Genfit SA (GNFT) 2022 Q4 法說會逐字稿

Good day, and welcome to the GENFIT Full Year 2021 Financial Results and Corporate Update Call. This call is being recorded. At this time, I would like to turn the conference over to Stefanie Magner. Please go ahead.

Hello, everyone, and thank you for joining us on our 2021 full year earnings call and corporate update, which comes following publication of our annual results press release last night. The press releases can be accessed via our website at ir.genfit.com. Joining me on the call today are Pascal Prigent, CEO; and Tom Baetz, CFO.

Before we begin, I'd like to remind everyone that statements made during this conference call, including the Q&A session relating to GENFIT's expected future performance, business prospects, events or plans, including clinical plans, regulatory approvals, anticipated time lines for clinical development and study enrollment and expected cash used in our operational activities are forward-looking statements as defined under the U.S. Private Securities Litigation Reform Act of 1995. They're based on management's current assumptions and estimates, which although believe to be reasonable, 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.

For a further discussion of the material risks and other important factors that affect our business operations and financial results, please refer to those contained in our most recent filings with the SEC and AMS. These forward-looking statements speak only as of the date of this webcast and 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.

Following the prepared remarks, we will open up the call for questions that will be addressed by GENFIT management. Please limit yourself to one initial question which to allow time for others.

I'll now turn the call over to our CFO, Tom Baetz.

Hi, everyone. Thank you for joining us. Today, I will provide a financial recap essentially focused on the second half of 2021 since we already gave a detailed update last September on the company's finance deals for the first half of last year. First, I would like to refer to the press release issued yesterday evening for a summary of our financial results for 2021. Our revenue and other operating income for 2021 amounted to EUR 85.6 million compared to EUR 7.8 million for 2020. Our operating expenses amounted to EUR 53.8 million in 2021, down from EUR 90.7 million in 2020. As a result, in 2021, GENFIT generated consolidated operating income of EUR 31.8 million compared to an operating loss of EUR 82.9 million for the previous year.

Our financial results for 2021 was a financial income of EUR 37.7 million compared to a financial loss of EUR 18.8 million for 2020. As a result, GENFIT generated a net profit of EUR 67.3 million in 2021 after deduction of a corporate income tax expense of EUR 2.2 million compared with a net loss of EUR 101.2 million in 2020. Our total financial debt decreased from EUR 185.7 million, down to EUR 74.2 million. As of December 31, 2021, GENFIT had EUR 258.8 million in cash and cash equivalents compared to EUR 171 million at the end of 2020.

Now that you have numbers in mind, let me give you some color and explain where these figures come from. So first, briefly touching upon the revenue and other operating income. Our revenue essentially came from the EUR 120 million nonrefundable upfront payment received from Ipsen in December 2021, out of which EUR 80 million was recognized as revenue in 2021 and EUR 40 million was booked as deferred revenue and will be recognized as revenue in subsequent years following the completion of the ELATIVE double-blind study. Other operating income included mainly the research tax credit granted by the French tax authorities, which amounted to EUR 5.3 million in 2021.

A word on our cost control plan. In late 2020, we started a reorganization and restructuring plan, including a significant reduction of our headcount and cuts in nonessential expenses, which had continuing effect throughout 2021. Our R&D expenses, G&A expenses, marketing and market access expenses and other operating expenses were reduced by EUR 31.7 million from EUR 85.3 million in 2020, down to EUR 53.6 million in 2021. Besides the onetime expenses associated with the implementation of these cost-saving measures decreased significantly from EUR 5.3 million in 2020, down to EUR 0.1 million in 2021, including, among others, the reversal of certain impairment losses and provisions previously booked in 2020.

At the beginning of 2021, we achieved a great success as we managed to drastically reduce the amount of our outstanding convertible debt, the nominal amount of which now stands at just EUR 56.9 million. That is 1/3 of its initial amount. This was completed through the renegotiation and partial buyback of the convertible bonds in January 2021, pulled by the conversions of nearly 4.1 million convertible bonds into ordinary shares, which took place in the following months at some of the bondholders' requests. At the same time, the final maturity of our convertible debt was extended by 3 years from October 2022 to October 2025. These new conditions negotiated with the convertible bondholders were approved by more than 98% of the shareholders that took part in the vote. We thank them for their continued support.

