Zealand Pharma A/S (ZEAL) 2019 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Zealand Pharma results for the Full Year of 2019 Conference Call.

(Operator Instructions)

I must advise you that this conference is being recorded today. And now I would like to hand the conference over one of your speakers today, Lani Morvan. Please go ahead.

Thank you, Priscilla, and thanks, everybody, for joining today. Welcome to Zealand Pharma's conference call for results of full year 2019. Participating in today's call are Zealand's CEO, Emmanuel Dulac; and Chief Medical Officer, Adam Steensberg. Our CFO, Matt Dallas, had planned to participate; however, due to recent developments related to the coronavirus pandemic and international travel, it was decided late last night that Matt should return to the U.S. from Denmark immediately.

To adjust for this, Emmanuel will provide both business and financial highlights from the full year 2019 and the period thereafter. Adam will follow with updates from our R&D programs. After the prepared remarks, we'll open up to take your questions. You can find the annual report for 2019, the related company announcement and additional information on our website at zealandpharma.com. As a company headquartered in Denmark, our financials are reported in Danish krones, also referred to as kroner. Key figures may have been converted to U.S. dollars for convenience.

On page 1, I will point out that we will be making forward-looking statements that are subject to risks and uncertainties. These statements are valid only as of today, and the company assumes no obligation to update them, except as required by law. Please refer to our recent filings for a more complete picture of risks and other factors.

And with this, I will turn the call over to our CEO, Emmanuel.

Thank you, Lani, and thank you, everyone, for joining today. Before turning to our 2019 results and business highlights and because it relates to Zealand Pharma operations, I want to provide an update on the situation of the coronavirus outbreak. As a responsible company, we are following the Danish Health Authority's recommendations and -- on how to reduce the risk of virus spread. This implies travel restrictions, allowing office workers to work from home, and organize work at Zealand to further reduce contamination risk for employees that work in our laboratories. We are actively monitoring the situation and proactively implementing specific measures to ensure business continuity and mitigate business impact.

We continue to be in a close dialogue with all clinical trial sites in Europe and U.S. and are putting in place measures to address potential local restrictions that are implemented to address the corona outbreak. That's it for this.

Now please turn to Page 3, where you see the many milestones that made 2019 a transformational year for Zealand Pharma. I would like to highlight some of our achievements from this slide, while Adam will speak to of the later in his presentation.

First, it was a major accomplishment to complete the Phase III program for dasiglucagon to treat severe hypoglycemia. Results from several Phase III studies consistently supported the potential of the dasiglucagon HypoPal rescue pen as a fast treatment for severe hypoglycemia. These results provide a strong base for our application to the FDA, and we are on track to submit the NDA by the end of this month.

Our agreement with Alexion to develop peptide therapies for complement-mediated disease was a big milestone secured early in 2019. This partnership with an industry leader has increased visibility for our peptide platform throughout the biotech community, while giving us an opportunity to develop peptide therapeutics for even more patients.

Acquiring Encycle was the first time in our company history that we had invested in external innovation to strategically expand our pipeline. We acquired alpha-4-beta-7 integrin inhibitor, adds exciting new opportunities for our research and development teams to work in additional GI disease as well as possibly for developing peptide therapeutics taken orally.

Finally, we secured funding to help us accelerate the build of the U.S. operations to prepare for our company's first product launch anticipated next year. Establishing commercial and medical operations is the final step to our transformation. In the second half of 2019, we successfully onboarded key personnel, selected a site in the Boston area to complement our New York office and commenced the early build of our infrastructure. The momentum of these activities has carried into 2020, where we continue to execute a fast-paced plan to ensure our U.S. organization is fully operational by year-end.

On Page 4, these achievements are part of the exciting journey that Zealand is taking. With a clear strategy and successful execution of our strategy, we are poised to deliver on our commitment to improving patients' life by providing leading peptide therapeutics. We have made achievements throughout the 4 strategic areas, supporting our vision. Our peptide platform was expanded through a strategic acquisition while additional candidates progressed into preclinical studies. We remain focused on developing therapeutics that address severe medical needs for patients with gastrointestinal and metabolic disease. In 2019, we took big steps towards our ambition to become a fully integrated biotech with R&D operations and a medical and commercial organization and infrastructure in the U.S.

Turning to Page 5. You see the major milestones that we expect to achieve in 2020. By the end of this year, Zealand's transformation into a fully integrated biotech company will be complete. We will be capable of taking our own products from discovery to development and through registration and commercialization. We will be prepared to execute 4 exciting launches planned over 4 years, beginning with the first anticipated launch in 2021.

Now advancing to Page 6, I will cover for our CFO, Matt Dallas, to review financial results for the full year 2019. On Page 7, you see Zealand's income statement for fiscal year 2019 and how it compares to 2019 -- to 2018, sorry. The net result for financial year 2019 was a loss of DKK 571.5 million. Further development of the late-stage clinical programs and expansion of the early pipeline combined with pre-commercialization efforts for the dasiglucagon HypoPal rescue pen and driving the cost base for Zealand -- are driving the cost base for Zealand. These factors have resulted in an increase in R&D expenses of DKK 123.2 million and an increase in G&A expenses of DKK 24.3 million compared to 2018. The 2018 operating result was mainly due to an increase in other operating income as a result of the sale of future milestones and royalties related to the Sanofi license, having a net gain of DKK 1.1 billion in the period. That's for reference.

Page 8 illustrates our financial position and ability to support our clinical programs. Net operating expenses, shown on the left, were DKK 628.9 million for the year. Estimated guidance for 2019 was exceeded due to the increased level of support needed in internal staffing as well as professional advisors and external service providers, as the company prepares for product launch and subsequent commercialization.

