PureTech Health plc

Greetings and welcome to the Pure Tech Health 2024 Half-Year Results Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Alison Mead Talbot, Head of Communications. Thank you, Alison. You may begin.

Thank you for joining us today for PureTech's 2024 half-year results webcast. Our half-year report was made available this morning and was also filed with the FCC. This information is available on the investor's page of our website at puretechhealth.com. PureTech is led by a proven and seasoned management team with significant experience in discovering and developing important new medicines, delivering them to market, and maximizing shareholder value. Today, I'm pleased to be joined by members of the senior team, including Bharat Charera, Chief Executive Officer, Eric Galenko, Co-Founder and President, Robert Lyne, Chief Portfolio Officer, and Chip Sherwood, General Counsel. I would like to remind you that during today's call, we will be making certain forward-looking statements. These statements are subject to various important risks, uncertainties, and assumptions that could cause our actual results to differ materially from our expectations. And we ask that you refer to our annual report and our SEC filings for a complete discussion of these factors. You should not put undue reliance on any forward-looking statements. These forward-looking statements reflect our expectations as of the date of this call, and we undertake no obligation to revise or update any forward-looking statements or information except as required by law. I also want to remind you that we will be referring to certain non-IFRS measures in this presentation. The presentation of this non-IFRS financial information is not intended to be considered in isolation or as a substitute for financial information presented in accordance with IFRS. A reconciliation of the IFRS to non-IFRS measures that we will be referring to today can be found in the accompanying presentation and is also available on our Investor Relations website at investors.peertechhealth.com and in our SEC filings. I will now turn the call over to Bharat Charira, Peertech's Chief Executive Officer.