The partial buyback generated a onetime bonus of EUR 35.6 million, which is included in our financial income. Together with the conversions that took place after January 2021, it also contributed to reducing our financial interest expenses from EUR 11.6 million in 2020, down to EUR 4.8 million in 2021. Later in 2021, we obtained 3 non-dilutive loans, which were granted in the context of the COVID-19 pandemic for a total amount of EUR 15.25 million.

In more detail, in June 2021, we obtained a loan of EUR 11 million from a syndicate of 4 French banks. This loan is backed by the French state, up to 90%. It carries an initial term of 1 year with repayment options up to 6 years. In July, we obtained a loan of EUR 2 million from Bpifrance under similar terms, including the French state guarantee. In November, we obtained an additional subsidized loan of EUR 2.25 million from Bpifrance with an initial term of 6 years.

Now about our cash position as at the end of 2021. This position was largely due to the EUR 120 million upfront payment received from Ipsen further increased by EUR 24 million of collected VAT as well as the Ipsen's EUR 28 million equity investment in GENFIT, both of which were finalized in December 2021. This strategic partnership is a landmark deal and one of the largest signed by a French biotech with a pharma over the last few years. From a financial standpoint, the size of the upfront payment loan was quite significant, and the equity stake in GENFIT capital was taken at a premium compared to the stock price at the time of the deal.

In addition to the upfront and the equity payments, we are also eligible to receive substantial milestone payments up to EUR 360 million with about 50% receivable upon the achievement of development milestone events. Under the terms of the deal, we are also eligible to receiving tiered double-digit royalties up to 20%, which may provide a regular revenue stream to finance our research into the future.

Next to this, it's also important to realize that Ipsen will be responsible for all further clinical development of elafibranor [bearing] the completion of the ELATIVE double-blind study, which means they will finance a long-term extension period of the trial that is required by the FDA to grant full approval and any additional trial relevant for the life cycle management.

Finally, in our projections, well, first, it should be noted that we will make payments up to EUR 30 million in the first half of 2022, comprising collected VAT and corporate tax in connection with the initial payment received from Ipsen last December. Besides this, as we continue our efforts to identify product candidates with the highest potential under preclinical studies and clinical trials and advance the development of our diagnostic tests, we expect that the cash used in our operational activities will increase to EUR 65 million in 2022. This amount does not include potential expenses we may incur in the future business development activities, such as in-licensing.

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

Thank you, Thomas. Obviously, 2021 was a critical year for GENFIT. And after the disappointing end of our development program in NASH, it was essential to pivot and execute the strategic plan we developed and presented to you at the end of 2020. You will recall that our plan had 3 parts. The first was to improve our financial position. The second was to accelerate our remaining programs and specifically the transition of our late-stage development efforts from NASH to PBC, and the third was to build a richer, more diversified pipeline.

So let's start with the financial visibility. I mean, as evidenced by Thomas' presentation, we start 2022 in a totally different place from a financial standpoint. The EUR 180 million of convertible debt has been divided by 3. And instead of being due 6 months from today, its maturity is now in Q4 2025. The combination of Ipsen deal and the state COVID loans has brought us over EUR 135 million of non-dilutive financing and Ipsen's equity stake has brought us an additional EUR 28 million and was relative for our shareholders.

In terms of cash burn, you heard that our operational expenses were almost reduced by half in 2021. Obviously, going forward, the Ipsen deal gives us even further flexibility both because of forecasted expenses will not go down as you've heard, most development costs related to elafibranor will now be supported by Ipsen. And of course, on the revenue side, because we will now have additional revenues as we will be expecting milestone payments in later royalties. So we now have much greater financial visibility, and this will allow us to continue to execute our R&D programs. It will also give us the possibility to strengthen our pipeline if we find the right opportunities.