On the right of the slide, you can see that our cash position remains strong. As of December 31, 2019, cash, cash equivalents and securities amounted to DKK 1.4 billion -- DKK 1.38 billion or USD 206.8 million. The increase in cash and cash equivalents is mainly due to the net proceeds from the issue of shares in the year of DKK 683 million. And the upfront cash and equity investment, the company received a $40 million from the initiation of the partnership program with Alexion Pharmaceuticals.

Moving to Page 9, you see guidance for 2020. Net operating expenses in 2020 are expected to be within the range of DKK 790 million to DKK 810 million. This is an increase compared to 2019 and is due to the rise in administration -- administrative expenses as we prepare for the product launch and commercialization of the dasiglucagon HypoPal rescue pen. It is further due to the clinical development costs associated with Phase III programs for glepaglutide and dasiglucagon for congenital hyperinsulinism and the dual artificial pancreas.

Zealand does not provide guidance on revenue from current or potential partnership agreements due to the uncertainty in terms of the amounts and timing.

Now going to Page 10. I will turn the call over to Adam to discuss highlights from R&D.

Thank you, Emmanuel. So on Page 11, you will see an overview of Zealand's robust pipeline, reflecting the significant progress we had with all our programs in 2019. Also, as shared earlier in this call by Emmanuel, we expect 2020 to be a news flow year, with submission of our first NDA to the FDA and continuous firm progress across our other programs.

Turning to Page 12. You can see the treatment modalities that we are pursuing with dasiglucagon beyond the HypoPal rescue pen. And driven by our ambition to transform management of type 1 diabetes and reduce the burden of living with this serious condition, we are working with Beta Bionics to develop dasiglucagon for the use in the iLet bionic pancreas. We believe that the results from the Phase II study, announced in Q2 last year, demonstrated unprecedented glycemic control by the bihormonal iLet compared to an insulin-only setting. And we continue to make good progress with the FDA interactions and look forward to the pivotal Phase III trial that is expected to start later this year.

Our first dasiglucagon program aims to change the life for children and their families living with congenital hyperinsulinism. In our first Phase III study, with children aged 3 months to 12 years, recruitment has continued to make strong progress. And now we expect patient enrollment to be completed in Q2 this year. The second Phase III trial -- with up to 12 CHI children, from newborns to 1 year -- were initiated last year, and we could see results from this year later in 2020 as well.

Finally, as announced in our Q3 call, we are evaluating the potential for mini doses of dasiglucagon as a novel treatment for patients with post-bariatric surgery hypoglycemia. And we are happy to announce that we completed patient enrollment into this Phase II study in February this year and expect results from this clinical proof-of-concept dose-finding trial within the coming months.

On Page 13, we have summarized the results from the 3 Phase III studies with the dasiglucagon HypoPal rescue pen for treatment of severe hypoglycemia in diabetes. The median time to plasma glucose recovery from hypoglycemia was only 10 minutes from injection across all studies. Importantly, the same dose of open 6-milligram of dasiglucagon was used both in pediatric patients and adults. And we believe that time to rescue is going to be a very important factor for patients and caregivers when considering rescue solutions for severe hypoglycemia. And we are looking forward to sharing more results from our programs at upcoming scientific conferences. With the clinical program concluded last year, I'm very happy to report that we remain on track for submitting the new drug application to the FDA by the end of this month.

Moving to Page 14. Here, we review our clinical programs for treatment of short bowel syndrome. Glepaglutide is our long-acting GLP-2 analog with potential for weekly administration in an auto-injector, and we expect to complete enrollment for the pivotal Phase III study by the end of this year. Results are expected in the first half of 2021, and we are continuing to work towards an NDA submission in late '21.

ZP7570 is a unique dual-acting GLP-1/GLP-2 agonist, which we believe represents the next innovation in the treatment of short bowel syndrome. We expect to have results from the single-ascending Phase I trial here in 2020 and plan to initiate the Phase Ib, multiple-ascending safety and tolerability trial later this year.

With Page 14, I will now return the call to Emmanuel for his closing comments.

Thank you, Adam. So Page 16 shows the anticipated news flow around achieving major milestones for Zealand in 2020. We will continue to see the strong clinical progress of our late stage program. We also look forward to providing updates as our U.S. organization becomes fully operational and ready to support the launch of the rescue pen.

Lani?

Yes?

Do you want to conclude?

Yes. Thanks. This concludes the prepared remarks. And now we would like to open up for your questions. So Priscilla, if you can, please open the lines.

(Operator Instructions)

And the first question comes from the line of Thomas Bowers from Danske Bank.

Yes. A couple of questions from me here. So firstly, just to kick off with the revenue guidance. So you do expect some additional revenue. And I'm just wondering, aside from this EUR 20 million milestone from BI on the Phase II start, so is there any other potential reimbursements such as C3 program starting Phase I? Anything else that could materialize in 2020. And then maybe secondly, just remind me on the Sanofi, USD 50 million payment. Is that [costly? Or also] something that could be triggered for this fiscal year?

And then second question, just on your OpEx guidance. So I'm just wondering on the Valeritas takeover, I know it's still pending, of course. But could this one have impact on your guidance? Or is this somewhat included in your current outlook?

And then just lastly, on the pipeline, just a question on the dual-hormone pump. Could you -- maybe just add a little color on where you are right now with the FDA dialogue on the Phase III design? And maybe also, how should we think of additional non-exclusive deals. Is that still something that we should or could expect here in 2020?

Thank you, Thomas. So I'll take your first question regarding the revenue. So in 2020, we expect revenue from existing license agreements. However, since these revenues are uncertain in terms of amounts and timing, we don't guide on revenues -- such revenues. We -- and your question was related to the fact whether or not it's baked into our numbers? It is not because, again, we are actually -- we'll actually put that in the guidance when it's happening. So...

