Idorsia Pharmaceuticals Ltd

Dear ladies and gentlemen, welcome to the Adocia conference call. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode, and after the presentation, there will be an opportunity to ask questions. If any participant has difficulties hearing the conference, please press star key followed by zero on your telephone for operator assistance. May I now hand you over to Andrew Weiss, who will lead you through this conference. Please go ahead.

Andrew Weiss Thank you, Aurelia. Good afternoon, good morning. everyone to wherever you're calling in from. My name is Andrew Weiss, and I want to welcome you all to our first half 2020 financial results call. Today, we will be talking about the performance over the first half, as well as progress that has been made and how we look at the rest of the year. With me on the call, as usual, are our CEO, Jean-Paul Closel, our CFO, André Muller, and I'm also pleased to welcome Simon Jones, our Chief Commercial Officer, to the call. Since the positive results of both our pivotal trials for daridurexant, many people have been asking, how is Eidosia intending to commercialize daridurexant? Simon has joined in this call to give his first impressions on how we see the insomnia market, and then he will be able to take questions later on. Next slide, please. Before handing the microphone, I need to remind everyone that we will be making forward-looking statements. You, therefore, have been appropriately warned about the risks and opportunities of investing in Eidosia shares. Next slide. Jean-Paul, the floor is yours.

So, slide three. So, the beginning of 2020, the first half of 2020, has been a tough beginning of the year, of course, because of this COVID crisis. But despite the COVID crisis, Eidosia has moved forward in a tremendous fashion. And I think that I would like to tell you that the whole company is now working very hard to prepare the filing of our NDA for the end of the year, hopefully before the end of the year. Next slide. So the first half of 2020 has been marked by a remarkable achievement. I've mentioned the positive two phase three results with Dari Direxant, but we have also achieved a licensing agreement with Neurocrime. We have issued 11 million new shares, raising our cash liquidity. And also, this is important for Eidosia, Janssen submitted an NDA both at the FDA and at the MEA for ponazimod in multiple sclerosis. We believe that the ponazimod is substantially differentiated from other S1P1 receptor agonists, and we are really very hopeful that it will be a commercial success. that we get 8% royalty on the sales of Ponezimod. What is also important is that despite the COVID crisis, we are moving rapidly our pipeline forward. Basically, during this crisis, only one project was more or less on hold. This is the Clazozentan, because Clazozentan patients are hospitalized in intensive care units, and we wanted, in conjunction with investigators, to really keep these intensive care rooms for patients with COVID. But now, the project has restarted, And all other phase three programs are moving forward. We got the delay, and it's very difficult for me to tell you how much is the delay, because all we depend how fast the hospitals can reopen, how fast the traveling, because we need to be able to go to see the patient in the centers and the investigators, all depend how well the countries are going to be able to deal with this crisis. But what is very reassuring for me is to see recruitment picking up now with some of our phase three projects. And for example, I am confident that we will get the results of Lucerastat next year. So next slide. So I think we are on track with Ignatia to achieve the goals that we have given to us when three years ago we were created. First thing was to get three products on the market, and you see with Dariderexan, but with Lucerastat, with Apocytentan, with Clasazentan following, rather rapidly after . I believe this goal is achievable. The second goal was to build a commercial organization, and very soon Simon will tell you what is going on about this goal. And the third point was to bring Eidosia to a sustainable profitability. When we think of the future income of Ponezimod, of Dairy Dorexant, and all the other Phase III programs which are coming, I think that this profitability should be able to be achieved in a reasonable timeline. But what is very important was not only to reach profitability, but to be able to grow for the next 10 or 15 years and see to have brought to the market sales with a potential of 5 billion sales, and I think we are on good track. And finally, what is important, and this is going to be extremely important for the launch of Dairy Direction, we want to use all state-of-the-art technologies, not only for research, not only for development, but also for marketing. And I think people speak about digital launch. I believe that you cannot only launch 100% digitally, but these digital means are going to be very helpful to make from Dairy Dorexan a success. Slide seven, next slide. Slide seven, so we have discuss in length, and I will not come back on that, the fantastic results we got with the redirects. We are continuing since the two last webcasts to analyze these two studies, and I would say we have not found any disappointing, we have not had any disappointments. We discover more and more, I would say, gems in this huge data mind that we have. This product, daridorexan, is really an outstanding product. I think it's going to be really changing the life of many patients with insomnia. Not only they will be able to sleep quicker, to sleep longer, to sleep, I would say, better, but I'm convinced that we have evidence to show that with this drug, people can function better during the day. So we are soon going to show the results at the scientific conference. The first results will be shown in August, but of course, there are, I would say, tens of papers to be written based on the huge database that we have. We must not do the mistake. Now, next slide. We must not do the mistake to believe that even we saw fantastic results, a drug can sell by itself. We need to explain the differentiation of . We need to explain what are going to be the benefits of this drug. And this is going to be the goal of the launch. which is now orchestrated and prepared by Simon Jones, who is our chief commercial officer. Simon has now been with us for more than a year. He has a fantastic experience for not only but for large, for this type of products. He got his experience with GSK, and he's going to tell you What is happening on the commercial front? Please, Simon.