Let's now move to our second corporate priority, which was to advance our 2 remaining lead programs, elafibranor in PBC and our diagnostic for at-risk NASH patients. The challenge for our clinical team was substantial in 2021. Indeed, they needed to properly terminate RESOLVE-IT, our Phase III trial in NASH, while simultaneously execute ELATIVE, our Phase III trial in PBC that was initiated at the end of 2020. It is not a small task to close the trial as large and complex as our Phase III NASH trial. And this exercise was not futile because the data are going to be important for us in our elafibranor PBC dossier. Indeed, it will give us a very strong safety database with data on thousands of patients who have had years of exposure to elafibranor. That's a lot more data, but what we would have been able to develop if we had developed elafibranor in PBC only.

The team did a great job last year with a timely delivery of high-quality CSR or clinical study report, and all this work is now behind us. While they were performing the tasks necessary for the closing of RESOLVE-IT, our clinical team was also working hard on starting and then running ELATIVE. This challenge was made significantly more complex by the COVID pandemic. However, we were able to minimize disruption to operation and mitigate pandemic-related risk for the patients through concierge services, virtual visits and a host of other measures.

As mentioned in our latest communication, the latest wave in the pandemic did affect our time line somewhat as we saw a drop in recruitment at the end of 2021 due to the highly contagious omicron strain. Fortunately, our recruitment numbers rebounded significantly in the first quarter of this year as the pandemic situation normalized. Thanks to this, we are now nearing the end of enrollment and we'll stop screening for new patients today or tomorrow actually. Therefore, we reaffirm our commitment for top line data readout in the second quarter of 2023, in line with our previous guidance.

Besides elafibranor, we have another late-stage program. So let me say a few words about the development of our diagnostic franchise, as 2021 was a critical year for NIS4 technology as well. As previously communicated, we do not see a significant market opportunity for NASH diagnostic as long as there isn't a drug approved for NASH. That being said, we remain absolutely convinced that once the drug is approved and it will happen eventually, it will be essential to have a simple, noninvasive test to identify at-risk patients. Once that market exists, it will grow very quickly.

Thus, our strategy is twofold. First, make sure that drug developers use NIS4 in their clinical trials so that they can generate data with it -- data, but they will then be able to use when they launch their product if it is ultimately approved. Second, we want to establish our technology as the best solution so that we become a natural choice when that market starts to grow. In November 2021, a study undertaken by the NIMBLE consortium singled out our NIS4 technology out of 5 blood-based biomarker panels. NIS4 capacity to identify at-risk NASH patients, a critical population has been recognized by these independent experts.

The consortium also highlighted evidence showing that NIS4 technology has the best results in the 5 blood-based biomarker panels, which were assessed in this study for the diagnosis of fibrosis stage 2 and above. This is a remarkable achievement because NIMBLE is a large independent biomarker consortium of well-respected experts using a robust approach that's based on independent cohorts of patients and sample. So their finding is consistent with our own findings, and it further establishes NIS4 in the field and support this place as a great alternative for identifying those NASH patients that are most addressed.

Let's now talk about our third corporate priority, i.e., our pipeline. Since outlining our new R&D strategy over a year ago, we have made progress in the 2 therapeutic areas we want to focus on, namely ACLF and cholestatic diseases. As far as ACLF is concerned, as mentioned during our pipeline update in May last year, there is a very high unmet medical need for in acute and chronic liver failure with an estimated 180,000 patients in the U.S., for which there is currently no approved treatment. Following encouraging preclinical results, we are now moving forward with 2 Phase I studies evaluating NTZ, the drug candidate that we've identified through phenotypic screening as part of our repurposing strategy.

The first Phase 1 is focused on hepatic impairment, and we expect the first result as early as Q3 this year. We hope to be able to confirm NTZ potential in this market, which is currently estimated at EUR 4 billion a year in the U.S. alone. We also initiated another Phase I in renal impairment and data for this is expected to be available in the fourth quarter of 2022. These studies represent key milestones in the development of our ACLF franchise as upon completion, it will enable us to progress towards a proof-of-concept study in patients with ACLF.