Thank you, Alison. Welcome, everyone, and thank you for joining us today. In the first half of 2024, we made substantial progress in our mission to change the lives of patients with devastating diseases, which we believe will drive significant shareholder value in the coming months and years. We completed enrollment in our Phase IIb clinical trial of LYT100, also known as duprofenadone, In idiopathic pulmonary fibrosis, or IPF, it remains on track to read out by the end of the year. One of our founded entities, Karuna, was acquired for $14 billion following the acceptance of its new drug application for CAR XT. And we launched a new founded entity, Seaport Therapeutics, with a $100 million oversubscribed CSA financing. Looking ahead, we anticipate significant near-term catalysts, including top-line results from the Phase IIb clinical trial of LYT100, the FDA's decision regarding the approval of CARXT for adults with schizophrenia, and data from our oncology candidate LYT200 in hematologic malignancies and solid tumors. Today, we will discuss the progress we have made thus far why we are so excited about the near-term catalyst and the options we have to realize our return on investment across our portfolio. I'll start with a reminder of our innovative and efficient R&D model. We are proud of the hub and spoke R&D model we have pioneered, which has many benefits, including uncapped upside and diversified risk profile for downside protection. Our hub is our core group of people, proven drug discovery engine, impressive track record of success, and capabilities at PureTech that are at the center of everything we do. Our spokes are our founded entities, which house the programs and platforms that were initially identified and discovered and then advanced by PureTech team through key validation and value inflection points. This model is beneficial in a few ways. First, it is extremely resource efficient. Putting assets into founded entities allows us to extract external capital at the asset level, mitigating the capital burden on pure tech. This allows us to concentrate expertise where it's most appropriate for the portfolio and ensures that promising new medicines are progressed efficiently to patients. Second, bringing in outside partners serves as external validation for programs we have created. It also offers greater optionality for funding the program, such as through an IPO. And finally, the spokes also serve as a source of capital back to PureTech through the monetization of our equity stakes and product revenues. This evergreen source of capital allows us to advance our existing programs, fuel our R&D engine to generate new medicines, and enables us to return capital to our shareholders. The success of our self-funded model is highlighted by our strong balance sheet and the fact that we have not had to raise money in the equity markets in over six years. I'm proud of the clinical and financial track record we have achieved through this model. We consistently maintain one of the most impressive clinical track records in the biopharma industry, with more than 80% of our clinical trials conducted by PureTech or founded entities since 2009 having demonstrated success. And our founded entities have continued to garner external validation and support having raised $3.9 billion since 2018, 95% of which came from third parties. Our strong financial position is underpinned by our disciplined approach to capital allocation and the inflows resulting from monetization of our founded entities. This has allowed us to drive our drug discovery pipeline with an evergreen funding model Return $150 million to shareholders to date. Maintain a strong balance sheet with pure tech level cash, cash equivalent, and short-term investments of $400.6 million as of June 30, 2024, with operational runway for at least three years. This track record is a testament to our efficiency and productivity which we believe drives the potential for significant upside across the portfolio. We start with small molecule and biological drugs that can address significant patient needs and have already demonstrated some level of human efficacy. We then advance these medicines through key de-risking milestones early in the process, leveraging our extensive scientific and industry networks. If a program does not reach our pre-specified threshold for advancement, we quickly deprioritize such programs and move our resources to more promising programs. This approach allows us to move drug candidates efficiently towards value inflection points, where we can then assess the best path forward to maximize patient benefit and shareholder value. Our model has been incredibly productive, with founded entities now returning capital back to us, which enables us to continue on our mission for patients and also evaluate potential further capital returns to shareholders. Karuna's $14 billion acquisition by Bristol Myers Squibb is a great case study for our model and a hallmark of how we create value, both clinically and financially. Karuna's CarXT was invented and initially developed by PureTech. We allocated a total of $18.5 million to Karuna and have generated approximately $1.1 billion to date through the monetization of equity holdings, gross proceeds from BMS acquisition, and a strategic royalty agreement with Royalty Pharma. Beyond this, we maintain the potential for future earnings from milestones and royalty payments based on CarXD regulatory and commercial success, including the potential to receive up to $400 million over the next several years under the royalty farmer transaction, and 2% royalties on CarXD annual net sales above $2 billion. Despite significant success across our business, there remains a significant value disconnect. To unlock our intrinsic value across our portfolio, we will continue to evaluate strategies that employ a capital-efficient approach that balances support for the internal and founded entity programs, as well as funding of future innovations to maximize shareholder returns. In the first half of 2024, we completed a $100 million tender offer, which together with $50 million share buyback program that completed in February of this year, constitute $150 million of capital return to the shareholders. For the remainder of 2024, we will continue to deploy capital with a measured approach and expect to have pure tech level cash, cash equivalent short-term investments of approximately $330 million at the end of the year. This figure is inclusive of expected payments of approximately $40 million to address our tax obligations and does not take into consideration any additional inflows of capital subsequent to the date of this report. We may also continue to make investments in our founded entities with the goal of maintaining our ownership position or minimizing dilution or, in certain circumstances, to help capitalize a financing round that we believe will bring additional long-term value to the company. We will also continue to fund existing programs in which we currently hold 100% ownership interest, such as LYT100, and LYT200 through their key milestones. Advancing these programs internally affords us the optionality either to continue internal development for further value accretion or to pursue external funding or partnerships to maximize shareholder value. With the maturation of many of our existing programs, we will also focus on building for the future. by sourcing new innovations and anticipate selecting up to two programs per year. Historically, initial spend on new programs has been minimal, with exact amount required being program specific. Our innovation engine enables the growth of our portfolio to ensure that the next wave of candidates is progressing towards value creating milestones for shareholders. I would now like to invite Dr. Eric Alenko, our co-founder and president, to provide a summary of our key programs, including LYT100, which has a highly anticipated clinical readout by the end of this year.