Thanks, Jean-Paul, and good morning, good afternoon, everybody. I'm very pleased to join today's webcast and provide you with a short update on our commercial strategy. Obviously, following the positive Phase 3 results with the redirects, we're moving full speed now to prepare for a successful launch. And as you've seen, we've established the U.S. affiliate and already appointed a talented leadership team with deep experience of the U.S. market. And to give you an idea, they collectively have 178 years of experience and have worked on 40 launches between them. Deredorexan is the first sleep medicine to demonstrate not only an improvement in sleep onset and sleep maintenance, but also, as Jean-Paul has said, in daytime functioning, all without compromising safety. So with this outstanding profile, we believe Deredorexan will be clearly differentiated from existing erection receptor antagonists and the older widely prescribed sedating sleep agents. Now, while we're clearly excited about the phase three results, I'd like to take just a few minutes to share with you why we're also excited about the opportunity we have in front of us in the insomnia market. Next slide, please. The insomnia market is huge, with an estimated 20 million adults in the U.S. alone suffering from chronic insomnia. and with more than twice that number experiencing poor sleep. Insomnia at night affects every aspect of a person's day, including reduced productivity and greater work absenteeism than healthy sleepers. Relationships with family, friends, and co-workers can suffer too. And the impact goes beyond quality of life. Insomnia costs the global economy approximately $100 billion a year. And furthermore, there's growing evidence that chronic insomnia is associated with increased risk of other diseases, such as cardiovascular and cerebrovascular disease. But despite this substantial burden, the insomnia market is underserved. Existing products all have limitations, whether that be insufficient efficacy through the night, next morning residual effects, or other well-known adverse events. So, all in all, there is a high unmet need in a very large patient population. Next slide, please. Now, one of the things that gives us confidence in the magnitude of the unmet need is the prescribing patterns in the U.S. that we've seen over the last 15 years or so. As you can see from the chart, there's been a significant decline in the use of the Z drugs following the FDA dose change and safety warnings in 2013. With the addition of the black box for complex sleep behaviors last year, we expect the shift away from the Z drugs to continue. Now, since 2013, we've also seen a corresponding increase in the use of Trazodone. We're doing more analysis on this, but we estimate that 70 to 80% of Trazodone scripts are written at doses primarily used to treat sleep complaints. And this, despite Trazodone not being licensed for insomnia, and the American Academy of Sleep Medicine guidelines explicitly recommending against its use. This clearly suggests there is a large unmet need and a big opportunity for a product that is specifically developed to treat insomnia that can deliver the desired efficacy without compromising safety. And as an aside, these data also remind us that we need to account for this large and growing off-label use of trazodone in order to get the true picture of market potential. Next slide. So I'd like to finish by sharing our commercial approach of launches and how that applies to Derrida Rexhands. First, although there's a real opportunity to transform and modernize the insomnia market, we cannot approach it in a standard way. We need to bring innovative approaches to our launch, including predictive analytics, And as Jean-Paul has said, the use of digital channels and wearables and an overweighted focus on the patient in the disease area we're entering. Second, we believe the redirect scent will have a clearly differentiated profile. I've spoken to this already, as has Jean-Paul, but the effect on daytime functioning and the safety profile of the redirect scent are two obvious and important areas that stand out for their difference to existing sleep products. Derrida XAN has the potential to bring patients suffering from insomnia what they want, to sleep longer at night and feel better during the day. Third, we need to be flexible and nimble in how we build commercial organization. We'll build global brands with consistent positioning and claims and use best-in-class platforms and ways of working. Since we're building our organization from scratch, we have an opportunity to design this in from the beginning allowing us to move fast, make quick decisions, and grow in a cost-effective way. And finally, when we look across our pipeline, all our late-stage assets are in the specialty area, except for the redirect zone, where, as you all know, a large volume of insomnia prescriptions are in primary care. We're confident we can build the capabilities we need to successfully launch our specialty assets, and they do not require large infrastructure. But for Doridorexan, in order to capture the full potential of the product, we need to effectively reach the primary care market. And we will do so through selective partnerships. As you know, we have already announced a partnership with Mishida in Japan, and we are currently in discussions with a leading contract sales organization in the U.S. to partner for our launch there. This partnership strategy allows Eidosia to retain control of the product and build our own core capabilities while leveraging our partners' experience and track record of launching products in a primary care market. So in closing, Doridia XM is the first asset we will commercialize globally from our robust pipeline. We're very excited about the phase three results and believe we have a product that will enable Idorsia to lead the much-needed modernization of the insomnia market. Our launch preparations are well underway, and we're ramping up the recruitment of our teams. A partnering strategy to reach primary care is clear, and I very much look forward to providing you with updates on our progress over the next year. And with that, I'll hand over to Andre. Thank you.

