Nxera Pharma Co Ltd

Good afternoon, everyone.

We'd like to start the explanation session for the financial results of first half of fiscal year 2021 for Sosei Group Corporation. Thank you very much for joining us today despite your busy schedule. I am from IR and corporate strategy. My name is Nomura. I'll be the moderator for today. The first 30 minutes, we'd like to give you a presentation, and the latter 30 minutes we'll be spending to answer your questions. In the presentation from Sosei, COO, CFO Chris Cargill will talk about the financial results for the first half, CEO Tamura will give you business highlights, and Chief Medical Officer Tim Tasker will give you a presentation on the muscarinic programs. I'm sorry for the short notice, but the presentation material has been uploaded on our webpage. Please go to the newsroom, our information presentation and webcast for the presentation material and refer to the material as we give the presentation. Today, we are providing simultaneous interpretation. On the screen, on the right bottom, you will find a globe mark, and this will be the Interpretation button. You can choose either English or Japanese. Chris Cargill and Tim Tasker will be speaking in English, so if you choose Japanese, you'll be listening to the simultaneous interpretation. Now, I believe the Interpretation button is off. In other words, you will be listening to the speaker's original audio. And in the Q&A session, because of time constraints, we'd like to divide you into two groups. For institutional investors announcing media, when we go into the Q&A session, please click the raise hand button. The moderator will call your name, unmute yourself, and please ask your question. For the others, please click the Q&A button, and you can type in your question anytime during the presentation. In the Q&A session, we will try and answer as many questions as possible when you write in the questions in the Q&A button. To other listeners, the content of the question will not be publicized. Now we'd like to begin. Please turn to page five of the presentation material.

