Genfit SA (GNFT) 2020 Q4 法說會逐字稿

Greetings, and welcome to the Genfit full year 2020 financial statement.

(Operator Instructions) Please note that this conference is being recorded.

I will now turn the call over to our host, Stefanie Magner, Vice President of International Legal Affairs.

Thank you. You may begin.

Thank you. And good afternoon, everyone. Thanks for joining us for this 2020 financial results call.

We just issued a press release providing our 2020 financial results, which also included useful reminders with regards to our 2021 road map and a review of key highlights of 2020. 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 accessibility of the PBC market, anticipated time lines and dates for clinical data release, regulatory approvals, expected commercial performance of our product candidates and our [provisional] cash burn. Although the company believes those 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, uncertainties inherent in research and development, including in relation to safety, biomarkers, [progression and even results] from our ongoing and planned clinical trials, review and approvals by regulatory authorities of our drug and diagnostic candidates; exchange rate fluctuations; and the company's continued ability to raise capital to fund its development; as well as those risks and uncertainties discussed or identified in our public filings with the AMF and 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.

Following the prepared remarks, we'll open up the call for questions that will be addressed by Genfit management. (Operator Instructions)

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

Thank you, Stefanie.

Let's begin with an overview of our 2020 financial results.

First, on the revenue side. Most of our operating income for 2020 comes from the research tax credit, which amounted to EUR 6 million compared to about EUR 8 million in 2019. In 2020, the revenue line is significantly below that of 2019, EUR 0.76 million versus EUR 31 million. And this is because, in 2019, we had a onetime event with the payment of $35 million upfront received from Terns Pharmaceuticals as part of the collaboration and license agreement for elafibranor in China.

On the expense side, R&D expenditures, general and administrative expenses, marketing and market access expenses and other operating expenses were reduced to approximately EUR 85 million in 2020 compared to about EUR 100 million in 2019. This reduction in operating expenses is a result of a cost reduction plan that we implemented in 2020. Since this plan implementation started towards the end of the year, its effects will obviously become more visible in 2021 and even more so in 2022.

In 2020, we had a financial loss of EUR 18.7 million compared to a financial loss of approximately EUR 8 million in 2019. This difference can be explained mostly by an exchange rate impact with the U.S. dollar weakening against the euro.

Let's now move to the cash position. No surprise here. As announced in our press release issued at the end of February, our cash and cash equivalents amounted to EUR 171 million as of December 31, 2020. This does not include the cost of a partial buyback by the company of its convertible bonds that was completed in January 2021.

You can find the detailed 2020 financial results in our press release.

Before we move on to a 2021 outlook, I would like to quickly go over some key highlights of 2020. And obviously for Genfit the main highlight, as you know, was when we announced in May the top line results from our Phase III results -- Phase III clinical trial in NASH. Those were disappointing results, as they did not meet the predefined primary end point. As you'll remember, the placebo response rate was higher than expected. Therefore, the difference was not specifically significant, and these results could not support a successful application for market authorization. We conducted an in-depth analysis of the RESOLVE-IT data. And given the low probability of success compared to the significant investments that would have been required to continue the program, we decided to terminate all studies related to the development of elafibranor in NASH.

In September, we announced our new corporate strategy which is now focused on 2 priority programs: one, the development of elafibranor in primary biliary cholangitis; and two, the development of solutions to better identify and manage patients in NASH, including our noninvasive NASH diagnostic technology NIS4. In order to enable the implementation of this new strategy, we also had to improve our financial position and create visibility and optionality ahead of our Phase III results in PBC that are expected in early 2023.

So as outlined in our corporate update from last September, our 2 financial priorities were to drastically reduce our cash burn and to renegotiate our debt. In order to reduce the cash burn, we first terminated all programs that were associated with a potential launch of elafibranor in NASH. And we also reorganized R&D, prioritized all programs to focus on a few with higher probability of success and higher commercial potential. We also implemented a restructuring plan that reduced the overall workforce by about 40% both in France and in the U.S., and we launched a large cost-saving plan to eliminate all nonessential expenses. All of those initiatives have been fully completed, and at the end of the day, we should be able to reduce our operational cash burn by more than 50% from 2020 to 2022. This means that we plan for an operational cash burn of about EUR 45 million in 2022, against a cash burn that was about EUR 110 million before the RESOLVE-IT data. Note that in 2021 it will be a transition year, as we will still have significant residual expenses from RESOLVE-IT as well as some restructuring costs. And therefore, our 2021 cash burn will be around EUR 75 million.

