in cash and cash equivalents compared to EUR 171 million as of the end of 2020. This resulted essentially from the EUR 47.5 million spent in January for the partial buyback of the OCEANE bonds. This cash position also included the non-dilutive state guaranteed loan amounting to EUR 11 million obtained in June.

Regarding the partial buyback of the OCEANE bonds, in January, GENFIT announced the success of the partial buyback offer and amendment of the terms of its OCEANE bonds. The renegotiation of the bond debt has enabled the Company to defer debt final maturity date from October 2022 to October 2025 and to reduce its principal amount by EUR 86 million, using just EUR 47.5 million of cash.

The conversion ratio went from one OCEANE for 1 share to one ocean for 5.5 shares. Our convertible debt has been further reduced due to the conversions made by bondholders after the renegotiation. These conversions were mainly concentrated in January through March and according to the latest count as of the end of August 2021, the number of outstanding OCEANE bonds went from 6,081,081 down to 1,923,662. And the principal amount of the convertible debt decreased from EUR 180 million to EUR 55.9 million.

Regarding the non-dilutive state guaranteed loan of EUR 11 million. The loan was granted in June in the context of the COVID-19 pandemic by a syndicate of 4 French banks. It is 90% guaranteed by the French government. This loan has an initial term of one year with repayment options up to 6 years. Also in July after the first half period -- the first half year period -- sorry, GENFIT obtained an additional loan of EUR 2 million from Bpifrance under similar terms, including the 90% guarantee by the French government. Note that this amount is not including in the June 30 cash position.

Now moving to the operating income. In the first half of 2021, our operating income amounted to EUR 3.4 million compared with EUR 5.9 million in the first half of 2020. This essentially came from the research tax credit of EUR 3.2 million compared to EUR 5.2 million for the first half of 2020, which is in line with the reduction of the expenses eligible for the research tax credit.

On the operating expenses side. The operating expenses amounted to EUR 33 million in the first half of 2021 compared with EUR 55 million in the first half of 2020, of which 70% represented R&D expenses. R&D expenses decreased from EUR 36.9 million in the first semester from -- sorry from EUR 36.9 million in the first half of 2020 to EUR 23.1 million in the first half of this year, mainly due to the discontinuation of the RESOLVE-IT study.

The marketing and market access expenses decreased from EUR 9.5 million in the first half of 2020 to EUR 0.8 million in the first half of 2021 due to the discontinuation of the pre-commercialization work for elafibranor in NASH. The general and administrative expenses also decreased mainly due to the implementation of the cost saving plan announced in September 2020.

A word about labor costs. The total employee expenses amounted to EUR 8.6 million in the first half of 2021, down from EUR 11.2 million in the first half of 2020. This resulted from the significant reduction in headcount, following the workforce plan implemented in late-2020. The financial results amounted to EUR 35.7 million in the first half of 2021 compared with EUR 4 million in the first half of last year. Most importantly, this included a one-off financial income of EUR 35.6 million, corresponding to the repurchase bonus from the partial buyback of the OCEANE bonds in January. The net income of GENFIT for the first half of this year amounted to EUR 9 million, including this one-off repurchase bonus, compared to a net loss of EUR 53 million for the first half of 2020.

Overall, we are on track with our cost control plan. Year-over-year, our headcount decreased by 40%, our operating expenses decreased by 40% as well. Our cash used for operating activities decreased by 39% from EUR 45.4 million in the first half of 2020 to EUR 27.8 million in the first half of 2021.

Our cash burn forecast for both years, 2021 and 2022, remains in line with our previous communication that is a cumulative EUR 120 million approximately, excluding the cash used for the partial buyback of the OCEANE bonds. Finally, in our projections, we now take into account the launch of the new R&D programs announced in May as well as the anticipation of regulatory preparation expenses in connection with elective development program.

I now turn the call over to Pascal for the update on our program's progress and perspectives.

Thank you, Thomas. Let's start with our main program, the development of our drug candidate, elafibranor, in primary biliary cholangitis, or PBC, with our Phase III elective trial. The key there is obviously the dynamic of patient recruitment, and we are pleased to report that it trends broadly in line with our expectations.