Yes. But my question was more related to if there is? Because we, of course, are aware of the EUR 20 million milestone from Boehringer when the Phase II starts. But I'm just wondering if you see other potential milestones in the numbers, which potentially could be triggered also just in regards to also the Sanofi payment that we also are expecting.

I think, Thomas, what we can say is that there could be other milestones, but we don't guide on it. But there could be.

Okay. And then the Valeritas, just on the OpEx?

Yes. So the Valeritas is actually -- process is ongoing. The timelines -- the current timelines for the acquisition is at -- on March 12. It was a bid deadline for other interested bidders, so today. And so March 16, the bids will be confirmed as meeting the qualification for bidders. So we're actually a qualified bidder, but we don't know about any others. And on -- until from this 16th to the 20th, that will be the auction time. And on the 20th, it's basically the -- that will be the auction completion, if there's any other bidders. If there's no other bidders, basically, I mean, we will know by today. And we will know if basically, we're moving forward with the Valeritas acquisition or not.

Okay. So if you meant to take over Valeritas, will that have an impact on the current '20 outlook?

So right now, we are 2 different, 2 separate companies. So our OpEx is actually including a build of the commercial U.S. entities from scratch. So that's actually our OpEx. Once we access the Valeritas, I would say, balance sheet and revenue lines, then we'll have to integrate that into our own strategy and revenues. But there will be, of course, some revenue coming from their product line sales and as well the expenses that we will have to align and deduct from our projected investment for the build of the U.S. organization. So -- and we expect this to be clarified, I would say, probably few weeks following this final integration or acquisition.

So you have other questions, one on the dual-hormone pump. And maybe Adam will take this one.

Yes. So what I can say is that we, as you know, we're collaborating in a nonexclusive collaboration with Beta Bionics and we're making good progress with the interactions with FDA, as it has also been communicated to both by Beta Bionics but also by us, then Beta Bionics will start an insulin-only study first. So that is the first study that you will see occurring. And then we will follow with the dual-hormone study together with Beta Bionics. Our interactions with FDA is that we're in final discussions on -- and we made the final discussions on the Phase III design, which are developing very positively. And then start preparing for an end of Phase II meeting with the FDA to align on the supported, you can say, drug development activities that will be needed for approval. So all that is still anticipated to be concluded this year and then also to have the Phase III trial started. As you also remember, late last year, Beta Bionics, they received breakthrough designation on the device where dasiglucagon was specifically mentioned. So these are, of course, also things that we're pursuing and deciding with FDA.

Okay. So there's nothing right now that are surprising you in regards to the length of the study. So you still believe that it's going to be fairly swift also with all the data you already have compiled from the other trials?

Yes. From a -- there are no change in what we have said so far. And I think we're continuing it along the same lines. It looks to be a quite limited study, that could allow for ultimate registration of this product.

Okay. And just finally, on other nonexclusive deals, is that something that potentially could be triggered or could happen here also in 2020 or...?

Yes. Again, these are things that we cannot guide on. All I can say is that Beta Bionics is the partner that we're pursuing this with, as a first you can say, partner and it's not exclusive, of course. And we are in dialogue with other device companies. I think with the results we released last year, a lot of companies have kind of started to consider how this could have indications for their future business. But we cannot guide further on what will happen with the potential partnerships, additional partnerships.

And the next question comes from the line of David Lebowitz from Morgan Stanley.

How would you characterize the market opportunity for dasiglucagon, just within the context of the HypoPal rescue pen versus the opportunity in the dual pump?

I mean, very different markets, even though they are both playing in the same sandbox of, I would say, type 1 diabetes. Thank you, David, for your question. The rescue pen market, to date, in the U.S. is fairly undeveloped. So there's been this all kits market, not marketed by too big companies with the injection of new products. So we've seen the approval of 2 new products last year and the filing of the rescue pen. We expect this market to transform from a sleepy, undeveloped market to a fast-growing market. So right now, the market is growing by 20%. And there's still, I think, around probably 500,000 to 600,000 patients who are buying these solutions, for roughly 6 million patients in the U.S. potential. So -- and these patients are buying on average 2 kits to -- so that they can have one at home and have one in their bags or one in their schools or sports club. So that's actually a very vast market for us. But as I said, it's undeveloped.

As you know, it takes time to develop markets and we're a small company. So we have to make -- we have to put ambition where it needs. So for us, this is a great opportunity. We have a very differentiated product. We believe we'll have the mix what the patients needs and require for this situation. So looking forward, we're fairly positive. But at the same time, I would say that it's not going to be a multibillion dollar market; far from it, actually. So I would say, if you want to model that, you should -- I would say, take low expectations in the short term. And increase your expectation in the longer term.

And what I mean is, for me, the dual-hormone pump is a massive opportunity to transform the type 1 diabetic market and management of patients. We see that, to date, in the U.S., out of 1.3 million type 1 diabetic patients, around 500,000 are defined as pumpers. They are using a pump to manage their diabetes. And so these are, for us, [the abuse], again, lowest hanging fruits for patients that would be looking at the dual-hormone pump.

But with the penetration of -- we believe that the closed-loop pumps, the closed-loop monitoring with the CGM as well as the availability of a pump that can work on the highs and on the lows as well and bring more patients in target and allow them to be more aggressive on their numbers and be more aggressive on their -- on lowering their numbers for blood glucose level and be more in range without any human intervention. I think we believe it has the potential to really transform the management of diabetes and I wouldn't be surprised to see a lot more patients adopting pumps beyond the 500,000 out of 1.3 million. So right now, 40%, 45%. I think it's going to grow fast. So that's why -- and that's chronic treatment. So chronic demand for dasiglucagon is a very substantial opportunity for us.

Being that it's chronic treatment, how would that -- should that be looked at differently from a modeling perspective?