Thank you, Bharat. We are very excited by the progress we are making with LYT100, and we look forward to the top-line results of the Phase IIb trial by the end of this year. LYT100, or duprofenadone, is in development for idiopathic pulmonary fibrosis, or IPS. For those of you who are unfamiliar with IPS, It's a rare, progressive, and fatal disease involving scarring of the lungs, and the median survival is two to five years. There are two FDA-approved branded treatments, one of which is Prevendone, and has been shown to slow the decline of lung function and extend life by an average of two and a half years. While both approved treatments are effective, they can cause significant side effects. which means patients cannot fully benefit from the drugs because they are unable to stay on the treatments long enough or at the right dose. You'll note on this slide that nearly 75% of patients with iPS never receive antifibrotic treatment, and of the 25% who are treated with either standard of care medicine, approximately 40% eventually discontinued treatment. Despite these drawbacks, both branded drugs have achieved blockbuster status and generated combined sales of more than $4 billion in 2022, representing a significant market opportunity in IPS and other fibrotic lung diseases. We believe that LYT100 has the potential to supplant the current standard of care treatments and become the backbone anti-fibrotic for a range of combination therapies, as well as the preferred monotherapy for IPF patients. LYG100 is a deuterated form of perfendo that is designed to retain the anti-fibrotic and anti-inflammatory activity that is associated with the efficacy of perfendo, but it has an advantageous safety and tolerability profile. We have generated significant clinical data to date with LYG100. 550 milligrams of LYT-100 given three times per day achieves the same level of drug exposure as the FDA-approved dose of profenadone. In our phase one crossover study, the same dose demonstrated a 50% reduction in the number of healthy older adults experiencing gastrointestinal-related adverse events compared to profenadone. This is important because gastrointestinal adverse events affect patients' quality of life and their ability to stay on the drug. Therefore, one of the ways we find success is by offering the same level of efficacy as perfendone, but an improved tolerability. In our ongoing Phase IIb trial, we are also exploring a higher dose of LYT100, which was well tolerated in Phase I trials, and we believe gives us a second shot on goal of achieving better efficacy. Data support a dose-dependent effect with perfenedone, but the tolerability profile of perfenedone has limited further exploration of higher doses. The primary endpoint is the rate decline in forced vital capacity, which is the gold standard endpoint in determining the efficacy of IPF therapies. The trial is powered to show a statistical difference between LYT100 and placebo over the 26-week treatment period, using a pre-specified Bayesian approach, which has been used previously in Phase II IPS trials. Other key endpoints include tolerability measures and patient-reported outcomes. This trial is expected to read out by the end of the year, and we look forward to sharing the top-line data. We think LYT100 could potentially address the needs of multiple segments of IPS patients. What you see here are the findings from a survey of pulmonologists who actively treat IPF patients conducted by an independent third-party market research firm to assess a commercial opportunity for LYT100 and IPF. As a result, we believe LYT100 has potential to become the standard of care drug for IPF and offer an attractive treatment option to those who are currently not on therapy. Beyond IPF, there are additional opportunities for LYT100 and other progressive fibrosing ILDs, which could double the number of patients who could benefit. Again, we expect results from the Phase IIb trial in patients with IPF by the end of this year, and we look forward to sharing those data. Another program I'd like to highlight today is LYT200, which will be advanced by our founded entity, Gallup Oncology. We are advancing a differentiated approach to cancer treatment by targeting the pro-tumor mechanisms of galactin-9 for the treatment of hematological malignancies and solid tumors. In the first half of the year, the FDA granted LYT200 orphan drug designation for the treatment of AML, as well as fast track designation for the treatment of head and neck cancers. Blocking galactin-9 results in direct cell death, as well as relief of immunosuppression, AML, as well as head and neck cancer, among others. We're encouraged by the preliminary data generated to date in our two ongoing Phase 1B clinical trials, and we expect additional data in the fourth quarter of 2024 for the potential treatment of AML and MDS. as well as in combination with tizolizumab for the potential treatment of advanced solid tumors. The last program I'll highlight today is Seaport Therapeutics, which houses the CNS pipeline spun out from PureTech with an oversubscribed $100 million Series A in the first half of this year and is led by PureTech's former CEO, Daphne Zohar. The Seaport pipeline was born out of our strong R&D engine. It has many of the same elements that led to Karuna's success and utilizes the same approach we're taking with LYT100, unlocking the full potential of drugs that have clinically validated mechanisms, but also key limitations that have hindered full patient benefit. CPORT is different from Karuna because it is centered around a proprietary platform called GLIF rather than a single asset. The Glyph platform is designed to allow drugs to be taken orally as well as circumvent liver toxicity when those issues are caused by what is known as first-pass metabolism. First-pass metabolism refers to the way a drug is processed by the liver after being taken. Some drugs get chewed up to a very large extent by enzymes in the liver, which can cause problems. Glyph allows drugs to be absorbed like dietary lipids, enabling them to be absorbed directly into the lymphatic system, and avoid for past metabolism. The platform also allows new intellectual property to be generated for each new drug that is created. CPORT is advancing first and best in class medicines for people living with neuropsychiatric disorders. They have three therapeutic candidates in their pipeline and multiple discovery preclinical programs underway leveraging the GLIF platform. We are excited for CPORT's journey to make a difference for patients in need. Throughout the remainder of the year, we anticipate multiple clinical milestones across our internal and founded entity programs. As Bharat discussed, we are pleased that we have the necessary capital and discipline to continue to execute on our model to make a difference for patients with devastating disease while creating shareholder value. I'd like to now hand it over to Bharat to provide a recap of our 2024 half-year financial results as well as closing remarks.