Thank you, Simon, and good afternoon or good morning to everyone on this call. With no further ado, I will go directly to the next slide, number 13. Let me start here with the P&L and how our results came about. On the left side, you see the revenues of 58 million Swiss francs. These relate to 48 million corresponding to the portion recognized in the P&L of the $57 million paid by Neurocrime for the rights to develop our calcium T channel blocker. develop and commercialize, of course, and a two-year research collaboration for backups or follow-ons. Out of these 57, five were already paid in Q4 2019, and 52 were paid in Q2 2020, following the IND granted by the FDA for this calcium T channel blocker. The rest is 10 million. And its deferred revenue, we see a previous collaboration already announced, Yanpen with Apocitantan, 5.5 million, Roche with a research collaboration, 2.5, and Moshida, 1.8 million. The collaboration Simon just alluded to in Japan as a co-marketing for Dalido XM. I will detail the 193 million non-GAAP OPEX in a minute and go directly to the next packet, which is the, I would say, usual DNA, 10 million, stock-based compensation, 11 million. These are usually the main differences between non-GAAP and U.S. GAAP, around 40 million on a full-year basis. So you see here that we are well on track. But there is here, and you see it in this bracket, other of 24 million. There is another difference between non-GAAP and US GAAP, which is relating to a tool in connection with a non-going arbitration. Bear with me because I think it's worth spending some time to really explain you what is this all about. This 24 million... accrual is relating to Clazozentan. Eidosia currently develops Clazozentan. As you know, we have almost completed the Japanese registration trial, and the ongoing REACT trial will also be hopefully completed by end of next year. So we should commercialize Clazoventan across the globe if the drug is approved. Clazo was acquired by Actelio through an FPA, a Share Purchase Agreement, with a company called Axovan. And the Axovan vendors were entitled, or are entitled, to 115 million potential regulatory and sales milestones if and when used. Out of these vendors, 65 of these actual vendors entered into an arbitration claiming that the J&J transactions, and here I use the plural to encompass the J&J acquisition of Actelion, but also the prior spin-out of Eidosia. So the claimants believe that this transaction triggered a change of control and therefore that are entitled to the accelerated payment of all outstanding milestones. This would mean 75 million relating to Clasoventan, and they even claim another 5 million for another compound that was discontinued many years before the merger. Remaining Axovan vendors included Actelion for 7%, or 8 million, so this is Eidosia now, and we'll never have to pay this milestone, because it's left pocket, right pocket, and 28 that decided not to join the arbitration. In H1 2020, Eidosia acquired from this 26% 26 of these 28% non-claimants, all their future potential milestones, around 30 million, for a cash consideration of $9 million. Obviously, the non-claimants, two-season and reputable venture capitalists, considered that this deal is a fair deal, considering the probability of success and, of course, the cost of capital. So the $9 million is, in essence, an accelerated milestone and, therefore, was booked as an R&D expense. as you will see in the next slide. But before, I would like also to recall that the same offer was also made to the remaining 2% non-claimants. Some of them have already taken our unconditional offer, but we also extended this offer to the 65% claimants, such settlements being under certain conditions notably the claimant bearing all arbitration and loyalties. Should these 67 remaining vendors, two non-claimant, 65 claimants, take our offer, Eidosia would pay a one-time payment of 24 million in lieu of 77 staggered milestones. So this 24 million accrual is also booked in R&D expense. So the total impact in H1 2020 is an expense of 32 million. And for further details, please refer to the legal update of the tax relief or the NO 12 of our interim consolidated financial statement. To finish with this slide, you have also below EBIT an 11 million item. And this $11 million item is mainly relating to the interest paid on the $200 million convertible bond that has a coupon of 75 basis points. And our deposits, we have a negative yield on the Swiss deposits, almost compensated by the positive yield on the US dollar deposits. We have also a $4 million accretion expense on the J&J $445 million convertible loan and $4 billion unrealized loss on the $1.3 million from TerraShares that we hold and that are valued on a quarterly basis mark-to-market. We can go now to the next slide, number 14. As you can see here, we see a non-GAAP operating expenses. we spend much less in H1 2020 than in H1 2019. If you exclude the 9 million milestone, the spend was 184 million, so 50% less than in H1 2019. Going from right to left, so we already discussed the 9 million milestone. you see a small increase of $3 million in GMA, which was mainly driven by IT systems because we need to prepare the supply chain and commercial