From November 2020 to January 2021, we led another major project which consisted in the restructuring of our convertible debt. As a reminder: We initially had an outstanding debt of EUR 180 million with a maturity date in October 2022. Following the negotiation with bondholders at the end of the year; and the 2 meetings, 1 with shareholders, the other 1 with bondholders, at the end of January, we essentially implemented a plan in 2 parts, a partial buyback and new terms for the bonds. Essentially we managed to cut the debt roughly in half from EUR 180 million to EUR 95 million, and we just spent about EUR 47 million to buy back those EUR 85 million. The maturity was pushed by 3 years until October 2025, which should give us ample time to make the most of our Phase III data in PBC if we're successful. It should be noted that, since this operation, the convertible debt has been further reduced due to conversions made by bondholders in January and February. In early March, the outstanding debt was EUR 63 million, so about 1/3 of its initial amount. So said differently, it's another EUR 30 million that have been canceled in Q1 2021.

So the second half of 2020 was very much dedicated to the restructuring of Genfit and adapting to our new reality, but I want here to really thank the teams that work very hard to execute on our strategy and deliver on key milestones in record time. Now in 2021, we're going to shift our focus to executing our plan and resuming our development.

Our first priority is the development of our drug candidate elafibranor for the second-line treatment of primary biliary cholangitis or PBC. In 2021, we will continue to actively enroll patients in our Phase III clinical trial ELATIVE that started back in September 2020. As a reminder: Elafibranor obtained promising results in a Phase II clinical trial evaluating its efficacy and safety in this indication. Results have been published in February 2021 in the Journal of Hepatology. And they essentially showed that, following 12 weeks of treatment, elafibranor demonstrated statistically significant results on the composite end point, the same end point that was the basis for regulatory approval for second-line treatment at 52 weeks of treatment. We believe that, beyond that efficacy, elafibranor might also bring additional benefits to PBC patients, especially on quality of life. And one of the reason why we are very confident in this development is also because we have, thanks to the RESOLVE-IT database, an extensive database of safety data with many more patients than in typical PBC trials. And this data have confirmed elafibranor's safety and tolerability profile. So far and despite the COVID pandemics which remain a concern across the globe, we are on track with our enrollment plan, so we maintain our guidance for top line results in early 2023.

So beyond the probability of technical success, we are also excited about the commercial prospects for our PBC program. We actually organized a PBC day in February that highlighted the potential for elafibranor in this indication. We heard from a couple of opinion leaders, Professor Kowdley in the U.S. and Professor Francque in Europe; and they explained that the unmet medical need remains very substantial in this space. We also shared some market research data from IQVIA, which obviously is a recognized leader in research and consulting services for the pharmaceutical industry. And these market research findings clearly showed that, if our Phase III is positive and if approved for commercialization, elafibranor product profile will make it an attractive alternative in a market that's estimated to be $1 billion worth by the time of launch. And I should point that this research was based on robust methodology not only relying on the analysis of analog markets but also in-depth interviews with about 28 opinion leader and 240 HCP across the world as well as 15 payers in both U.S. and in Europe.

So let's now talk about NASH. We will, unfortunately, not launch elafibranor in NASH, but we do know this market very well. We've been at the forefront of a quest to develop solutions for NASH patients for over a decade. And over the years, we have invested a lot to really understand this disease; the unmet medical needs of patients, HCPs, payers; and the constraints and the key drivers of this market. Although we strongly feel that there is a huge unmet medical need, we are also convinced that this market will never reach its full potential if there is no simple, reliable and cost-effective, noninvasive solution that's commercially available and accessible to diagnose and later monitor patients with disease. Just like the diabetes market needs HbA1c, the NASH drug market will also need a similar but fit-for-purpose noninvasive approach, with the goal of eventually alleviating the need for more invasive approach like for liver biopsy.

We are very encouraged to see an ever-increasing number of key biotech and large pharma companies that have integrated NIS4 technology into their NASH clinical trials and development program because that gives us confidence in the potential of NIS4 to become one of the few widely utilized technology in the field of NASH. As I've mentioned earlier, our partner LabCorp is about to launch a blood-based molecular diagnostic test powered by our NIS4 technology. It will be rolled out in the U.S. in the coming weeks and in Canada at a later time. This will be a major milestone, as it will make NIS4 commercially available to many health care professionals beyond clinical research and beyond liver specialty care such as hepatology. As a reminder: LabCorp is a world leader in the diagnostic industry, and they have chosen to launch a test now because they consider there is a real unmet medical need. We know that market growth will probably be ultimately linked to the availability of the first therapy, but there is still value in having a test now to educate a market, generate real-world evidence and demonstrate clinical utility to fully unlock access. In doing so, the testing markets will be primed and ready to expand as novel NASH therapeutics come to market.