Thank you, Eric. I'm pleased to report that PureTech's cash position remains strong due to our unique business model, excellent track record of clinical success, and commitment to financial discipline. At the PureTech level, we ended June 2024 with cash, cash equivalents, and short-term investments of $400.6 million compared to cash, cash equivalent, and short-term investments of $326 million at the end of 2023. On a consolidated basis, our cash and cash equivalents and short-term investments were $500.4 million at the end of June 2024 as compared to cash, cash equivalents and short-term investments of $327.1 million at the end of 2023. Based on our existing financial assets as of June 30, 2024, we expect to have operational runway of at least three years. During the first half of 2024, we have implemented strategies to drive efficient operations and capital allocation which has resulted in a decrease in both our R&D and G&A expenses at the PureTech level. On a consolidated basis, we reported operating expenses of $66.7 million in the first six months of 2024 as compared to $79.3 million in the same period in 2023. As we look ahead to 2024 and onwards, I'd like to note that we are more excited than ever to deliver on our mission to crystallize value for our shareholders. And we view the four elements of this slide as the key drivers. Our portfolio model. Protect shareholders from potential downside with a strong balance sheet and our self-funding model means we have not had to dilute shareholders to a public market raise in more than six years. We also believe our model provides us with multiple shots on goal and shareholders will benefit from our ownership stakes in our internal programs and founded entities as candidates mature. For some of our programs, like CARXT, these anticipated capital inflows are already being realized, and we anticipate additional earnings from regulatory and commercial success. All of these value drivers are intended to enable us to return capital to shareholders, and we will continue to evaluate future opportunities for additional capital returns. In closing, I'd like to thank all of the patients and clinicians who are participating in our clinical trials. I would also like to extend many thanks and appreciation to our dedicated team, including our board of directors and advisors who continue to play an essential role in driving highly innovative and impactful R&D forward. Finally, I'd like to thank our shareholders for continuing to support our journey to bring new classes of medicine to patients in need. We value our recent and continued engagement and your feedback as we remain steadfast in maximizing value both for the patients and for our shareholders. We will now take questions.

Thank you very much. To ask a question, please press star followed by one on your telephone keypad now. When prepping to ask your question, please ensure your device is unmuted locally. If you change your mind, please press star followed by two. Our first question is from Lucy Codrington with Jefferies. Lucy, your line is now open. Please go ahead.

Hi there, thank you for taking my questions. Just a couple to help with modelling please. So is it possible to provide any guidance on the cash burn and expected cash runway of Seaport just so we can better think about the consolidated cash position at the end of the year? And then secondly, the tax amount of 40 million owed on Karuna seems a little less than we were anticipating So I just wanted to confirm that this is the only tax code this year. Thank you.

Thank you, Lucy. So regarding Seaport, even though we are consolidating the financials, it's an independently operating company. And so we are not at liberty to discuss their cash burn on an ongoing basis. So we won't be able to share that information. In addition, regarding the tax question that you had, so we had indicated previously that, you know, based on the proceeds from the BMS transaction for Corona Therapeutics of $293 million, you know, we would be potentially obligated to pay somewhere in the high 20% in taxes. which we would look to figure out a way to offset to the extent we can with respect to any operating losses or net operating loss or other offsets that we can avail. And so based on that, we are projecting that this year in 2024, we would pay approximately $40 million in taxes based on some of those offsets that were available to us.

Thanks very much. Thank you very much. Our next question is from Thomas Smith with LeeRank Partners. Thomas, your line is now open. Please go ahead.