The context is challenging because the COVID-19 pandemic is still active, more so than we anticipated originally, and this is due to vaccination rates that are lower than what we had estimated both in the U.S., where it has plateaued a bit and also in some areas like LATAM, where it is still lagging. However, we have built in those difficulties into our plans and the measures that we have taken to facilitate patients' enrollment in this environment have been well received and appear to be working. So we foresee completion of patient recruitment in the first quarter of 2022. We say this with some degree of confidence as our estimate for last patient enrolled is actually mid-January in our optimistic scenario and end of March for a pessimistic scenario. So in any case, during the first quarter of 2022. So based on this timing, we think we should be announcing top line data readout between the end of the first quarter and the middle of the second quarter 2023.

Our regulatory group has done a pretty good job of revising and optimizing the time line to prepare the dossier, and we now anticipate based on their latest estimate that we should be filing, assuming, of course, that the Phase III is successful, roughly 6 months after the top line results. So that is to say, as early as Q3 2023 in the optimistic scenario. So in any case, we now feel that E4 Phase III results were positive, the potential approval would take place in the second semester of 2024. So we continue to be very enthusiastic about this program. First, we feel strongly that the Phase II data that we detailed in a peer-reviewed article published in February in the Journal of Hepatology is robust and very encouraging. Second, we believe that the commercial opportunity is clear. Our research that we shared earlier this year during our PBC day indicate that this market could be worth over $1 billion by the time we could expect to launch in the second half of 2024. And we also believe, based on our market research, that we could have a very desirable product profile.

So to conclude, I will say that we feel quite good about the potential of elafibranor in PSC and the progress according to what we are seeing with the Phase III despite the challenging context. And we are excited that we are now getting closer to this next catalyst.

Let's talk now about diagnostics in our NIS4 business. And here, we have a more nuanced picture. On the one hand, we are making good progress on the R&D side and after the publication in the Lancet last year showing NIS4 performance relative to other technologies to identify NASH patients with advanced fibrosis, we presented new data in June at the International Liver Congress but highlighted the usefulness of NIS4 technology to identify address patients with and without type 2 diabetes.

As we continue to generate more compelling data, we expect to see more publication and communication later this year, but we'll continue to strengthen the growing body of evidence supporting the use of NIS4 technology in identifying those NASH patients that are most at risk. We also see continuous interest among the sponsors of NASH clinical trials to use NIS4 technology in their studies, and we believe it is a positive signal regarding the future use of a test should vest products make it to the market eventually.

On the other hand, we are seeing a slow uptake of NASHnext, which is a NIS4 based product that is sold by LabCorp in the U.S. after a few months of commercial availability. It is obviously still early days, but the lack -- the current lack of reimbursement and most importantly, the lack of approved NASH therapies are 2 major hurdles for the development of the product. We will obviously continue to monitor the progress of the launch, and we will update you when we have a little bit more time in the market to start drawing meaningful conclusion.

So to conclude on the diagnostic, I will say that we remain convinced that there is a strong unmet need in the market for a tool that's easy to use, noninvasive and cost-effective to reliably identify at risk NASH patients. But at the end of the day, we know NASH Israel products will eventually make it to the market and patient identification will be absolutely key to commercial success. What, however, remains to be seen is how soon this diagnostic market will materialize.

Let's now talk about the pipeline. In May this year, we outlined our new R&D strategy and our move from a NASH-centric research to one that was focusing on unmet medical needs in ACLF and in cholestatic diseases. We now have the first tangible results of this new approach. In ACLF, our acute on chronic liver failure, a high unmet need market with an estimated 180,000 patients in the U.S., for which there is currently no approved treatment. We are moving forward with a Phase I trial evaluating NTZ following extremely encouraging preclinical results. We expect the first results to come as early as Q3 next year, and we hope to be able to confirm NTZ potential in a market that's currently estimated at about $4 billion a year in the U.S. alone.

We are also starting a Phase II proof-of-concept study evaluating elafibranor in primary sclerosing cholangitis or PSC. This is a severe cholestatic disease with about 50,000 eligible patients in the U.S. and EU. And currently, there are no therapeutic options today. We think that our current data sets with elafibranor provide confidence starting this POC study to assess its potential for future development. This study should read out by the end of next year.

