PureTech Health plc (NASDAQ:PRTC) Q4 2023 Earnings Call Transcript

PureTech Health plc (NASDAQ:PRTC) Q4 2023 Earnings Call Transcript April 25, 2024

PureTech Health plc isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings, and welcome to the PureTech Health 2023 Year End Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Allison Mead Talbot, Head of Communications. Thank you, Allison. You may begin.

Allison Mead Talbot: Thank you for joining us today for PureTech’s 2023 financial results webcast. Our annual report will be made available later today, portions of which will also be filed with our Form 20-F. This information is available on the Investors page of our website at puretechhealth.com. PureTech has 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 Bharatt Chowrira, Chief Executive Officer; Eric Elenko, Co-Founder and President; 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 risks, uncertainties and assumptions that could cause our actual results to differ materially, and we ask that you refer to our annual report and our SEC filings for a complete discussion of these items. 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 presentation and is also available on our Investor Relations website at investor.puretechhealth.com and in our SEC filings.

I will now turn the call over to Bharatt Chowrira, PureTech’s Chief Executive Officer.

Bharatt Chowrira: Thank you, Allison. Welcome, everyone, and thank you for joining us today. I’d like to start by saying how proud and very humbled I am to assume the role of CEO at such a remarkable organization. I look forward to continuing our transformational work and mission giving live the new classes of medicine to change the lives of patients with devastating diseases. 2023 was a banner year for PureTech and we are already charting an exciting path forward in 2024. Today, we will review our clinical progress strong financial position and how we are poised to change the treatment paradigm for serious diseases and along the way, build value for our shareholders. We are proud of our diversified portfolio that has been generated from our hub-and-spoke R&D model that has been pioneered by PureTech.

A scientist in a white lab coat measuring liquid in a beaker in the biotechnology lab.

Our hub is our core group of people proven innovative R&D engine and capabilities at PureTech that are at the center of everything we do. It enables us to identify promising technologies and therapeutic opportunities and develop them either internally or through creation of Founded Entity or through non-dilutive mechanisms such as partnerships. The Founded Entities are our spokes and they allow us to continue advancing candidates through a focused vehicle which can raise third-party capital. This model is beneficial in a few ways. First, it ensures that promising new medicines are progressed to patients efficiently while we continue to generate and develop the next wave of novel candidates. Second, bringing in outside partners is not only capital option, but also serves as external validation for the programs.

It also introduces greater optionality such as being able to publicly list a vehicle containing particular set of assets. Third, it allows for concentration of expertise in areas which often require teams with specific skill sets. For example, expertise in running psychiatric clinical trials. Both it yields a diversified portfolio, enabling us to have multiple quality shot term goal to have positive impact on patients’ lives and build shareholder value along the way. Fifth, the spokes also serve as a source of capital back to PureTech in the form of monetization of equity stakes and product revenues. This evergreen source of non-dilutive funding allows us to advance our existing programs fuel our R&D engine to generate new medicines and enable us to return capital back to our shareholders.

Our R&D model of innovation makes biopharma accessible to generalist investors who are compelled by meaningfulness of medical innovation and upside of cutting-edge R&D while shielded from the volatility of single-asset binary outcomes that are so common in our industry as well as to specialist investors, who are comfortable with evaluating multiple therapeutic opportunities. Several of our programs have been based on three guiding principles: validated efficacy, clear patient benefit and an efficient derisk path. We start with drugs that can address significant unmet need and have already demonstrated efficacy or clinical signals, but were previously held back from advancing due to key limitations. We address the key limitations through innovative approaches or technologies and unlock the benefit for patients and, therefore, represent products with significant commercial potential.

We then advance these medicines through key derisking milestones. If the killer experiments don’t reach our pre-specified threshold for advancement, we then move our resources from those programs to more promising programs. This model allows us to be extremely capital efficient and ensures that our interests are aligned with our shareholders. Our model is not only proven, but it is also scalable and repeatable. We consistently maintain one of the most impressive track records in the biopharma industry, with more than 80% of our clinical trials having demonstrated success since 2009. Across our programs, this has delivered a robust pipeline of new medicines, including 29 new therapeutics and therapeutic candidates generated to date with to taken from inception at PureTech to FDA and EU regulatory clearances and on Karuna’s KarXT that has been filed for FDA approval.

Our model also enables us to fund our programs without incurring dilution on the PureTech level. In fact, nearly $3.8 billion has been raised by our Founded Entities since July 2018, of which 96% was from third parties. This highlights our ability to maximize shareholder value while retaining upside with capital efficiency. Karuna’s $14 billion acquisition by BMS is a great case study for our model and a hallmark of how we create value, both clinically and financially. Karuna’s KarXT was invented and initially advanced by PureTech. We allocated a total of $18.5 million to Karuna and have generated approximately $1.1 billion to date to a combination of the monetization of equity holdings, gross proceeds from the BMS acquisition as well as a strategic royalty agreement with Royalty Pharma.