Hey, guys. Good morning. Thanks for taking the questions, and congrats on the progress. Yeah, just first on Light 100, now that you've completed enrollment in the Phase 2b study, I was wondering if you could comment on sort of the high-level characteristics of the patients you've enrolled and how those compare versus your expectations. Are there any notable differences that you'd highlight versus some of the other contemporary Phase II or Phase III IPF studies? And then when we think about potential next steps for this program, obviously it depends on the data that's being generated, but maybe you could just walk us through how you're thinking about a potential Phase III registrational design at this point.

Thanks, Tom. Appreciate it. So, I will ask Eric to comment on those questions.

Yeah. Thank you for the questions. So, we haven't released detailed characteristics in terms of the characteristics of patients. But if you look at our study design, it's really the type of design and inclusion and exclusion criteria that you're going to find in other IPF studies. And if you look at our primary endpoint of FCC, again, kind of gold standard measurement. So I'd say in terms of those overall characteristics, overall approach, that part is really in line with what has historically been done. In terms of the Phase III design, you know, we really need to see the data from the Phase IIb, because that data will allow us to make conclusions about powering. And also, you'll recall in the Phase IIb, there are two different doses that we're using. One dose that's equivalent to the commercially used dose of Profendone, as well as a higher dose. And so the ultimate design of a Phase 3 will be data-driven, coming out of the Phase 2b, which is, you know, fairly typical in terms of the approach.

Yeah, and we plan to, you know, engage with the regulatory agencies to kind of discuss, you know, what that Phase 3 would look like. But we're quite excited about being on track to announce the data by the end of the year, and so look forward to that.

Got it, that makes sense. And then if I could ask a follow up with respect to capital allocation. You talked about balancing your research efforts across both the wholly owned pipeline and the standard entity approach and then selecting up to two new programs per year. You just elaborate on how you're prioritizing some of the early research work and how you're thinking about restocking the wholly owned pipeline versus advancing these programs through new spokes and the founded entity approach?

Yeah. So, you know, in terms of the capital allocation, we've always been quite capital efficient and disciplined in terms of how we spend our cash. We usually, you know, budget for any given study to the next milestone. And so the current two programs that are 100% owned by us, LYT 100 and 200, those two programs, they are funded through the current studies that are ongoing. You know, with respect to our, and then, you know, we continuously have, you know, in Eric's shop here in the R&D engine, We continuously evaluate new product concepts, and we are focusing on small molecules and biologics, and we are directing a lot of our attention towards respiratory inflammation as well as some of the CNS indications. So those are some of the areas that we are focused on. And typically, based on our scale, we can green light up to two programs, but doesn't mean that we have to do two programs. We are very selective in terms of how we initiate a given program. In some years, we may not green light any programs. So we're quite selective. And those initial investments in these programs are fairly modest. And then based on the data, when we do these killer experiments and those that survive those initial de-risking experiments, those then, depending on the indication, could have additional investments going forward. So that's sort of how we think about our internal know r d engine and internal programs with respect to our founded entities you know we um you know are usually focused on you know being a financial partner to the extent that they need financial support from pure tech and a lot of times you know these programs for example when we did the um you know seaport therapeutics um recent launch that they had a 100 million dollar you know um oversubscribed series a and we put in 36 million 32 million sorry uh into that series a round but the rest of the money came from external parties and uh so similarly you know with our other founded entities to the extent that and we still own on 61 and a half percent um in uh in seaport So a lot of times our external investors don't necessarily want us to have such a high stake in these companies as we bring in external investors. And so over time, our, you know, ownership will, you know, get, you know, will decrease and also depends on how much, you know, money we decide to put in in the future rounds. In addition to equity, we also, you know, negotiate with some of these founded entities such as Seaport and the ones that we had with Corona, for example, we also are eligible for milestones and product royalties, which would be, you know, additional source of, you know, cash back to PureTech going forward.

Got it. That makes sense. Thanks for taking the questions and looking forward to the Phase TB data later this year. Thanks, Tom.

Thank you very much. Our next question is from Miles Dixon with Peel Hunt. Miles, your line is now open. Please go ahead.

Great, thank you. Barrett, if I could just return, maybe ask Lucy's question a slightly different way. So, I mean, thinking about the reducing OPEX burn from the syndication, how much of the forward-looking run rate for the second half in PureTech takes into account further R&D in the wholly owned entities that might be moderated on any further syndication? And then maybe another follow-up or two, if I can.