And finally, we have decided to start a third study that is exploring the use of elafibranor on PBC patients who are treatment-naive. In this study, we will pay close attention to quality-of-life indicators as we think this is an absolute must from a patient perspective. In particular, we will be looking at the impact elafibranor might have on pruritus, fatigue and other indicators like patient quality of sleep. This study should read out in early 2023.

So, we are excited to concentrate our efforts on these therapeutic areas where we believe there is a strong unmet medical need and where we believe also we have a greater stances of success with our assets. We are hopeful that we will see results that will be supportive of future development, and that's coming in the near-term since we should see the first results of these studies less than a year from now, as I was saying, Q3 next year. And then we expect a steady stream of data after that like roughly every 2 months to 3 months.

Last but not least, I want to highlight again the 2 important financial items that were touched upon by Thomas earlier. First, the successful outcome of convertible debt restructuring has allowed us to regain some levy. This was critical for GENFIT and a top priority as we negotiated the turn from '20 to '21. Last year, we owed EUR 180 million by October 22, and now we are less than EUR 57 million and is not due before October 25. So this will give us ample time to leverage our PBC data.

We also have benefited from the non-dilutive financing of a state guaranteed loan for EUR 11 million in June and an additional EUR 2 million in July, that additional EUR 2 million not being included in our June 30 cash position. And again, that will help us get more financial visibility.

And then as Thomas has indicated, the efforts we highlighted last year did materialize, and we delivered both on our headcount objective and on our cash savings objective. So we can, therefore, confirm that we are in line with our operational cash burn objective of EUR 120 million over the '21, '22 period, and this is achieved while funding our new R&D efforts and additional studies.

So, now before I open the floor to your question, I also would like to take a step back and thank the GENFIT teams for what they have accomplished since we came before you almost exactly a year ago to highlight what was our new strategy following the disappointment of the RESOLVE-IT results.

All right. With that operator, let's open for Q&A.

(Operator Instructions) And first, we'll go to Thomas Smith from SVB Leerink.

Just a couple from our end. First on the ELATIVE trial. Can you give us any additional color on some of the current enrollment trends? Any sense quantitatively of how far along you are in terms of enrollment to-date? And then you mentioned taking some measures to try to mitigate some of the COVID-19 related enrollment issues. Can you walk us through some of the steps you're taking here? Are you opening more study sites or expanding your patient outreach efforts? Or just kind of walk us through some of the steps you're taking to mitigate some of the enrollment challenges.

And certainly, as Pascal indicated, we're very much aligned with our expectations of enrollment in ELATIVE. And I think you've probably seen some of the information in terms of the number of sites that have been activated on the clinicaltrials.gov website. Certainly, it's a very dynamic situation as we continue to have new sites and new countries becoming activated, while at the same time, balancing what remains some uncertainty in the COVID pandemic. All of this taken together, however, we're very happy with the progress that we have achieved, and we use recruitment modeling tools to take into consideration available information to help us better understand when we may anticipate the completion of enrollment. And as Pascal said, we've got a good level of confidence that we're aiming to achieve that by the first quarter of 2022. And certainly, looking for opportunities that we can continue to support our clinical sites as it pertains to the evolving situation with the pandemic. And we, like many others, who are conducting clinical trials have incorporated flexible methodology to permit on-site lab testing, follow-up of safety by telephone, the possibility of shipping, study drug to patients' homes. So we're maintaining maximal flexibility to better enable patients to be able to participate and to better support our study sites in the process.

And just to add to what Carol just said, I mean, the so-called concierge service that we've added to make life of our patient easier and I mean, they're not free, but they've been really well received by both our investigators and the patients. And clearly, they appear to be working, and we're seeing a nice uptake, and we believe that those services have been ought to thankful for that.

Okay. Got it. Yes. And that makes sense. Thanks for the insights there. And then maybe lastly on patient enrollment, if you could just speak a little bit more broadly, I guess, to some of the other potential headwinds to enrollment. I mean I think we all understand some of the enrollment challenges with COVID-19, but maybe can you just talk a little bit about how much competition you're seeing for these second line PBC patients between the commercially available option in Ocaliva, and you obviously have a competitor who's also enrolling a Phase III pivotal study in this setting. I guess what sorts of assumptions are you making around some of these other potential enrollment challenges?