systems and processes to enable us and to enable Simon and his team to launch the products starting with Daridorex and across the globe. Commercial went up. from 5 to 7 million, with now the core team recruited in H2 with Simon, and also in the U.S. with the GM, Patito. And you see that the clinical developments went up from 101 million to 151 million, so 50 million more. And that's mainly due more than 40 million out of the 50 million decrease is due to the pivotal trial for daridoxan, which came to an end at least for the pivotal trials. There's still a lot of work to do, but in H2 2020. And drug discovery went also slightly down from 56 to 49 million, mainly due to some projects that were postponed. There is clearly also in the numbers of the first half of 2020 an impact due to COVID-19, so a clear underspend really relating to COVID-19, which is around 30, 40 million. Let's go to the next slide, 15. So let's see how our cash flow came about. We started here with $739 million liquidity. We spent $193 million non-GAAP OPEX, as we just discussed. We cashed in $59 million milestones, so it was the $50 million from Neurocrime, but also the $9 million strength from Moshida. We had limited CAPEX, $4 million, and an increase in working capital requirements, mainly 16 million. And as Jean-Paul already mentioned, we raised 330 million growth with the issuance of 11 million new shares, so at 33 francs per share, or 323 million net after the 1% stamp duty, on any capital increase in Switzerland and also after lawyers' and bankers' fees. So we entered the second half with a strengthened balance sheet with 908 million liquidity. Let's move to the next slide, number 16. This slide briefly gives you the breakdown of our liquidity. with various durations to offset the negative interest rate environment on SwissRank's deposit. And as you can see, our liquidity is mainly held in SwissRank to avoid any currency risk. But 146 million are also held in U.S. dollars to cover our forecasted expenses in U.S. dollars. Next slide, please, number 17. And I will finish with the revised guidance. But before giving you more color on this guidance of 490 million non-GAAP and 530 million U.S. GAAP, keep in mind that it excludes additional milestone payments. So in this guidance, 9 million are included, of course. and any potential award granted in the ongoing arbitration. The arbitration is substantially completed. Witnesses hearings took place a few weeks ago, so we can now reasonably expect the decision of the arbitration panel before year end. Then the 24 million accrual that we also discussed a few minutes ago will be reversed and the final award will be booked in the R&D expenses. So the final award is almost binary. It will be zero if the arbitration panel concludes as we believe that there was no change of control triggered by the change in transactions. It could go up to 92 million if the arbitration panel conclude that there was a change of control that would then trigger the acceleration of the milestone, 75 million for Glasgow and possibly 5 million for the second compound. And on top, you would have statutory interest for later payment, 12 million as of end of June. So should we lose the arbitration? Of course, we would pay the same award to any remaining non-claimants. They are below 2% now, so it would be less than 2 million by now. And as I told you, we have some non-claimants already that have already taken the offer we made. So in the worst-case scenario, the total impact would be up to 94 million plus additional statutory interest for late payment between end of June and the final judgment. plus potentially arbitration cost. Again, we believe that no change of controls occur, and therefore the arbitration panel should not award any claim to the claimants. We'll still be entitled, of course, to 75 million baggage milestone if and when due. So now back to the guidance. The 490 million, or let's exclude the 9 million, so the 480 million guidance, this means that with roughly 183 million paid in H1, this would mean that we would, we will spend 300 million in the second half of 2020. First, as explained, there is an underspend in Q2 due to COVID-19 crisis, and this should be spend in H, most of it should be spend in H2. We also plan for some significant drug substance and drug product supply, around 25 million for that exact. in order to have enough finished products for the launch of DALI DirectSend starting with the US. We also plan for a significant increase with some commercial or marketing and selling expenses fixed but also variable. It's another 25 million in order to really prepare the market for the launch of DALI DirectSend. And we have another bucket which is around 20 million where we are preparing for the phase three of our main phase two assets, i.e., SceneryMod and CelatoGal. So, yes, it looks like a huge spend. The $300 million looks like a huge spend in the second half of 2020. There is a catch-up due to the lower spend due to COVID-19 in the first half. and also some one-offs in order to properly prepare the launch of Dari DirectSand and to supply with finished products. With this, I hand over to Jean-Paul for his concluding remarks. So, operator, please, next slide.