In terms of cholestatic disease in December, we in-licensed an investigational compound from Genoscience Pharma. With this deal, we acquired executive rights to develop and commercialize GNS561 in cholangiocarcinoma in the United States, Canada and Europe. And in Europe, it includes United Kingdom and Switzerland. Cholangiocarcinoma is strongly correlated with cholestasis and the current prognostic for patients is poor. GNS561 is eligible for orphan indication, and we believe its novel mechanism of action as well as preclinical and clinical evidence from a strong rationale supporting further development in CCA.

We've made significant progress since December with successful KOL engagement, helping to finalize the study protocol. We look forward to the interaction with the FDA on this program with intention to load the Phase Ib/II study towards the end of this year. Although the final design elements of the study are being finalized and will ultimately be informed by discussion with FDA, we hope to have first interim results in the first half of 2024. In this indication, path to approval has the potential to be somewhat shorter compared with that of many other indication due to the current standard of care, which is characterized by a lack of options for patients.

So with that, and before I open the floor to your questions, I would like to thank the GENFIT team for all that they have accomplished in 2021 as well as our investors for their continued support. Thanks to them, we are able to enter 2022 with a very positive outlook.

Operator, let's now open the Q&A.

(Operator Instructions) We'll take our first question from Thomas Smith of SVB Leerink.

And congrats on the progress. Just one question on the early pipeline. Can you talk a little bit more about how you're thinking about your business development activities, maybe a little bit more in terms of the types of assets that you're interested in or the phase of development? Do you have a preference for earlier stage assets or clinical stage assets? Or just help us think about both, I guess, your capacity and your appetite for bringing in additional compounds similar to the Genoscience deal.

Thanks. Great question. So what we are really looking at is trying to create a portfolio in -- and I'm thinking ACLF specifically where we are going to combine multiple mechanism of action because that disease is really complex. There are also different phase in this disease, and we are looking at opportunities at those various phases. So the idea is really to have multiple short-term goals and combine also potentially versus different approaches. In terms of stage of the asset, we are looking at both early-stage assets and clinical-stage assets, but our intention, if we find the right candidate, and if we are convinced by the data, our intention is to do at least one deal with the clinical stage assets. Dean, I don't know if you want to comment further.

Yes, Tom, thanks for the question. We're looking at different mechanisms. And as Pascal said, ACLF has many different facets to it. So when we consider the pathophysiology of ACLF, I think it's important that we do zoom in on different key pathways. Of course, we know the importance of systemic inflammation. So we're having a hard look at different opportunities there. Another important aspect of ACLF which is somewhat overlooked, but it's really an emerging space is the aspect of immuno-inflammation and the role that's played by mitochondrial dysfunction and so on. So there is a lot of exciting new data coming out of that area. And so we're also weighing in on that pathway. So at the end of the day, we are considering different options. And like Pascal mentioned, it's really a question of addressing different aspects, different facets when it comes to ACLF and really trying to have a portfolio with complementary mechanism of actions.

Okay. Great. Yes, that's helpful. And then maybe just a quick follow-up on NTZ because you mentioned you're looking for the hepatic impairment results in Q3 and then the renal impairment results in Q4, and that could lead to the proof-of-concept study. I guess just help us think through kind of the time lines for when we could potentially see the first proof-of-concept data for NTZ.

I'm going to let Carol comment on that. I think it's worth mentioning that even in the Phase I, we'll have potentially interesting data, not only related to safety, I'll let Carol elaborate on clinical development of NTZ.

Thanks for your question, Tom. This is Carol here. And as Pascal indicated, our current Phase I studies are aimed to position us for IND submission and ultimately initiation of the proof-of-concept study. And so just thinking in a big picture sense, we're engaging actively with key opinion leaders currently as we start to give consideration to study design elements, refining the patient population end points that will be critical, of course, to inform decision-making for longer-term, more definitive evaluation. And undoubtedly, engaging with regulatory authorities will be a very important component of our strategic plan given that there are no approved therapies for this indication, and we're in a position similar to where we were a few years back with NASH, where we're really pioneers in this space.