So again, rescue pen, for me, it's a bit like mimicking the EpiPen. So it's like any attack -- any patients can have an attack and any attack can be deadly. So you have to equip yourself. The utilization, though, is actually very difficult to measure exactly who is actually using these pens? How frequently are they using them? But at least, they need to have one to prevent any event.

On the chronic use, I think, right now, it's -- if you look at the insulin use, I think the patients will be using around 2 cartridges a week, probably. Changing cartridges every 2, 3 days for life. So that's a substantial utilization there. Of course, that's insulin for dasiglucagon. We still have to define. It's probably less use -- less volume, I would say, than insulin. But we still have to exactly define it in the phase -- the Phase III will actually be telling (multiple speakers) much less than insulin anyway.

And the next question comes from the line of Etzer Darout from Guggenheim.

Just quickly, I wondered if you could maybe just talk about sort of expectations for, sort of, two readouts that we could get in 2021. For the congenital hyperinsulinism, wondered if you could maybe discuss what the clinical benchmarks we should be thinking about to help interpret the results once we get them. And then -- and maybe just in terms of the bariatric surgery hypoglycemia, what that market is like? And what the market opportunity would be for dasiglucagon with sort of that -- with the Phase II readout expected in the upcoming months?

Thank you for the question. Maybe I can start by addressing them. And if I start with post-bariatric surgery hypoglycemia then, as you correctly said, we started this study in Q3 last year and have enrolled the last patients in February and expect the results within the next month or so, or few months. I would say, what is important for this indication is also -- and what you have to pay attention to is that we're using a mini dose pen. So that is actually a product that we have in active development right now. So -- and why is that important? That is, you could actually even consider such a solution being used in other indications.

If you speak, again, to both caregivers and patients with type 1 diabetes, there's a huge desire for an option that could give mini doses of dasiglucagon to correct moderate hypoglycemia in situations where you can actually not ingest food. And you could consider situations where a kid is throwing up or just after exercise, et cetera, where it could be not a preferred solution; to just take additional carbohydrates are actually impossible. The reason that we start with post-bariatric hypoglycemia -- post-bariatric surgery hypoglycemia is because the unmet medical need here is extremely clear.

We have patients who have undergone bariatric surgery for obesity, and a fraction or portion of these patients, they didn't develop this condition. Meaning that every time they eat, a few hours after that have eaten they will develop very serious hypoglycemia. And here, it simply is not a solution to eat again because then their hypoglycemia will just get even worse. So for these patients, they have a miserable life. They have to -- some will have to have a surgery redone. So reinstall the normal intestinal system. And others are trying to be managed by eating very, very small meals and so on. So that is very, very clear unmet medical need for these patients, and we would expect it to be a very small program that could allow for a product to be registered to support these patients. Then once the product has been registered in this indication, we could expand into the wider use in type 1 diabetes, which, of course, will require larger studies.

And this is also then putting it into the light of the dual-hormone artificial pancreas, which, together with what we're doing in post-bariatric surgery will establish the chronic use of dasiglucagon in different patient population. So you have to use a dasiglucagon opportunity as a portfolio of products that actually support each other in both the regulatory and development perspective. In post-bariatric surgery hypoglycemia, we also -- and in any mini dose condition, we recognize that it has to be a simple solution. So that's why we're focused on making a mini dose pen that is easy to use for the patients.

It's also not an option in our mind that you have to engage yourself twice to overcome the hypoglycemia. And that's actually where the profile of dasiglucagon looks to be very interesting. And what I would hope to see with the post-bariatric hypoglycemia studies is that a single injection was -- which is what we test is enough to correct the hypoglycemic events in these patients. So that is what I would be looking for. And then, of course, that we're able to keep them out of the serious hypoglycemia.

In CHI, which is a very different condition where patients by themselves produce too much insulin, the current study, which is in patients aged 3 months to 12 years, have included patients who have a significant number of hypoglycemic events every week. And the primary endpoint looks into our ability to reduce that. And you can say, in my mind, any reduction is important, but I would be looking for numbers of at least a 30% or more reduction. If you do the insulin also, you can see this in clinical trials that key secondary end point is the ability to fast. And many of these patients, families will have to wake up every night and feed them every second hour to prevent them from developing hypoglycemia. So if we can extend the period whereby they can fast, and here, I would any hour would count. But imagine if you could take it from 2 hours to 4 hours to 6 hours, that would completely change the life of these patients and their families. So that's what I would -- that is the level of response that I would be looking for in the CHI and I...

And the next question comes from the line of Jesper Ilsoe from Carnegie.

Just first question on capital. So we have DKK 1.4 billion in net cash by year-end '19. Can you just remind us just internally, how many years of cash you expect to have? And also, when looking forward, do you have any internal threshold on the cash position? For example, minimum DKK 500 million or the like? That's the first question.

The second one just -- I appreciate your comments on COVID-19. I know it's very uncertain times and all that, okay. Just perhaps give some color on -- so which programs are the most exposed to potential delays? And also, I'm particularly looking at the glepaglutide Phase III readout where you say results in H1 '21. I assume that it's Q2 instead of Q1. And what's the uncertainty or probability that you could move into, for example, Q3? I know it's only a few months and a few quarters, but it's just -- just give me some color on that, that would be very helpful.

Thank you, Jesper. Maybe I can start with the coronavirus update flavor and then Emmanuel can follow-up on the capital question. But -- so as we stated, that we have implemented and that we're, of course, following health authorities and government guidance. So as a company, we're operating according to those guidances and we don't see any impact. When it comes to our clinical studies, what we have ongoing right now is the Phase III study for glepaglutide across 37 sites in Europe and U.S. and then we have the CHI Phase studies across 7 or 8 sites in Europe, U.S. and 1 site in Israel. So what we can say so far is that -- so far, there has been no implications with regard to the virus outbreak in our studies. But we are, of course, monitoring this very closely. And of course, this is down to a local focus as well.