So, slide 18. So, thank you, André. Thank you, Simon. I hope you have seen that the company is moving forward, getting ready for a successful launch of Derrida Rexant. It's always difficult because I have seen the data, you have not seen the data of Derrida Rexant, but in August you will start to have a first look and I think that you will not be disappointed. What you have also to remember that until the end of the year, a lot of events. Not only you will see the data of the dyridorexan, but there will be a lot of results that we will get. We are, in the second half of this year, we are going to have the results of Clasozentan in Japan. We are going to have the Phase II, maybe the Phase II results of the dyridorexan in Japan. A lot of new information will come. And so I say stay tuned because it's going to be an exciting second half of 2020. Thank you.

Thank you, Jean-Paul. So with that, we've come to the end of our prepared remarks. Next slide, please. So now we can go into the Q&A session. Operator, please prepare the lines.

Ladies and gentlemen, we will now begin our question and answer session. If you have a question for our speakers, please dial 0 and 1 on your telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you find your question is answered before it is your turn to speak, you can dial 0 and 2 to cancel your question. If you are using speaker equipment today, please lift the handset before making your selection. One moment, please, for the first question. And the first question is from James Gordon, JP Morgan. Your line is now open. Please go ahead, sir.

Hello. Thanks a lot for taking the questions, James Gordon and JP Morgan. The first question was about erection competition in J&J. So we recently saw that J&J sold their stake in Eidosia, and that decision seemed to come quite shortly after they got full rights to their erection too. Seltorex then returned to them. So two elements to the question. How do you think Doridorexin stacks up against SELCO based on what we've seen so far in insomnia? Is that a significant competitor we should worry about? And also, I think they're quite bullish about their orexin for use in depression rather than just in insomnia. Are you thinking about also doing Dorido for depression? Could that be an interesting opportunity? That was the first question. And the second question would just be on partnering. I know I'd also want to take Dorido to market itself, or maybe you're also using some sales organization. But in terms of other assets in the pipeline, Do you still think that you necessarily want to do everything yourself? Or now that the redirection is looking pretty nailed on, could you actually say, well, something else we consider licensing to someone? Or could you monetize other things like the penesimum royalty stream? So is there anything else that you might do more collaborative actions on? Okay.

Let me just summarize your question. So on the one hand, competition in the erection environment, you're looking for comments on What do we think about and whether we are interested in developing in the direction of depression? And the second question is with regards to partnering. On the one hand, we acknowledge , we look for marketing muscle, but your question goes to whether we'd be inclined to partner out other things. Do I summarize that correctly? Exactly.

I think you have a very good question, James, about depression and sleep, because it was a choice we had, let's say, three or four years ago. Should we try to niche our product into a small indication, or should we go to the very large indication which we did? And at this time, we had also some discussion with the FDA, and so we know a little bit what is their mind. And I think, frankly, it was very clear to me of why to go for a small niche indication if you have the whole big indication, because, frankly, somebody who cannot sleep with depression can take daridorexant any day. There is no barrier, and there is no reason why you should not take it, and how you can really make money if you go to a niche indication when somebody with supposedly a lower price will have covered your indication in addition to all the other indications. So we always thought that there is no possibility to go to a niche first, but of course, because of our very good results, it doesn't exclude at all that we cannot start studies. But I don't think this will be a registration study, but certainly scientifically valid studies in many different types of patients. And this might include, of course, depression, but this might include also patients with sleep apnea, every type of indication you can think of. And that's our strategy. First, let's get the bigger label, and then show the benefits in a much more concrete way in subgroup of patients. And this is, of course, a program which we are designing now. And I think that for celtorexant, frankly, what we have seen is a selective orexin. We do believe we need to block both receptors to get the whole benefits. And the first results were not really convincing. So I'm not sure what is going to do Janssen with this drug.

Do you want to comment on our appetite for partnering other drugs than Daridirexant?

Yeah, I think that because we now know that Daridirexant is going to be put on the market, we are a little bit more relaxed to be able to find a partner. Now, we have also revenues, and so we know that we are closer to, I would say, closer to profitability than before. So, frankly, we will partner, and we are in discussion with some partners, but we need to have really good conditions because it's not a few million milestone which is going to change anything for us. We need either a very large partnership or no partnership. Thank you, Jean-Paul.

Thank you. Question, please.

And the next question is from . Your line is now open. Please go ahead.

Hi, everyone. It's from Barclays. Apologies if I missed you on the call, but can you firstly remind us of your timing estimation just for Casa Fentan's REACT study and on AfroCitin TAN phase three as well? And then two more questions. Firstly, can you outline the potential implications that your direct and commercial plans will have on the company's capital requirements? Do you expect to raise more funds? And thirdly, what's your long-term vision for your subsidy, which now holds the full amount of vaccine? And are there any R&D projects of interest that you might want to call out that are going on in there. Thank you.

Okay. Thank you, Jamil. I understood your second and your third question. So what are additional funding requirements and how does Vaxalon potentially impact going forward? Those are two finance questions. I would defer those to Andre. Could you repeat your first question, please?

Sure. It was just an update on your timing estimations for the REACT study for casus intent and on apposite intent phase three.

Apposite intent. Okay. So, as for, you know, REACT is restarted. You know, as we said, it was really stopped the recruitment. It started, you know, the Japanese studies have finished recruitment. So, we get the results this year. The REACT study is restarting, and frankly, you know, it depends of what is going to happen in the United States and in some countries because of the COVID. So we know more about the timing exactly, I would say, at the end of the year. I know some patients have been recruited already, but, you know, frankly, is there a second wave in September or not? That's going to be the key. But our intention is to finish recruitment the whole next year. And by the end of the year, next year, so we should have finished recruitment of React at the end of next year. And then you have to count three months of follow-up. So that the beginning of 2022, we should. But it all depends on this COVID crisis. Apocytantin is moving well. We are opening a lot of new centers because we really want to compensate for these COVID delays. So, and again, we are, you know, a lot of these patients come from United States and who knows what is happening in United States, frankly. So, again, we are Difficult to give you some timelines. We have more than halfway through. What is very important for you to know is that both for REACT and aposetantin during, of course, the patients continue to be treated during this COVID crisis or safety assessments were continuing during this COVID crisis. We had for both of the program mentioned DSMB looking at the data And to my knowledge, no negative information came to us. So the studies are continuing, which I think is very, very good, because I have no doubt that, for example, that procitantin works on blood pressure. Its safety is always a very important element to be informed. Thank you, Jean-Paul.