And so as Pascal said, in our ongoing Phase I study that aim to evaluate PK and safety and hepatic impairment. And these are individuals with cirrhosis, Child-Pugh B and C category, it will afford us an exploratory opportunity to look at some of the markers that we feel may be important in patients with ACLF. And so we may get some very early and valuable insights from this study. And certainly, we'll need to take those data into consideration as we ultimately finalize the protocol for that proof-of-concept study. I think in terms of overall time lines, our plan is to initiate before the end of first quarter 2023. And I think it's really premature in my mind to speculate the time lines, given that we have not yet engaged with FDA and really -- don't really have a fundamental understanding yet of sample size, endpoint duration. So more will be following over the course of the coming months as we have more opportunity to engage with thought leaders and in particular, discussing with FDA, which will be a critical aspect as we move forward.

We will take our next question from Arsene Guekam of Kepler Cheuvreux.

First of all, could you give me some more color on the launch of NIS4? And are you satisfied with that? And the second question is related to elafibranor to the rest of your pipeline because NIS4 pipeline is at a very early stage of development. And are you seeking to strengthen your portfolio with more advanced drug candidate? Just like to be sure about the strategy beyond elafibranor, some color there.

Yes. Thank you, Arsene. Well, I would say -- so first of all, in terms of NIS4 and if we are pleased with the performance of NIS4, I would say it depends if we're talking commercial or clinical development. I would say from a pure commercial standpoint, no, we're not satisfied because as I alluded to earlier, we don't think there's really a market for a diagnostic for NASH right now because there is no approved drug in NASH. And those 2 really go hand in hand. And what we have heard from prescribers in the U.S. is that they are really going to start using diagnostic when there's something that they can do about the finding of using the diagnostics. So we think that for a while, as we are waiting for a drug to be approved in NASH, it's not going to be an important market.

That being said, we are quite pleased with the technical development in NIS4 because we think the NIMBLE study was really a landmark study, completely independent, highly respected, very well known, especially in the U.S. And the fact that the results were so conclusive for us really solidify NIS4 position and give us a great platform to continue to build on in preparation for when that market will start to materialize. And I guess the other piece to it is the fact that we are discussing with many, if not all, of the people that are currently developing drugs in NASH and making sure that we give them the opportunity if they want to, to use NIS4.

And all that data is going to do 2 things for us. First, it's going to continue to help us solidify and improve on NIS4. But also because they generate data, if and when they're approved, they're going to be using that data at launch, which will in turn feed the commercial efforts to launch NIS4. So in other words, we think we are well positioned, and we think we will continue to strengthen our position, but the real commercial opportunity, if you want, is not going to be before products are launched. So that's NIS4. Your second question was related to the gap, so to speak, that one could see between a late-stage asset that's really nearing commercialization in the early stage of our pipeline.

And the answer to your question is, yes, we are definitely looking at clinical stage assets. Our goal, ultimately, as we build our pipeline is, as I was saying, thematically, we want to be targeting ACLF and cholestatic disease. But if you think in terms of stage, we would want to have a good mix of early-stage assets and later-stage assets so that we can then have a stream of meaningful catalyst, if you will, coming from the pipeline. So that's very much what we're working on. But of course, it also depends on whether we can find compelling cases, and we are currently looking at several of those.

We will take our next question from Ant Arce of H.C. Wainwright.

And let me add my congrats on all the progress last year. I wanted to start with a question around NTZ and your program in ACLF. It seems pretty clear from your earlier comments that you recognize this disease is quite complex and acute obviously. And so there may be likely a need for multiple mechanisms. And so you're looking for some perhaps some other compounds with complementary mechanisms. So I'm wondering, given all of that, if you could outline for us how you -- the NTZ fit in overall in the mechanism in terms of the pathophysiology that Dean mentioned earlier, in particular, things like inflammation and other aspects and especially areas where there might be targets of the overall pathophysiology that are still missing in targeting with NTZ that you could be looking for to complement and fill in for ACLF. And then I have a follow-up.

Sure. Thanks, Ant. I'm going to let Dean answer that question.

Ant, thank you for the question. So to think about NTZ and what we know about NTZ especially as it pertains to ACLF, there's quite a bit of information out there in the public domain about NTZ. So it's clear that NTZ has an antibiotic activity. We have confirmed that within our own laboratories here at GENFIT. But now there's another component of NTZ, which is less known, which is its anti-inflammatory activity. There is published data on that, and that as well is something that we have confirmed within our own laboratories here looking at macrophages and so on and really confirming that NTZ does, at least, at the very least, has those 2 major very important activities, namely a strong anti-inflammatory activity as well as a antibiotic activity, in particular on anaerobic bacteria.