Right now, when you have a country like Italy, that is completely closed down, that is not a good time to recruit patients. And of course, if you have very stressed healthcare systems, you could be in a situation where you would see some implications on patient recruitment, where you would make, I mean, sure to -- you'll basically be demanded by clinical sites to defocus on such activities. Our focus, if that would happen, of course, is to secure drug supply and keeping patients in the study. So far, we have, as I said, not seen any implications, and it would be highly unlikely that it would be all sites or whatever that would be affected. So there could be 1 or 2, a few sites, who -- which will have to scale down on recruitment and pause activities and that we will monitor closely. And I can only say if there are updates, then we will provide it to the market. But right now, there are none because we have not seen any indications.

Okay. So I've seen on clinical trials that you have some sites in Italy. So are you saying that you haven't seen those sites being impacted or is it because they haven't recruited yet?

So the good case of those cycles is that they are already recruited. But -- so the -- actually there are few sites that have not been activated. So that is, of course, both good and bad. But in this situation, it's pretty good.

And the next question comes from the line of Alan Carr from Needham.

One on CHI and then the other on the dual pump. With respect to the CHI program, you've got a couple of trials. It sounds like the first one in the older kids is coming along fine. What -- do you have any other details on the second trial? I think you hinted that you might be able to have data by the end of the year. Can you elaborate on that? And what you're thinking on what's needed for registration, do you need both? And on the dual pump, what else is gating to starting that Phase III trial other than wrapping up this end-of-Phase II discussion with the FDA?

So we'll just start with dual-hormone pump. I think for me, the key thing -- the new -- the key news though I would be looking for is when Beta Bionics announce initiation of the insulin-only Phase III study because that means that they're ready, from a device perspective on Phase III trials, that is a major thing. And I am very certain that we will start after that -- follow with a dual-hormone study. So that is what I can say from a drug perspective, we're ready. And I think also with the interactions with FDA, we will be ready. So that is what I would be looking for, and that is something we expect to happen, of course, within the coming months in probably the summer or whatever the -- yes. So I think that's the key thing. But I think we are on track. That's how we see it right now.

After they finish it?

No, no. I mean, they'll start. They'll have their recruitment going. So we will not wait for results, but they will start, they will get the recruitment started and with the insulin-only first. I think it's also fine, then we get some learnings before we start the dual-hormone study. So that's actually [is going well].

Is it -- for the second study in CHI in neonates up to 1 year, we have the first site. You will see that activated and ready to treat children when they are born, but this is a study where you need newborns with CHI to come in to the sites. We will have -- I cannot remember now if it's 6 or 7 sites recruiting for these 12 patients. So it is, of course, extremely hard to guide on when to expect -- and when and how to expect enrollments to happen in these studies. But in reality, it is a few patients for each site and it's a very short study. So that's why we feel quite confident that we will have the patients enrolled and also results this year when we look at the normal rate of patients appearing at these sites with this condition.

Yes. And the good and bad part in this CHI trial is that the -- of course, we're depending on more patients being born with the CHI congenital. But I must say as well that the good thing for them is that their medical need being so high, I mean, this -- the solution we're offering is very, very attractive to them. So the sites in which we're in contact with are very eager to actually initiate patients on dasiglucagon.

Do you need any data from both of these to submit an sNDA or an NDA? Or do you think you need the neonate data too?

It's a very good question. Our base case has been both studies. But I might also say that once we have the results from the first Phase III trial, we have to evaluate if we could submit just on that data set. I think, it's an open-label study and people there enrolled into the extension study. And what we see is that I think all but one have decided to enter the extension study and that suggests that this is actually something that provides a lot of benefit for these patients. So -- and as Emmanuel said, these children are in such a need that, if this first Phase III trial comes out very positive, then we have to have a dialogue with the FDA, if we should just submit based on one study or to wait for both.

And the next question comes from the line of Lucy Codrington from Jefferies.

I've got a couple, please. Firstly, I was wondering if you could give us some guidance on your OpEx outlook in terms of the split between administrative expenses and R&D? And then within R&D, how to think about the split between the different programs? And secondly, if you could give us some guidance as to the potential cost or anticipated costs of the Phase III program for the artificial pancreas? And then finally, just having looked at this kind of prescription data for Xeris's Gvoke product, the launch is perhaps not as exciting as it could have been. I wonder if you have any learnings or what you're taking from their launch in preparation for your own launch?

Yes, related to the split, if you go back to (technical difficulty) of the deck, we have actually provided an income statement where you see details of royalty expenses, research and development expenses and material expenses. So you have the split there. So that's for 2019. Related to 2020, there is actually some changes, of course, because the studies -- the clinical studies are -- Phase III are different. And the -- and as well, the increase in expenses related from '19, '20 is mostly due to the build of the U.S. operations. So basically, you have this middle split here. The only, I would say, continuous spend between '19 and '20, which is flat is glepaglutide study, which is running through as well, full year. So I think this is the details on the split as far as we communicate today. You had another question though. No?

Yes. I -- the second question was just on potential or anticipated cost for the Phase III artificial pancreas. And then the third question related to the Xeris launch?

Yes, maybe on the dual-hormone artificial pancreas. As Emmanuel said, the biggest single cost in R&D is, of course, the glepaglutide Phase III study. Then we have CHI, which are also a big cost. And then I would say the rest of the studies, meaning concluding the last payment in the single-ascending or in the West European program, some of those have come in -- have been pushed into this year and then the ZP7570 and the rest of the research activities, they will carry a substantial part as well. So -- but glepaglutide is probably the biggest one this year. (technical difficulty) I think Emmanuel, he will -- he can -- he is better to carry that, but again, I think it's about preparedness.