André, do you want to pick up on the funding requirements in Vaxelon, please?

Let me start by the smaller one, Vaxilon. Yeah, as you've seen, we acquired the minority 26% equity stake and also subordinated debt of 12 million for an upfront of 1.5 million. And we also terminated with Max Planck CLI around the synthetic carbohydrate vaccines. Now we are, so we fully integrate vaccine in our drug discovery organization. And there are two programs ongoing, one on CD, so there's one on Klebsie, the pneumoniae. And that will require some more funding to go to the end of phase one, around 10 to 15 million. And if we enter in phase two, then the minority shareholders would be entitled to an amount of 3.6 million, but only if one, if both would enter into phase two. And you're right, we are not a vaccine company. We believe that if we have compelling results after phase one, we should seek for a partner for these two assets and maybe also the know-how developed by the Vaxilon team. So that's your third question. Regarding the second one and the funding gap, yes, We see 330 million. We have a strengthened balance sheet. As Jean-Paul said, this also allows us not to take offers from potential collaboration if we believe they do not reflect the real value or potential value of some of the assets. But we have some discussion on some of our assets as we had one concluded with Neurocrime for the calcium key channel blocker. And clearly, also ahead of the launch, like one of that will require setup via commercial organization and pre-launch marketing and selling expenses. Yes, we are definitely not funded to break even. Here, we want to remain nimble and to see if and when we want to raise cash, either through equity capital market or equity-linked capital market. You also alluded to royalty monetization deals. You have an ideal candidate now with the 8% revenue sharing. We are entitled to regarding PONESIMOD and, of course, outlicensing deals with hopefully upfront payments and sharing of the development costs that would also reduce this funding gap. So yes, not fund it until the break-even. So we will need, in one way or the other, we need to raise more cash.

Thank you, Andres. Thank you, James. Operator, next question, please.

Yes, the next question is from Ram Siddharaju, HC Wainwright. Your line is now open. Please go ahead.

Thanks very much for taking my questions. Just two very quick ones. If we look at Darryl Durexant and the commercial operations considerations for this molecule. Is your thinking that if you were to pursue the commercialization of direct sense exclusively independently, that having one product in the bag of the sales rep would be sufficient? Or do you believe that it's potentially best to optimize direct sense commercial chances by having it be paired additional product?

Thank you, Ron. Simon? Yeah, I'll take that. I mean, if you look at it purely through a financial lens, often people will conclude that having a second product clearly allows you to amortize the cost of the sales force. Conversely, we also know that when people are very focused on one disease area, one product, they actually are way more effective. So right now, when we launch the redirects out with the sales force, it will just be carrying the redirects out. If in the future there is a call for other primary care support for a future asset, then clearly we can bolt that into the Salesforce, but when we launch, it will just be with Dorrida XM and Insomnia.

Okay, and then just very quickly on just a clarification question on the timeline. Is the revised timeline or the timeline that you talked about today of mid-2022 taking into account sort of a full resolution of the COVID-19 situation and its impact that you have seen so far on enrollment? Or are you assuming sort of continuation of the COVID-19 impact throughout the course of next year? Just wanted some clarity on that, please. Thank you.

Yeah, I think we are not so optimistic to believe this is going to resolve. I don't think that until we get the vaccine, I think unfortunately we have to live with that. But, you know, many countries reopen. Many countries seem to be able to cope with it and can now recruit patients, include patients. So what we told is that we have anticipated, we are anticipating the problems of COVID and, for example, increasing the number of centers because we think that the output of the centers is going to decrease. from what we had planned. So the timing that mentioned, but it's difficult, really, really difficult to precise, to be precise, but the timing is including continuation of the crisis. The question, of course, is which geographical area is it going to get worse or better? Some studies, for example, Lucerastat, maybe more European studies where we can really recruit patients in Europe. In Japan, we have also done the Lucera study, if possible. But for some disease, U.S. is very important. And U.S., surprisingly, in my mind, surprisingly, is in bad shape for the COVID crisis in the present time. Thank you.

Thank you, Rob. Operator, next question, please.

The next question is from Greg Savanovich, Goldman Sachs. Your line is now open. Please go ahead.