So with that in mind, I mean, what is important is that how does that pertain to ACLF. And so very quickly, we moved into disease models, in vivo live animal models, and we weighed in really on different types of models. There is no one perfect go standard strong model for ACLF, but there are several out there which people in the field use. And these are experiments that we conducted within here at GENFIT using these different models. So at a high level, one model which we use was really you install chronic liver disease in the rodents, you push them into cirrhosis and then you induce a ACLF with LPS, which is a well-known pent, which is of high relevance to ACLF in the human situation.

In that model, what we clearly show is that NTZ has an impact on inflammatory markers, and it has an impact on different organ systems. And I mentioned organ systems without getting into details. We know that ACLF is defined as end stage decompensated cirrhosis with multiple organ failure. So it was important for us to be able to demonstrate that NTZ does have impact on -- at the level of organ function. Now some of the other models, which we performed, looked at other aspects of ACLF. To give you an example, if we're going to have a therapeutic approach, which is going to impact rapidly on ACLF patients, which we think is an important aspect of any therapy moving forward in ACLF. We have tested the molecule in a model where we induce high levels of systemic inflammation very rapidly with LPS, and we measure the impact of NTZ in cold treatment with treatment with LPS and demonstrate efficacy as early as 3 hours.

And at the same time, we have another model looking at sepsis, which is in many aspects very closely associated or very closely a good mimic of ACLF. And there, actually, very importantly, we show that NTZ impacts on mortality, okay? So just to summarize just that. I mean, yes, we have confirmed the difference -- at least 2 of the major activities of NTZ, which we think is important for ACLF. And then moving into different in vivo disease models, we demonstrate the different activities with NTZ, which we think taken together demonstrates and provides very compelling evidence that NTZ has a high -- has a good probability of success moving forward. And that is just not us thinking that we have shared this data with different key opinion leaders in the field. And there's a lot of enthusiasm and it was really experts in the field under their recommendation that we should move this forward into the clinic because that's where the proof of the pudding is going to be. So which is why we made that decision. As we mentioned, we are moving forward with that.

Now the other part of your question is pertaining to -- yes, ACLF is a complex disease with different assets. And I mentioned the importance of immunometabolic pathways. And I think this is something that's going to be important in this space. There's emerging data on that, looking at human samples, looking at metabolomics. What has become clear is that because when you have high systemic inflammation, there is a switch of energy use from beta-oxidation and glycolysis, for example. And there, what's happening is that we're creating an energy deficit in ACLF patients. And so the -- and this is associated also with mitochondrial dysfunction. And this is an area which we're going to weigh in on, and we are looking both from our own internal research as well as looking assets available.

So this is just examples that I think are important pathways, important network to the ACLF. And yes, when we look at different assets, we, of course, wanted to those who we think individually will have high potential benefits by themselves. But of course, we are working and thinking about combination strategies as we move forward in ACLF.

Thank you for your questions. We are running out of time -- for more time for other questions today. I will now turn the floor over to Pascal for closing remarks.

Thank you. Thanks all for all your questions. Just a few words to wrap up this session. 2021 was a pivotal year for us and it's been marked by good progress on all 3 of our corporate priorities. On the financial front, the combination of a successful convertible debt renegotiation and the landmark strategic partnership deal signed with Ipsen puts us in a great position, not only ensuring the financing of our existing programs, but also opening optionality from a business development standpoint.

Secondly, on the development side, we've made great progress with relative despite the COVID pandemic, and we have continued to establish NIS4 as a diagnostic of choice for once the NASH market materializes. And then lastly, on the research side, we are continuing to build our pipeline, either for repositioning, as is the case with NTZ in ACLF or through acquisition like the GNS561 in cholangiocarcinoma. Going forward, we will continue to enrich and diversify our pipeline. Thank you, everyone, for your attention.

That now concludes the call. Thank you for your participation. You may now disconnect.