Yeah. So, hi, Miles. So, in terms of... You know, the way we, you know, publicly talked about the capital allocation, you know, we are currently going to spend, you know, there's a bucket of capital that we have set aside to support the existing two programs that are currently in clinical trials. And we'll finish those ongoing studies. So there's a pool of capital allocated towards that. there's another pool of capital allocated to support our founded entities to the extent they need our support going forward. Then there's another pool of capital that we have set aside for potential tax obligations. And we indicated that this year in 2024, we have an obligation of about $40 million. And so the $330 million approximately at the end of the year takes into account that obligation already. And then, you know, up to two new programs, rest of the year, you know, fairly modest investment in those new programs. And then, you know, the other aspect that this $330 million approximately at the end of the year does not take into account any inflows of capital you know, that, you know, we may, you know, receive the rest of this year, including, for example, a small milestone from Royal DeFarma upon approval of CAR-XT, which the PDUFA date is slated for September 26th. And so assuming that gets approval, we are eligible for a milestone from Royal DeFarma and a small milestone from Bristol-Myers Squibb from that license agreement. So that's sort of how you should kind of think about the capital allocation.

Got it. Thank you. I'll spare you from asking you what that milestone might be. But if I could just quickly move on to Gallup. I mean, this was obviously spun out at the same time as Seaport, but yet there's yet to be any syndication on it. Is this because there's potential alternatives being considered, such as partnering, or is it exclusively about waiting for the data to be better advised?

It's the latter. So we want to kind of let the data mature some more, you know, before so that we can get an appropriate valuation. And also it helps us decide whether we really do want to go out and syndicate and bring in external capital or continue to fund this to some extent, you know, additional studies going forward. So we can make that determination later this year based on some additional data that we expect on both the hematological malignancy indication as well as solid tumors. So we're just waiting for some additional data.

Thank you. And probably one final similar question on LYT100. I mean, obviously, there's lots of very good-looking data there so far. If we were to assume that the final wrappings of data, if you like, are very good, is the default internally for you to progress that and fund it yourself, or is the default to then look to partner? Thank you.

Yeah, so when we're assuming the data are positive, which we'll know by the end of the It gives us optionality. We have a lot of options to really think about what is the best path forward to generate the maximum value from that program for us and for our shareholders. And so those options include, you know, we could decide to, you know, do a synthetic royalty type arrangement where we can get funding for a phase three from external parties who would then, you know, lend us the money to run the phase three study in return for some, you know, back end funding. in the future. So that's one avenue available to us so that we can retain 100% ownership in the program, but yet de-risk it from a funding perspective, having someone else fund it for us. The second, you know, option is that we could partner LYT 100, you know, outside for the right for outside the U.S. and use that money to then fund the phase three studies. Could also include a, you know, optionality to raise money. For example, we have indicated in the past that there may be an opportunity for us to address some of our liquidity challenges on LSE since we are dual listed on NASDAQ to raise additional capital on NASDAQ. that could potentially be used to fund a phase three study not because we need the money it's mostly you know to you know try and you know diversify the shareholder base and bring in some specialist investors um on the uh and increase liquidity on the nasdaq markets And of course, there's always the optionality to sell the whole program to a partner or to spin it out and bring in outside investors. So we have multiple optionalities, options that we could evaluate and it'll all depend on the strength of the data and what we want to do and what makes the most strategic sense in generating the maximum shareholder value.

Got it. Thank you. Sounds like you're going to be pretty busy with data in the second half. If I could just very quickly ask on the CPORT versus Karuna economics, when we think about the shape and profile of those that you're now agreeing with CPORT, do they look very similar to the Karuna ones? Thank you.

Yeah. So remember, Karuna was a single asset company for the most part. And so we had some milestones associated with that license. as well as some royalties, which we then monetize with Royalty Pharma. So the structure with the Seaport is kind of similar in terms of, but it actually involves multiple products as opposed to a single product. With Corona, Seaport has multiple products coming out of the Glyph platform, and each one of those products would, as they progress, Now, we would be eligible for certain milestones and royalties and product sales. And the quantum of the royalties are in similar range as Corona.

Thank you, Barrett.

Thank you very much. That's all the time we have for today. Therefore, that concludes today's conference call. Thank you all for joining. You may now disconnect your lines.