Yeah, thanks. Good morning. Good afternoon. Thanks for taking my questions. I've got two today. The first, I really want to go back to the Phase 3 data for Derrida-Rixant and the plan to – pool the data from the two studies. I just want to clarify, is your understanding that pooling of the data is something that the agency will accept? In other words, did you need to show two separate positive phase three studies, or is it pre-specified that you could pool the data together in order to have an integrated view of the efficacy of the products? That's my first question. And then my second question really speaks to the commercialization efforts around Derrida RecSense. And I'm just wondering, at this stage in the game, if I could ask, what does the company think the key critical success factors are for a successful launch in this space, in light of the fact that, you know, there is heavy use of non-branded products like trazidone as you pointed out but you will be the third door to the market and differentiation versus the other two doors i'm just trying to get a better sense of how the company is thinking um where dorito can really differentiate not only versus other doors but just generally in the market thank you great questions great thank you

Jean-Paul, you want to take the one on the first one? Yeah, I will take the one and half of the second one. I give half to Simon. But first one is, first of all, we don't need to pull. You know, the two studies are positive. And when you see the data, there is no doubt. And the FDA, you know, wants to know what is the dose. And we know that the 50 milligram, everything was positive. And frankly, and 25 milligram, a lot of elements are positive in both studies. So I think there is no doubt that this 25 milligram doesn't need the pudding. The pudding is just going to precise for the FDA the extent of the effect because we have a very clear confirmation of how much is the 24 milligram efficacy. There is no doubt that the 25 milligram works. And there is no doubt that the 23 mg has an effect on the functioning. Just for your information, 10 mg, which was approved by the FDA, has never been tested in phase three. Never. So, you know, the FDA doesn't really want to have two studies. They can even approve a dose which has never been tested. They want to know if the drug works and what is the dose, and we have given to the FDA, we're going to give them the best data they ever had with the sleeping agent, where we know that the 10 milligram really has a minimum effect, it's a very small effect, where 50 milligram is fantastic, gets everything we want, and where 25 milligram is between the two. And frankly, I think that with that, and with the incredible safety, which is very interesting because 50 is even, I would say, at least as safe as 25. So, really, I have absolutely no doubt that the FDA will be very happy to see this data. Now, of course, the pudding is very nice, but it's a cherry on the cake because, frankly, I don't think it's even needed. But we'll do it. It has been preplanned, and the FDA knows that we are going to do it. And, of course, this is going to be interesting information. Now, just before Simon answers, you know, it's interesting because you say it's a third of the product, it's a third of the thing. There are 20 generics or 30 generics companies. The most important is what is really, you know, do you have the right product? You can have 40, 50, 100 products. If they are not the right product, it doesn't matter. You need to have the right product, the best product. the product which does the job. And frankly, we have it. This is the first time in the sleep market you will see a drug which can make you sleep faster, better, longer, and doesn't have safety consequences, and even more, can improve your functioning in the day. No drug can do it because it took us 22 years to get it there. You know, it didn't come by chance. We fighted so much. We made 30,000 products in order to get this one. And frankly, it was so difficult because you needed the perfect pharmacokinetics, the perfect affinity over the receptors. So it's going to be really disruptive. Now, starting from the big product, there is a lot of things to be done, and Simon is going to tell what is going to be important.

Yeah, thanks, John Paul. And there's no doubt that just because we're another DORA, they are very different in their PK profile. You only have to look at the dose response we get on efficacy and the lack of dose response we see with our adverse event profile. That is a very different product than Suborexan or Lemborexan. And in a way, I think that flips into the access point, because we're obviously aware that we're entering a largely generic market. So the first thing is we've got to have a differentiated product, which we absolutely have. Secondly, I think unlike many generic markets where people, by the way, can still succeed, we know that there's a systemic concern about the use of the generic agents at the moment. And I think the reason we're seeing people moving to trazodone is because they don't have other options. So when you start using the off-target effect of an unlicensed medication in preference to the licensed medications, To me, that just tells us that we've got a big opportunity in front of us. Obviously, we're working through all the activities around market access and payers and everything else, but I think we're confident with the profile of the product and the growing concern about the agents that are in the market right now. That will not be a barrier to us being successful.

But also, as we say, the preparation, the pre-marketing, The market access was mentioned. There are a lot of other activities. A launch is a huge enterprise. And I would say the most important success factor, because you are going to ask me, is the experience of people who have made successful launches. Because you cannot invent what is needed to successfully launch. And I think that we have a good team. And really, we have the most important is a fantastic product.

Thank you, Jean-Paul. I hope that satisfies your questions, Greg. We've come to the top of the hour. Operator, are there more questions?

We do have another question from City. Please go ahead.

Thanks for taking the questions. They're quick ones. I note that the second door to the market looks to have been launched at a price discount to Belsomra, and I wondered whether you could comment on whether you think the profile you've demonstrated for Daradirexant would command a price premium. Secondly, on Daradirexant, I wonder how much of the marketing is going to be direct to consumer and how much that might be part of your costs in 2021. And then thirdly, just on the $300 million cash burn for the second half of 2020, is that a realistic run rate for 2021? I wonder if you could just talk about the moving parts of your costs in 2021 and whether we can use that $300 million as a run rate, or will that be lower? Thank you.

Thank you, Nick. So the first two I think for Simon, and then the third one on the cash burn run rate coming out of the second half of the year. Andre, do you want to comment on 2021 after Simon?