Thanks, Thomas. So again, very good questions. And certainly, when we think about PBC as a rare disease, it certainly stands to reason that there may be competition across different studies that are ongoing. And as you point out, it is a highly competitive environment for sure. But that having been said, we're finding that the vast majority of our sites are not enrolling patients for competing trials. So we're not really seeing this as a major headwind, as you framed it. Rather, we think that it's likely due to the further reaching effects of COVID, not specifically at the patient level so to speak. But what we're finding is that many of our study sites are in specialty centers, referral centers, academic centers, many of which are conducting COVID-related research. And so simply, the volume that -- when you think about the finance review of contracts and so forth, ethics committee reviews, it's simply the volume of research that's ongoing in these centers. We've also seen that some of our study sites have been impacted in terms of having sufficient staff available due to challenges presented by COVID.

And lastly, certainly not least, some of the countries that -- we are working with Latin America, for sure in terms of just the time that is necessary to get the appropriate reviews by health authorities. And so as some of these countries come online, we're anticipating seeing a robust uptick in enrollment towards the end of this calendar year.

And -- I mean, just to be clear. Right now, we have not really seen a negative impact from other trials. As Carol pointed out, the main issues that we've been facing have been around the sort of bureaucracy and the system being clogged by others COVID-related trial. But at least up until now, and we will obviously continue to monitor this very closely, but we haven't seen a negative impact from competing for patients, so to speak.

And next, we'll go to Ed Arce from H.C. Wainwright.

Hello, everyone this is Thomas Yip asking couple of questions for Ed. First, congratulations on the progress so far in 2021. The first question from me for -- is for diagnostic. Can you go over some metrics that investors should focus on? And what -- internally, what are your goals for the next 6 months and 12 months and beyond as well?

Hi, Thomas. Thank you. Well, we're not guiding with specific metrics at this point because we think it's too early. We want to have a discussion with our partner, LabCorp first to understand. I mean we only have a few months post launch. And as I'm sure you realize this has been a very complex environment with COVID and especially in the testing space where everybody involved in testing with extremely busy, running thousands or millions of COVID-19 tests. So the feedback we were getting was -- okay, it's a very unusual environment, and it's a little bit difficult to read. What we do -- we do have some qualitative feedback and the qualitative feedback, as I was saying, was that the lack of reimbursement and probably even more so the lack of approved therapies in NASH and also the fact that in all likelihood, it's -- we are relatively far from having an approved therapies in NASH. All of that creates an environment where it's been challenging for the commercial team of LabCorp. But again, they themselves say, it's been only a few months. Let's make sure that we really understand the feedback and adjust the strategy if necessary.

So again, at this stage, too early to give quantitative guidance. And we'll come back to you on this when we have a little bit more insight probably by the end of the year.

Understood. Perhaps one follow-up question for me, if I may, regarding your new indications, specifically the Phase I NTZ study in ACLF. Is it still on target for initiation in the fourth quarter this year and from what we understand is safety, PK and [PD] study, what are some key endpoints that investors should focus on?

Thomas, thanks for the question. And so yes, our nitazoxanide Phase I study is on track for initiation in the fourth quarter of this year. As you point out, this is a relatively straightforward Phase I study in which we will be evaluating subjects with compensated cirrhosis, hepatic impaired individuals so that we may better understand safety and pharmacokinetic profile of nitazoxanide in these individuals relative to healthy volunteers with normal hepatic function. And this will be, of course, very important before we give consideration to going into what next step would be as a proof-of-concept study in an acutely ill hospitalized patient population. And so of course, we want to ensure that we, in that study would be administering a proper dose and be mindful of any potential safety signals. So hopefully, that helps you safety, tolerability, PK, as you outlined, is first and foremost in this upcoming study.

And next we'll go to Geoff Meacham from Bank of America.