In addition, we continue to retain great potential for long-term earnings based on KarXT’s future regulatory and commercial milestones and product sales. We also recently launched a Founded Entity called Seaport Therapeutics earlier this month with a $100 million oversubscribed Series A financing. The financing included participation from top-tier biotech investors, most of whom were early investors in Karuna. This milestone is validation of the program and also a recognition of the value we have created internally that we don’t believe is fully reflected in our overall public valuation. We retained 61.5% ownership in the company after the current round of financing and are entitled to royalties, milestones and sublicense payments as the programs advance at Seaport.

We are really excited for the future of Seaport, and look forward to reporting on their progress in the coming months and years. Our PureTech level cash, cash equivalents and short-term investments as of 31st March is $573.3 million which includes the gross proceeds from Karuna BMS transaction. Although, this figure does not account for our $32 million participation in the Seaport Series A financing our proposed $100 million tender offer and any taxes. I will walk through our capital allocation overview in detail shortly. I’m proud that our self-sustaining evergreen capital model has enabled our continued operational progress despite adverse macroeconomic factors for the industry. While also providing capital returns to shareholders through the recently completed $50 million share buyback program and additionally, the recently proposed $100 million tender offer.

We will continue to maintain a cash runway of at least 3 years to support our internal programs, Founded Entities and operational innovation needs. I would now like to briefly provide an overview of our capital allocation strategy. We employ a measured approach that balances support of the current programs internally and at our Founded Entities and the funding of future innovation with the goal of maximizing shareholder returns. In 2024, we have allocated $100 million in capital returns to shareholders in the form of our proposed $100 million tender offer. We believe a tender offer will provide liquidity and reduce the outstanding share count while allowing us to maintain a strong balance sheet. We and our Board will continue to assess ongoing opportunities to return additional capital from future monetization as part of improving shareholder returns.

Taxes are also a consideration for us as a U.S. domiciled company. We pay taxes in the mid-to high 20% range on any proceeds we generate, so we actively work to appropriately manage our tax burden and requirements to a range of tools that may be available to us under the U.S. tax code, including net operating losses, capital losses and R&D tax credits. We currently, however, anticipate having fairly limited offset options in 2024 as compared to our sizable gains in the year, especially with respect to Karuna in light of its sale to Bristol-Myers Squibb. Further guidance around our anticipated 2024 tax position will be set forth in our 2024 half year 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 catalyze a financing round that we believe will bring additional long-term value to the company.

The recent $32 million investment in Seaport Series A financing occurred in April, and therefore, the investment has not been deducted from the first quarter 2024 cash balance number. We will also continue to fund the existing programs in which we maintain 100% ownership, such as our LYT-100 and LYT-200 programs through key milestones. So with LYT-200, we have indicated our intention to develop the program in our newest Founded Entity Gallup Oncology. 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. We will also be sourcing new innovations as we have since our founding. We anticipate selecting up to 2 programs per year.

Historically, the initial spend on new programs has been minimal with the exact amount required being program-specific. Our innovation engine enables the growth of our portfolio to ensure the next wave of candidates is progressing towards value-creating milestones for our shareholders. Now I’d like to invite Eric Elenko, our Co-Founder and President, to provide a summary of our key programs, including LYT-100, which has a highly anticipated readout later this year.

Eric Elenko: Thank you, Bharatt. We are very excited by the progress we are making with LYT-100. LYT-100 or Deupirfenidone is in development for idiopathic pulmonary fibrosis, or IPF. For those of you who are unfamiliar with IPF, it’s a rare progressive and fatal lung disease where the mini survival is 3 to 5 years. There are 2 FDA-approved treatments, but they caused significant side effects, which means patients cannot fully benefit from the drugs because they are unable to stay on the drugs long enough or at the right dose. We believe that LYT-100 has the potential to supplant the current standard of care treatments. We recently announced that the current clinical trial has achieved completion of patient enrollment, and we continue to be on track to share top line results from this Phase 2b trial in the fourth quarter of this year.

Without getting into too much of the scientific details, I would highlight that pirfenidone has been challenge to improve survival on people with IPF by an average of 2.5 years. But the side effects of the drug caused approximately half of patients to discontinue or dose reduce there by limiting its effectiveness. Despite these drawbacks, both standard of care drugs achieved blockbuster status. As a deteriorating former pirfenidone, LYT-100 retains antifibrotic and anti-inflammatory activity that is associated with the efficacy of pirfenidone but it has advantageous safety and tolerability profile. We have shown that LYT-100 has a much lower T concentration than the FDA-approved dose of pirfenidone at the same exposure levels. This has translated into LYT-100 demonstrating a favorable tolerability profile compared to pirfenidone, while maintaining the same total drug exposure, which is correlated with efficacy.