Yes. I think, it's about -- it's an aggregate of factors that put Xeris in this situation. I think it is, yes, it is disappointing. The -- I think it's a mixed factor of being ready ahead of time. It takes a long time to secure access with payers. And we've known that for some time. It takes sometimes to have people in the field, mapping their territories, knowing where the prescribers are. It doesn't necessarily come out from only database when you have, for example, the big prescribers of insulin, assuming that these big prescribers of insulin are going to prescribe massively as well glucagon rescue medicine. Some of these prescribers don't see reps. Some of these prescribers solely work with other companies, or they only work with companies they have known for few weeks or few months. So you can't expect to enter an office and just get prescriptions. So it takes time and it takes a lot of learnings. So I think readiness is one factor. The access is a big factor.

I think in terms of positioning as well, you have to actually have a, I would say, a product that meets patient expectations. And something that, for example, Baqsimi has done really well during their launch, is to promote the ease of use and the ready to use factor which patients want. They want something in this critical time, which is very stressful of a patient being in the coma under these circumstances can be rescued by someone, a third person, who is highly stressed next to them with something which is ready-to-use and simple to use. So I think they've pushed this very much. I don't think it was very clear on the other side of the communication. So not having people ready, expecting that your field is going to pick you up, having a clear communication is very important.

And on top of that, I think, you have to have a good label. I think the label for the product has to be allowing your product to be used and distributed in the world, in the vast majority of the situations that the patients are facing. And so I think, a combination of all that put Xeris in a difficult situation.

And the next question comes from the line of Michael Novod from Nordea.

Yes. It's Michael from Nordea. Just a bit of a follow-up to the Valeritas follow-up questions and Thomas' question around the deal. But just to get a feeling, when you implement these, of course, you're going to do some adjustments to your own build, but maybe just to get a feeling whether this is going to be taking OpEx, DKK 100 million higher, DKK 200 million higher than what you're guiding now or whether we could see within the range of where you're guiding now?

And then secondly, also on the Valeritas acquisition and the revenue stream you're getting in, because it's obviously a product that was sort of suffering. And it's a company that had problems with manufacturing and sourcing of their manufacturing. So can we expect that the revenue stream you're going to book is sort of 50% of what they have been booking in the first 9 months? Or is it close to the 9-months number? Just to get a feeling of where are we in the next month when this is potentially closing.

So I'll first take the Valeritas. So Valeritas is, again, a process. It's a company right now in this Chapter 11 process. We are -- we have access to some information, but not the full-size information. They have had some -- a combination of low cash, low revenues as well as issue manufacturing, which put them in a situation. When we went forward with this -- in this -- making this bid for -- to the -- for the acquisition of Valeritas, we had 2 conditions attached to it. One of them was that they had to fix the manufacturing issue. And the other one is that they can retain a certain number of employees, 75% of the employees. And these are walkaway conditions, meaning like if this is not met, we can decide to walk away.

So far as we know, the manufacturing issue that they had which was related to actually a specification, meeting a certain specification criteria was linked to a change in the manufacturer of one piece of the device that they had. So they identified this issue. They reverted back to the previous manufacturer of the device. And it looks like they have fixed it. So that's one condition, which is gone.

The other condition is the retention of 75% of the employees. We're actually right now running the -- again, the bid and the offer. So we don't know where it's going to finish, and we don't know when it's going to finish. And if there is -- there will be any other bidders. But it looks like, again, this is something which is actually, again, I have strong expectation that this is going to be met as well, we'll see. But this is going in the very good direction right now. So that's it for Valeritas.

The other thing on the guidance is, right now, our guidance, I mean, the guidance, we expect will be within DKK 790 million and DKK 810 million, range. So again, this increase, compared to 2019, is due to our increased confidence and our rise in administrative expense to the preparedness for the commercial launch. Our rise in confidence came from the fact that, we delivered better-than-expected results on the rescue pen with storage condition and reproducibility of the results in the Phase IIIs that we had. And this actually gave us more, I would say, confidence in this -- in the potential of this program. That's why we decide to invest more on the commercial launch. We have as well initiated late last year, this mini dose -- mini dosing approach in PDH, with a multidose pen that has multiple indications. And so as a result, we have as well increased our investments into our device platform because we think it's really worth it. And that's -- so -- but the guidance we gave you is the best guidance we have to date. There's nothing else to define it.

No, no, I fully understand that. But I think both Thomas and I were sort of looking for an answer regarding [well you know,] let's say, you complete the Valeritas acquisition, you take over the employees. And just to get a feeling that you don't come back to the market in May and say, okay, now the operating expense is going to be DKK 1.2 billion, instead of DKK 810 million. So just to get a feeling of how much does this guidance, in fact, incorporate the build up? So are you going to -- is this going to increase substantially? I know you're going to have less of your own internal build up, but just to get a feeling of the number, how it looks in May? Whether it's still going to be about DKK 800 million?

I get it, sorry. I think the -- to be frank, I don't know numbers. I have no numbers right now because we don't have access to the full balance sheet. What I'm guessing is that, we will have -- we have a build in our balance sheet, which is basically almost the delta between 2019 and 2020, which is our commercial build. And so I think, we'll have to deduct some of that from the cost of the commercial structure, Valeritas. And then we'll have to add on top of that, the revenues, whatever revenue will be generated by this product in 2020.

And so that will give us the final number. To date, I don't know what number it's going to be. My -- again, my gut feeling is that it will be more because we're spending right from now instead of building slowly. But I think, the benefit of that, and it's more investment, potentially. But the benefit of that is that we will be ready, and we will be mapping the territories, and we will be doing -- avoiding the mistakes that some others have done. The big benefit we see with -- and that people forget with the launch of Baqsimi is that Lilly has had people in the field with relationships, with contracts with payers, knowing their territories really well. And so basically, with Valeritas, this is what we're acquiring, we're acquiring a team who has been calling in this field for 8 years now. They know their prescribers. They know the territories. They know their competition. And so that's actually very, very helpful for us.