It's Aspen on for Geoff. So just a couple for me. First off, on PSC. I just wanted to see if you've received any additional feedback from FDA. I know that trying to figure out what an approvable kind of study and endpoint will look like it's kind of still in the works. I just want to see if you've had any additional feedback in terms of what that could end up looking like? And then secondly, on the NASH diagnostic. Could you maybe help characterize the NASHnext uptake so far in the commercial setting, understanding that it's been a little slow to start, given the lack of a therapy? Just kind of wanted to understand what some of the early adopters look like that are using NASHnext in the commercial setting?

Geoff, thanks for the question about PSC. So I'll address that question, and then I'll hand back to Pascal to address the question pertaining to NASHnext. So yes, we have a very well-developed study protocol for our PSC proof-of-concept study, which is planned to initiate before the end of this calendar year. That protocol has been submitted to our IND. And so now we're working with the CRO in terms of refining study startup related activity, site selection and what have you. Clearly, this proof-of-concept study will guide our next steps in terms of engaging with health authorities like FDA to better frame what ultimately would be a pivotal study. And as you're well aware, there are no approved therapies for PSC nor are there clearly defined regulatory path for approval. So the next discussion after this proof-of-concept study, as we engage with FDA, will be a critical discussion so that we may better understand what would be the primary endpoints and optimal design for what would be a pivotal study. Hopefully, that addresses your question.

Regarding the NASH diagnostic. Again, it's early and too early to give numbers. But qualitatively, the type of physicians that have used NASHnext, it can almost be defined in contrast to the challenges I was exposing earlier. So those are -- I mean, the feedback we are getting is their doctors that do believe that in order to have a stronger call to action with the patients, the test can be used to really motivate them to start lifestyle modification, gets into more diet and exercise. And what they're saying is, look, we've been telling them for some time for years that they should be doing something about their health and change their lifestyle, but it's very difficult. And by using the diagnostic, it can really sort of motivate them. It's a strong call to action because now the sort of negative consequences of that lifestyle become more apparent. So that's one.

And then number two, those are physicians that tend to have a more affluent patient base because for a lot of patients, the current lack of reimbursement is an issue. So those that are maybe more affluent have less hesitancy. But as I said, that base right now is still very limited. So the discussion we will be having with LabCorp in the immediate future is how can we accelerate access and reimbursement and then I think the -- there are few ideas around the -- how to position the test and address the question of lack of available NASH therapies. But short-term access is going to be the critical factor in the coming months.

And now I'll turn it back to Pascal Prigent for closing remarks.

Thank you for all your interesting question, as always. So to conclude, it's important to remember that a year ago, we said we had 4 corporate priorities. The first one was about the execution of our Phase III PBC trial ELATIVE. At the time, we had just included the first patient, and we were targeting Q1 2023 for high-level results for a possible launch in 2025. Today, despite the significant COVID-related challenges, we are broadly aligned with the initial time line for study completion and believe we should be in a situation to actually file earlier than expected with a potential commercialization in the second semester of 2024, if the results are positive.

The second element of our strategy was about securing the launch of a novel diagnostic test base on our technology NIS4. The launch has now taken place. And [although the uptake], as we just discussed, is affected by access challenges as well as the time line of NASH drug availabilities, we are strengthening NIS4 supporting growing body of evidence and we are positioning ourselves for the future.

The third priority was about pivoting our R&D from NASH to new therapeutic areas where we saw immediate and less risky potential. And today, we have reorganized and rationalized our R&D. And this new focus is allowing us to move forward with the 3 new studies that will create a steady stream of potential catalysts, starting as early as September next year.

And finally, we had outlined the necessity to cut our expenses, lower our cash burn to about EUR 120 million between the year 2021 and 2022 as well as bring our total workforce to about 130 from over 200 headcount before the RESOLVE-IT results. So we have already realized the savings we announced, while funding the additional R&D that I highlighted earlier and our headcount at the end of June was 122. So again, we met what we announced last year. And finally, we eliminated the challenge posed by our convertible debt and believe that, thanks to the continued support from our shareholders and our bondholders, we are now very well positioned for making the most of the exciting 18 months that are ahead of us.

With that said, thanks everyone, and looking forward to our next update.

And that does conclude our call for today. Thank you for your participation. You may now disconnect.