We have demonstrated in a healthy older adult crossover study that dosing 550 milligrams of LYT-100 3x a day achieved a 50% reduction in healthy older adults experiencing GI-related AEs compared to pirfenidone, particularly nausea. This is important because it affects patients quality of life and their ability to stay on the drug. We have also demonstrated that a higher dose of LYT-100 was generally well tolerated. What these data mean is that there are potentially multiple ways to win with LYT-100. With 550-milligram dosing of LYT-100, we have potential to improve tolerability, which could result in greater patient compliance, and as a result, increased efficacy. With 825 milligrams dosing of LYT-100, we have the potential to offer improved efficacy.

We are evaluating both of these doses in our ongoing Phase 2b study, which we believe is the first of 2 potentially registration-enabling studies with LYT-100 and IPS. This study is going to read out in the fourth quarter of this year, and we look forward to sharing those results. Another program I’d like to highlight today is LYT-200, which is being advanced by our newly launched Founded Entity, Gallup Oncology. We are advancing a differentiated approach to cancer treatment by targeting the pro-tumor mechanisms of galectin-9 for the treatment of hematological malignancies and solid tumors. We’ve recently announced that the FDA has granted LYT-200 orphan drug designation for the treatment of AML as well as fast track designation for the treatment of head and neck cancers.

Preclinical and human data underscore the importance of Galectin-9 as a pruned oncogenic driver in leukemia cells and as an immunosuppressive protein, including having demonstrated direct cytotoxic and ischemic effects through multiple mechanisms as well as anti-tumor efficacy. We’re encouraged by the preliminary data generated to date in our clinical trials. We expect additional data from the ongoing Phase 1b clinical trial for the potential treatment of AML and MDS to be presented in a scientific forum in 2024 as well as additional data from the Phase 1b trial in combination with Tislelizumab for the potential treatment of advanced solid tumors. As we look out across the year, we anticipate multiple clinical milestones across internal and founded entity programs.

As Bharatt 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 diseases while creating shareholder value. I’d like to now hand it over to Bharatt to provide a recap of our 2023 financial results as well as closing remarks.

Bharatt Chowrira: Thanks, 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 2023 with cash, cash equivalents and short-term investments of $326 million compared to $339.5 million at the end of 2022. On a consolidated basis, our cash, cash equivalents and short-term investments were $327.1 million at the end of 2023 compared with $350.1 million at the end of 2022. At the PureTech level, as of March 31, 2024, we held cash, cash equivalents and short-term investments of $573.3 million. On a consolidated basis, our cash, cash equivalents and short-term investments were $574.4 million.

This is before deducting amount for the $32 million investment and Seaports recently concluded Series A financing, $100 million proposed tender offer and any taxes that may be due on the BMS Karuna transaction proceeds. Based on our existing financial assets, we expect to have operational runway into at least 2027. Our revenues are mostly driven by upfront and milestone-based payments from collaborations as well as grants and are expected to continue to fluctuate from year-to-year. On a consolidated basis, our revenues in 2023 were $3.3 million compared with $15.6 million in 2022. We reported a 2023 operating loss of $146.2 million compared to $197.8 million in 2022, largely due to a decrease in R&D expenses driven by the prioritization within our wholly-owned programs as well as deconsolidation of one of our Founded Entities Vedanta Biosciences.

On a consolidated basis, we reported a net loss of $66.6 million for 2023 compared to a net loss of $37.1 million for 2022, which is partly due to the deferred tax benefit recorded in 2022 compared to a deferred tax expense in 2023, partially offset by a decrease in operating loss driven by the decrease in R&D expenses mentioned earlier. As we look ahead to 2024 and onwards, I’d like to note that we are more excited than ever before to deliver on our mission to crystallize value for our shareholders. Broadly speaking, that value is comprised of six key elements: our strong balance sheet; our equity stakes in our Founded Entities, both public and private, our internal programs; future revenue streams such as from royalties and milestones and sublicense income; capital returns to shareholders; and our exceptional talent who power our R&D engine.

We believe this significant value has not been fully recognized by the public markets. and we are committed to evaluating ways to unlock and crystallize that value for our shareholders. In closing, I’d like to thank all the patients and clinicians who are participating in our clinical trials. You are our purpose and motivation. I would like to also extend my thanks and appreciation to our dedicated teams both at PureTech and across our Founded Entities. You play an essential role in driving highly innovative and impactful R&D forward. Your commitment to our cause is really very inspiring. And I’m so grateful to work alongside you in the name of serving patients and shareholders. Lastly, but not least, I would like to take the opportunity to thank Daphne for her leadership since founding PureTech and for shepherding the company to this next phase.

I’m grateful that we will continue to benefit from Daphne’s entrepreneurial spirit while she transitions to run one of our new Founded Entities that will drive significant value for PureTech. And I look forward to continuing to work alongside our talented Board in addition to our wide network of shareholders collaborators and advisers. Thank you for joining us today. We will now take some questions.

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