Indeed, today, millions of patients with suspected NASH, including those with diabetes, prediabetes, obesity and other metabolic risk factors, can benefit from a more definitive assessment of NASH severity and fibrosis stage. This information will be empowering to HCPs and patients, who can now understand the state of their disease, downstream consequences; and act towards impact the progression of their disease. As you're all aware, lifestyle, behavioral and nutritional programs all have a potential to be highly efficacious in this disease. As already announced, we aim to create a subsidiary that's dedicated to the development of solution to aid in the identification, evaluation and monitoring of patients with NASH. One of the main objectives for this new structure is just to facilitate the implementation of future partnerships for diagnostic technologies, including NIS4; and have a clear delineation between our drug development activity and our diagnostic activity.

The last but not the least priority of our corporate strategy announced last fall was our pipeline. Following the R&D restructuring, we've now focused on our most promising program. And thanks to this focus, we should be in a position to shortly move some of those preclinical programs into the clinic. We will provide more details on early-stage programs during our mid-year corporate update. The exact date for this corporate update will be announced in the coming weeks.

Now to conclude, I will say that, since the RESOLVE-IT data readout in May 2020, we've managed to pretty much reinvent ourselves in a very short time. Most of the restructuring work is done. And we are in a much better financial position, thanks to a debt restructuring on one side and our reduced cash burn on the other side. We are now clearly focused on executing on our 2 priority programs, which in our opinion present a good probability of technical success and offer real commercial potential. And finally, our R&D engine should soon offer additional clinical-stage opportunity, and I'm looking forward to our next corporate update in June to discuss them in more details.

Thank you for your attention. And with that, I'll hand the call back to the operator for the Q&A session. Thank you.

Operator?

(Operator Instructions) Our first question comes from Thomas Smith with SVB Leerink.

I guess, first, like can you add any additional color on the early enrollment trends that you're seeing in the ELATIVE trial? And then I think you've been in the process here of incorporating the FDA feedback that patients won't need a mandatory paired biopsy to enter the study. Can you talk about your progress there and whether the feedback has been fully implemented at this point?

Tom, thanks for the question. So first of all, we are not commenting on the exact numbers of patients enrolled in the trial, so far. We might give a little bit more color during our mid-year call, but we are on track with what we plan, which is why we're sort of confirming the top line results beginning of 2023. Of course, the uncertainty remains the COVID situation around the globe, but we feel we've been fairly conservative in our planning. And therefore, we feel confident that we have that safety cushion, if you will. As far as the requirement for biopsy is concerned, that's been lifted. It's now optional. As I think we've discussed in the past, the initial request from the FDA was probably because of questions that they had from another program. And since -- our understanding is that some of those question have been answered. The FDA felt apparently much more comfortable. So we still ask that -- we ask a patient whether they will be volunteering for biopsy in order to improve the -- from a research perspective, but it's no longer a mandatory safety requirement. And in our view, based on historical precedent, we feel that maybe about 15% of patients should be volunteering. I don't know if, Dean, you want to add anything.

No. I think that was pretty comprehensive, Pascal, but the only thing I would add is that, as we had guided in the past, Tom, we had ongoing interactions with the FDA. And this was an important question for us. And we -- when we went back to the FDA to discuss this point, what we had in hand was the safety data coming from our RESOLVE-IT trial. So remember, where we -- continuously to have a clean safety profile, but we also had a wealth of histological data and which of course had no indication of any safety issues. And so we provided all of this data to the FDA and in our discussions with them that there was alignment following that interaction that the biopsy for the ELATIVE trial should only be on voluntary basis.

Okay, got it, got it. And then you also mentioned several preclinical programs that you're expecting to move into the clinic in 2021. And I understand you want to wait for the mid-year review to kind of outline exactly what those programs are, but can you provide any additional color on what types of assets or targets? Or should we think about adjacencies to PBC, rare liver disease, cholestatic liver disease? Just any additional color that you can provide would be really helpful.

We have -- so it's both additional potential indication for elafibranor and also new molecule. We are still in the space of liver disease and specialty liver disease. The reason why we are not providing more color right now is we're still finishing up some of our preclinical work. And depending on how it goes, we might prioritize one or two over the others. So that's why we're waiting for those to come in before we give more colors, but we are in that general specialty liver because that's where our sweet spot is from an experience standpoint.