Hello, is this clear? Can you hear me? Yeah, yeah, I can hear you. Fantastic. Good afternoon, everyone. My name is Chris Cargill, Chief Operating and Financial Officer, Associate Group Corporation. Today, I am pleased to report another half of solid progress and sustainable financial performance. In the period under review, half one 2021, we executed on our list of objectives, and made targeted investments to support the expansion and long-term growth profile of our drug discovery business. Revenues were up in the period, driven by the achievement of several progress-related milestone events and a larger release of deferred revenue from existing partners. Operating losses increased slightly, however this was expected, and was a result of planned increases in R&D investment. Our balanced business model, which emphasizes having multiple partnerships to share the costs and risks involved in drug discovery, has enabled us to grow revenue, make investments and maintain a robust cash position. In addition, after the period ended, we executed a highly successful convertible bond switch transaction. It was a successful liability management exercise. and brought a large number of new international investors to the SOSE investment story. We are well positioned to invest and to expand. Please turn to slide six. We saw encouraging revenue growth in the period offset by planned increases in R&D investments and expected growth in our non-cash costs. On the left-hand side chart, Revenue totaled 3.1 billion yen, up from 2.5 billion yen in the prior corresponding period. The core driver being growth in milestone income from existing partners, which more than doubled versus the prior corresponding period. Milestone income comprised of multiple phase one clinical start milestones from Pfizer for the MC4 program and Biohaven for the CGRP program. plus three milestones from Genentech related to our delivery of star proteins. In addition, we had releases of deferred revenue from our discovery collaborations. It's worth noting that the prior period had depressed levels of activity because of the start of COVID pandemic in March, 2020. On the middle chart, cash operating expenses, which includes cash R&D and cash G&A costs, totaled 3.6 billion yen. up from 2.4 billion yen in the prior corresponding period. However, it is important to note that these were planned increases in costs as detailed at our full year results in February earlier this year. We increased investment in HTL878, our selective muscarinic M4 receptor agonist program for schizophrenia and dementia-related psychosis. We've already had strong interest in this program and are confident a significant global deal could be achieved in the near term because of the investments that we are making. And again, it is worth noting that in the prior period, expenses were lower than usual as a result of the start of the COVID pandemic in March, 2020. Furthermore, the prior period included a large non-recurring supplier credit from a major CRO partner. Lastly, On the right-hand side chart, our operating loss totaled 1.8 billion yen, up from 1.1 billion yen in the prior corresponding period. This was because of the increased cash operating loss, but also due to increases in non-cash operating costs. In the period, these non-cash operating costs included a small impairment to ORAVI, and post the period end, we agreed to switch to a new distributor and we expect to see modest but improved sales performance for this product in the future. We also had planned increases in stock-based compensation costs as we continue to roll out modernized restricted stock units for eligible employees, which is in line with our strategy to drive greater employee alignment with our shareholders. Lastly, financing costs were up because of the convertible bonds we issued last year, and again, this cost increase was expected. The prior period also included a realized fair value gain related to the RMF1 fund. As a reminder, the Sose CBC business was divested last year. Please turn to slide seven. This slide shows the group's P&L breakdown for the six-month period ended, 30 June 2021. On the right-hand side of the slide, our emphasis on partnerships and co-investments continues to drive a balanced split of revenue by type. This is the key factor driving the sustainable financial profile of the business. On the previous slide, I discussed revenues as well as cash and non-cash operating expenses, so I will not cover this again here. We reiterate that the planned increase in costs that you see on this table were expected and are in line with our full year guidance, which remains unchanged from the first quarter. Our net loss totaled 2.3 billion yen, which was in line with our net loss result in the prior corresponding period. And the net loss was due to the operating loss, as I described on the previous slide, However, it was mitigated by positive equity accounted results, which included a gain on our investment in MENA Therapeutics, which was driven by MENA's receipt of a $25 million upfront fee relating to an outlicensed deal signed with Lilly in May 2021. Please turn to slide eight. This slide highlights the group's balance sheet as of 30 June 2021. And the sustainability of our balanced business model and strategy is reflected in the robustness of the balance sheet. Cash at hand totaled 40.6 billion yen, an increase of 621 million yen from 31 December 2020. As you can see in the table and on the chart, the weaker yen in the period drove a reduction in total cash balance when aggregated in US dollars. And turning to our other financial assets, we positively revalued several of our investment securities, including a significant increase in the value of our new Sintesa Pharma shareholding following its IPO in the period. Please turn to slide nine. This slide shows our guidance for FY 2021, which remains unchanged. As discussed earlier this year in February at our full year 2020 results, we are making planned increases in R&D investment this year as we seek to accelerate development of both our muscarinic and other high priority programs. Our guidance for cash R&D costs remains unchanged and is expected to be in the range of 4 billion yen to 5 billion yen. In particular, the investments we are making in HTL878, our selective muscarinic M4 receptor agonist program for schizophrenia and dementia-related psychosis are designed to drive significant near-term value inflection for the company. Our guidance for cash G&A costs remains unchanged and is expected to be in the range of 1.8 billion yen to 2.3 billion yen. Our new cloud-based Oracle NetSuite ERP system has completed its stage one implementation and is already driving group-wide efficiencies. We will continue to enhance its functionality going forward. We continue to make new hires to strengthen compliance, governance and support functions as our aim is to prepare for and then to meet the highest standards of corporate governance in Japan. We are seeking to operate at the same standard as TSE Section 1 listed companies, regardless of our listing on the TSE Mothers Exchange. We expect these investments will enable us to drive scalable corporate value growth into the future. Please turn to slide 10. As I mentioned at the beginning of this presentation, after the period ended, we executed an international offering and a concurrent buyback of our previous convertible bonds issued in 2020. The key highlights of this recent deal were, one, it was the largest mid-cap convertible bond raising in the Asia Pacific region since 2015. Two, it was a highly successful liability management exercise with 98% of existing investors taking up the new deal. Three, we achieved a greatly expanded institutional investor base with three times more international investors participating versus last year. And four, we lowered our funding costs, extended the maturity of debt and potentially reduced dilution upon future conversion. The net proceeds of 29.8 billion yen raised will be allocated as follows. 18.9 billion yen was allocated towards the repurchase of the existing 2020 convertible bonds. And the incremental 10 billion yen of net new proceeds has been added to the 20.9 billion yen raised last year. And the total funds will be used to fund strategic growth initiatives such as acquisitions and or investments. We continue to evaluate strategic growth ideas and are well capitalized to execute when a potential opportunity presents itself. This completes my financial update. Thank you for your time. I will now hand over to CEO Tamura-san to provide an operational update for the period. Thank you.