And the next question comes from the line of Graig Suvannavejh from Goldman Sachs.

Congrats on the progress. I've got several questions. Some of it goes back to the questioning around COVID-19 and potential implications. Thanks for the comments you provided earlier. But I just wanted to get at -- maybe not so much the clinical trial that might be impacted, but can you perhaps give us a sense of whether there is exposure from perhaps drug API or parts for the pen device for dasiglucagon, that could be impacted? And what, if any, plans do you have in place in terms of redundancy? So that's my first question.

And then my second question has to do really more from a commercialization perspective. And clearly, the timing of when you might be able to launch dasiglucagon rescue pen is still some time away, but could you perhaps give us a sense on this. If this tends to be a more prolonged situation where your sales reps are not able to go out and do the traditional selling and marketing and promotion, can you give us a sense of what kind of other marketing or selling tactics could be implemented to kind of -- be used instead of the traditional selling that we're used to by sales force? And then my last question, which is really more on a pipeline perspective. I'm really intrigued by the 7570 program. Can you just remind us where we are in that program and when we might get some data there?

Graig, maybe I can start addressing the corona first. So as we also shared in the [prepared remarks], Emmanuel shared the impact on our business. We do not see any impact on our business on coronavirus right now. And the -- and with regard to API, drug product devices and so on, we have, of course, discussed this over the last few weeks. We also do not see that that would cause any issues. We believe we are not very exposed here. So that is what we can say. And -- so we are not being affected right now. What we are implementing right now is procedures to make sure that we try to support the Danish society and others as per the government dictation, that we help containing the virus so it doesn't spread around the country and other countries.

And on the HypoPal launch or approval. We -- as I said, we will submit the NDA later this month and then, accordingly, we can launch first half next year, a product like 7570. We expect to have results from the single-ascending Phase I study as long as that is progressing that is a good sign, as you know, because it's a safety study that goes higher and higher. And we expect to have the results of that Phase I study this year and then start the Phase IIb single-ascending -- multiple-ascending dose study. It is also a program that we find highly interesting. As you -- in the sense that we believe that we could take management of SBS patients to the next level beyond what a single GLP-2 agonist can do. Maybe I will hand over to Emmanuel now to reply to the tactics around using a potential sales force before the launch of dasiglucagon.

Well, yes, I mean, again, we don't expect right now, delays in reviews from the FDA, unless the FDA goes -- shuts down for coronavirus. But everything right now is managed electronically, for many years it's been. The filing -- are electronics. So I think the FDA can manage it probably from being working from home as well, just like most of the countries are guiding right now. I mean, stay home. So I think this should be on the FDA side, there shouldn't be delays. On our side, in terms of quality of the file, we are very confident that with the clarity of the data set allows us to be highly confident that we have met the criteria for the FDA to meet. So we don't expect delays. In case of delays, you were asking any other strategies that commercial are using, actually, not really. There's no real strategies. The only advantage we may have in this situation is that, there is a product generating revenues from Valeritas. If the deal goes through, that will be actually one support to offset the cost of the structure and keep the people busy in the field. Usually, these delays don't take more than few weeks. And then as well, because we have met the short-term goals and one of them is CHI, which is just behind. We talked about CHI potentially being even like surprisingly accelerated if the results show a huge medical meeting -- unmet medical needs of this patient population. I wouldn't be surprised that this is a product that could be fast tracked. Right now, we have no indication for that. So it's only speculative. But in this type of blue ocean, rare disease, no other therapies are there. And having an agent, which does exactly...

(technical difficulty)

Sorry, we have some technical problems. We will be back with you in a minute. Thank you.

Thank you for standing by, and you are in the main room again.

All right. So sorry for that, we were disconnected for technical reasons. So I think, this is the only -- Graig, the only strategy that basically you offset your sales force by giving them something else to chew on. But of course, the -- I think, as you know, you can use the coming soon now as well, within a short period of time, knowing that you will be approved. So there's a lot of actually strategies we would be using with the sales force to offset potentially the delays. But right now, I don't expect that.

Okay. And just a quick follow-up, if I may, just on Adam's comment about 7570. Adam, I think you said that the Phase I single-ascending dose safety study would read out this year. And then you said assuming positive data there, that you would go into your Phase IIb. Is that something we could expect for this year or next year?

I think we can expect the initiation of Phase Ib, so the multiple-ascending dose study. And then Phase II activities the year after, if things goes as planned.

And the next question comes from the line of Peter Sehested from Handelsbanken.

I have 4 or 5 questions. I know you talked this before, could you just give us a reminder about the time lines for the overall clinical program for the dual-hormone system? Thank you. Second question relating to the election partnerships or partnership, sorry. Some flavor regards to what we should expect about progress here and potential for milestone payments over the next couple of years? Second question, sorry, third relates to the sales force side that you need for the HypoPal? I guess, the numbers -- the sales numbers will be a function of prescriptions and price at the prescription side again, a function of how many physicians that you're going to prescribe? And I guess, this is again a function of how many physicians that you're going to visit, which, again, is a function of how many salespeople that you're having on the field. So if you could provide us a little bit of numbers that could go into that calculation? And secondly, with respect to the 75% of employees that you want to retain from Valeritas, I mean, they had roughly 22% in manufacturing, 75% in commercial and 3% in admin. So those 75% that you want to maintain, could you just give us a bit -- is it manufacturing people? Or is it the commercial people that you want to retain? And the final one is, basically, I guess, Thomas and then Michael's question sort of rephrased and I'll try to keep it very simple. In your guidance, on the costs, do you have any cost from the Valeritas acquisition in there?

Okay. So Adam, you should take the time lines of the dual-hormone.