Our next question comes from Ed Arce with H.C. Wainwright.

This is Thomas asking a couple of questions for Ed. Congratulations on the financial and operational achievements in 2020. Perhaps, first question, about the NIS4-based NASH diagnostics that is -- that will be available in coming weeks. Can you give us some details of this launch by LabCorp? And what are your revenue expectations for this year?

So we are not guiding on the expectations because it's really a LabCorp responsibility. The way the agreement work is that we continue to work on R&D and further developing NIS4, but LabCorp has really full responsibility for market access, marketing and sales. And therefore, we're not guiding and we're not providing more, but they might as they update on the launch, which again will be -- is really imminent.

Okay, understood. Perhaps just another question from us, regarding the new independent subsidiary for NASH diagnostics that was mentioned in the past. Can you give us some more details in terms of timing and the rationale of this implementation this year?

Sure. So the rationale is really, in order to further develop NIS4 and -- diagnostic and then beyond diagnostic [over] solution, it's going to be really a partnership with companies that are currently developing drugs in the NASH space. And in some of early discussion with them, we sensed that for some of them they still saw us as a potential competitor, a company that had developed a drug in NASH and might come back into the NASH space. And that was, in a way, a barrier to really sort of in-depth collaboration and sharing of data and us sort of developing custom-made diagnostic solutions for them. And by discussing with them, which are now our customers, in a way, we identified the -- that need to create a separate structure with a Chinese wall, if you will, between our drug development activities and our diagnostic and solution activity. And we feel that, by doing this, we will be able to really sort of have more of a partnership and more in-depth partnership. So in terms of timing, we are working on it right now. There are a few sort of legal question in order to make sure that we have the right setup. And there are a few tax implications that affect the timing, but clearly it's a matter of months before it's implemented in any case before the end of the year.

(Operator Instructions) Our next question comes from Geoff Meacham with Bank of America.

This is Aspen on for Geoff. Just first off, on NIS4, maybe you can talk about a little bit more about what you're seeing in terms of uptake in the clinic. And like what kind of mass studies or what phase of studies are you seeing NIS4 most applicable to?

Sure. Thanks for the question. So we are very encouraged by the reception we got from sponsors of NASH clinical trials. So currently we are used in about a dozen NASH clinical trials at various stage, some early stage, Phase II, Phase III. So we can't comment on actual sponsors, but just looking at the number, it's a majority of current NASH trials that are using our technology. And we have various arrangements with the sponsors. In some cases, it's a fairly direct collaboration. In some cases, they are just buying the test from Covance, but it's being used. And the feedback we are getting is also very positive in terms of -- so 2 things really that we are hearing. First is the ability to reduce the number of unnecessary biopsy. When you just screen all coming patients and do a biopsy, in typical NASH trials, the failure rate is about 70%. So that's a lot of unnecessary biopsy. Each biopsy in a clinical trial setting is about $5,000, so it's a lot of money, but it's also a lot of unnecessary, invasive gesture for the patients. So by sort of prescreening with NIS4, we hear that they can very much increase that hit rate, if you will, and pretty much get rid of the majority of those unnecessary biopsy. The other things that we're hearing is that they've been -- some of the sponsors have been using this for even retrospectively in previous clinical trial and really sort of mapped its evolution with disease progression and sort of baseline NIS4 with prognosis, which we think is also something that's extremely interesting. So as I mentioned earlier, for us the importance of being in this R&D space is really that, the more sponsors will be using that technology, the higher of a likelihood that, when those drugs ultimately come to market, they will be using NIS4 technology in order to identify and monitor patients.

Got it. That's helpful. And one follow-up: So on the new pipeline that you guys are hoping to announce, I think you said, mid-year, I guess you don't have to necessarily go into the details of what indications you're looking at, maybe on a more high level. Are you using this new pipeline to expand into other liver indications? Or is it more of an opportunity to dive down more so into sort of the indications you've already looked into as a company?

No, it's new indication. It's new indications, some new indication for elafibranor, some new indication for other molecules, but it's all in different indication.

Ladies and gentlemen, there are no further questions at this time. I'll turn it back to management for closing remarks. Thank you.

Thank you.

So I think, that said, as I said, it's been a heck of a ride since the RESOLVE-IT data, but we now feel that the restructuring part is behind us. And now we are moving forward with the new strategy and really focused on the execution of that corporate strategy. Thank you. And we'll talk again sort of mid-year, and we'll give you that update on the strategy in general and R&D in particular.

Thank you very much.

Thank you. This concludes today's conference. All parties may disconnect. Have a good evening.