Sure. Thanks, Nick. Good questions. You'll have to obviously ask Isai about why they've gone 25% lower than Subarexant. It's early days for us to be talking about price, but we certainly plan to price the product according to the value that we're bringing to the marketplace. And on the second thing with regard to DTC, we absolutely see the patient and the consumer being critical in this launch and this product. I think DTC now, we should not be just thinking of big television spend. I think there's an awful lot now of different channels where we can get to patients through digital technology, omni-channel marketing, much more targeted, much more personalized messaging. And that certainly would be part of our plan. In 2021, obviously, there will be no branded activity because we won't be approved, but we would expect to be starting our pre-launch activity, as Jean-Paul referred to.

Just, you know, before we go to the finance and André maybe answer the last question, I'd like really to make a quick scientific explanation why it's so important to have a short half-life and a reproducible absorption. I think that what you see with ASI products, is a huge problem related to a half-life of 14 or 15 hours and a huge variability into the absorption. So in order to avoid, you are between, you know, the rock and, you know, either if you want to get good efficacy, you are going to get long-term side effects because people won't be able to wake up, or if you don't want side effects, you have to have a low efficacy. And the worst of it is you don't know how to choose the dose because from one patient to the other, there is a huge overlap between the two plasma concentrations. So you are stuck. And this is why we took so much time for us to find the right kinetics, short applied, good absorption, reproducibility, no drug interactions, because that allows to perfectly titrate each patient to the right plasma concentration. and also to avoid the remaining efficacy of the drug in the morning. You know, what can you do if you are still sleeping in the morning? You know, you cannot avoid that. The only way is to give less, and if you give less, you have less efficacy. So, you know, there is really a huge importance of the pharmacokinetics for this product, and you have to remember that, and this is why we have a unique drug. Now, maybe André can discuss about the, But we are not in the guidance of 2021, I suspect. But maybe, André, you can give some answer.

You know, I always agree with my CEO. We are definitely not giving a guidance for 2021. What is clear and... I was quite transparent. There are some one-offs in the second half, catch-up due to delays of COVID-19, and one-off because of significant drug substance and drug product, notably for dihydroxane, plus some extra costs to prepare for phase 3 of sedatogrel and senerimod. So I would rather not take the second quarter, the second half as a basis for 2021, but you have, we could spend up to 480, including the milestone. So 480, for sure next year, we will go down in R&D because we finished some very expensive phase three trial with dalyloxant. Depending when we will initiate the phase three polyseracet and cebatogrel, this will have an impact. But for sure, globally, I would expect to be low. But for sure, Simon will have to properly assess market by market, starting with the U.S. Not so much with the commercial organization, but also with all the pre-launch marketing expenses which will be a one-off, how much would be spent in 2021 ahead of the launch that should take place at the beginning of 2022 with the current timeline. So not willing to make any commitments. The only thing I can tell you is that there will be a shift between R&D and G&A in favor of additional cost in commercial. But that's the price to pay in order to size what we believe is a huge opportunity in the insomnia market.

Thank you, André. Operator, do we have questions left?

We have one final question from Barbara Blahan, Credit Suisse. Your line is now open. Please go ahead.

Hi, thank you for taking my questions. I have two very quick questions. First, for Dari Direxan, can you remind us of the filing and commercialization plans in Europe? Do you intend to file here and also launch with a partner, et cetera? And then other question is regarding scenario modes. Do you plan to do the phase three trial with a partner and share the R&D costs, or do you prepare it to do it by yourself? Thank you.

Okay.

With regards to European launch, Simon, it would be nice to have a comment from you, and on SceneryMod, the future of the phase three. It's our poll, maybe.

Yeah, I mean, we see a big opportunity in Europe, actually. All of the issues we've talked about today although focused on the U.S., are all there in Europe in terms of the prevalence of the use of the Zs and the Benzos. In fact, I think there's increased concern from the regulators in Europe about the use of these agents, and they're restricting use to much shorter timelines than we see in the States. So we do see an opportunity in Europe. Obviously, it's a heterogeneous market, so the countries look different in terms of which products are predominant, and also the concentration of the prescriptions. So in terms of your question on partnership, that's something that we're looking at. And as we've said with both Japan and the U.S., where we believe we require to get into primary care, then for somebody to work with with regard to salesforce support to do that, but we would continue to remain in control of the core commercial capabilities and the asset across Europe.

For Scenery Mode, you have seen, I think that lupus becomes more and more exciting. I think that there were many candidates in phase three. You have seen some many failures now recently. And therefore, the value of Scenery Mode increased. I think it's going to be, we are closer to the results, you know, and it's going to be difficult for people to partner a drug a few weeks or months before getting the results. So I think that we first should see the results and then we see the strategy because I think that it's very difficult because it's a very big product. It would be a very large milestone or amount of money, and it's difficult to pay for such a milestone a few months before the results. Thank you, Jean-Paul.

Thank you, Barbara.

Thank you, operator.

I assume we don't have no more questions.

That's correct. We have no questions left.

Thank you, Ali. So with that, we come to the end of today's first half conference call. Thank you very much for your ongoing interest in Eidosia. And as John Paul said, it is going to be a very busy second half. So stay tuned. Operator, please close down the lines.

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.