For the dual-hormone time lines with the Phase III study, we -- as we have communicated, we anticipate that, that will start later this year. It's 6 months to the primary endpoint, and then we expect another 6 months follow-up for -- to collect other safety data. So it's a -- so the duration of the full study is one year, and then it will take some time to recruit and then -- I mean, that is, of course, the question mark, will that take 3 months or will it take one year? And that is -- so that's something we still need to work on, on our guidance. So we don't guide on when we -- right now, we have results from this study. So -- but in our models, it's the timelines for the clinical studies that define -- for this clinical study that defines when you can submit the NDA.

On the election partnership, we're making very good progress with election. And since it's their product now, and we are still, of course, working tightly together. It is actually up to them, when we can communicate on the progress, but we're hopeful that we can provide more flavor on the progress later this year. And as you also know, with this deal, it actually provided the opportunity for Alexion to work with Zealand on 3 additional targets within complement. And each of those opportunities, if they selected to trigger then would carry milestones. So we cannot be more clear on that. But of course, within the next few years, we would expect additional milestones from this program. And then, I will hand over to Emmanuel for the last 3 questions.

On the sales force size and number of physicians targeted to launch the rescue pen, we -- these are -- I mean, one thing, competitive intelligence. So we will not provide that. And at the same time, I can tell you that we have numbers, but they are not refined yet. So we have numbers of, for example, diabetologists who are prescribing insulin, as I said before, high prescribers. We have numbers we have -- and names, addresses and volumes of prescribers of existing kits and we will see the same information for Baqsimi and competitive intelligence on the risk because these are ready information that you can buy and you can aggregate that. That's the work we haven't done yet is you need them to aggregate this data into database and really manage as well field information to be able to know if these doctors are selectively prescribers or if these are -- patients are being referred to them by other doctors, if these doctors are seeing reps. And so there's a lot of qualitative you have to add to that to be able to really refine your target and define your efforts. But roughly, right now, we believe that the existing field force that we would be inheriting from Valeritas would be roughly sufficient to do what we're supposed to do. So we're not looking to -- there will be some adjustments, but I think we will not necessarily expand much more than what we have.

On the Valeritas 75% employees, I want to be clear, actually, this was a condition for us to go forward with the acquisition. But it's not what we are going to do. We did not -- this is a minimum number. This is not what we want to retain. So basically, we're interested by the Valeritas structure. So structure, system, governance, processes, people, payroll, finances, field, medical affair, access team, compliance, legal. So all the, I would say, the front office, so the field people, which are around 90 total as well as some of the back office to support this operation.

But again, the back office, we have a lot in the Copenhagen office and that's where I think we have made some, I would say, synergies in terms of choosing who we will retain and who we are, potentially have overlaps and double counting. So -- but that's where we are. But again, these numbers are not public because they don't exist because we're still, to date, 2 different entities. Only the judge will actually basically decide by the end of this month, if we're successful on the acquisition or not.

And on the costs, again, the cost guidance we gave for 2020 is our cost with the full intelligence of what we know we're going to spend in 2020. So we cannot speculate beyond that. But the -- but we have actually the $23 million acquisition cost that we said we would pay for Valeritas is actually embedded in this, in terms of projected spending. So we have that in our accounts. But not the operational cost because we don't have access to this information yet.

If I could just round off with one final, and this is sort of a general high level thing that everyone likes to ask. I mean, all the projects in the pipeline are sort of your babies, but which one are you most excited about?

I mean, this -- we all are different. So I think it's different to choose between your kids. So my favorite one is the next one, because we're launching something which is real. It's a -- the rescue pen has a very clear differentiated profile. And it's -- and I can tangibly take it in my hands and see it. So it is actually really exciting for someone with a commercial background like me. If you ask my CFO, he loves the CHI because he knows that, that's where the unmet medical need is largest, and we have met with patient associations in CHI. And I can tell you that he gave us a lot of energy to work even harder to help them in their daily challenges. And I think from the get-go, we're all extremely excited by the dual-hormone pump. And I know Adam has been the one who when I was actually doing my due diligence on the company, really convinced me to join the company when he actually explained me how revolutionary this dual-hormone pump was going to be for Type 1 diabetic management. So I think, it's -- I'm giving you an answer which is not an answer because I like all of them. And my background in commercial is on rare disease. And I was at Shire when we acquired NPS. So I wouldn't leave behind glepaglutide, which, to me, is the next best thing for these patients, something that allows them to reduce the burden of treatment and potentially improve the outcome, improve compliance, that's actually an amazing product for them. So yes, sorry, for this answer.

And the last question comes from the line of Jesper Ilsoe from Carnegie.

Yes, it was just a follow-up on the capital and net cash. So how many years you expect to have? And whether or not you have internal threshold? I can't recall whether you answered it. So just if you can explain it again.

Jasper, again, we have a cash position of DKK 1.38 billion. This position is as of December 31 and excludes potential development milestones coming in from partner programs. And then we actually guided that our net operating expenses in 2020 are expected to be, within the DKK 790 million to DKK 810 million range. This -- which gives us roughly 18 months of cash, if you make this calculation. So I think that's it.

So 18 months or -- so just -- so you do expect some kind of revenue, right? So it's just whether you have 2 years or 3 years, at the base case.

Yes. I mean, again, the potential non dilutive cash from partner programs. We don't put that in our numbers because we don't know when it's going to come and how much. So that's why it's not in the numbers, no. And it could be new fields as well. So -- yes.

Thank you. There are no further questions at the moment. Please go ahead.

All right. I think, I will thank everybody for staying on the line. We've got a bit of run time, but hopefully, the Q&A session is helpful for you all. So with that, I will end the call, and say, thank you very much.

Thank you very much. Have a great day.

Thank you very much. That does conclude our conference for today. Thank you for participating. You may all disconnect.