Speaker #1: My name is Greta Höög. I am the IR and Communications Manager at Alligator, and I will be introducing today's call. With me is our CEO, Søren Bregenholt, and our CFO, Johan Giléus.
Speaker #1: They will walk you through the events of the third quarter after which they will be happy to take any questions that you may have.
Speaker #1: These questions can either be put into the Q&A function of this call, or you can email them to ir@alligatorbioscience.com. As you know, Alligator is a publicly listed company, and today's presentation may include forward-looking statements.
Speaker #1: Please refer to the disclaimer on this slide, which applies to the full presentation. With that, over to you, Søren.
Speaker #2: Thank you, Greta, and welcome to this third quarter earnings call from Alligator Bioscience. It's a pleasure having you all on board. Let's move to the next slide, Greta.
Speaker #2: So, key events: during the quarter, you are hopefully all aware that in July Alligator announced that we would discontinue our independent development of methazolamab, and refocus the company on Alligator's financial interest in HLX22.
Speaker #2: We'll spend some time on HLX22 later in today's call. The reasoning behind the discontinuation of methazolamab development was discussed at the Q2 call and is also elaborated in the Q3 report, as you can find on our home page.
Speaker #2: Also, in July, we raised or announced the rights issue of approximately 125 million SEK and a bridge loan of 19. And then we also announced that the first patients were dosed in an investigator-initiated study in early breast cancer.
Speaker #2: In August, we held an extraordinary general meeting and in September we announced that the outcome of the rights issue was subscribed until the guaranteed level of 58.8 million, before issue cost and bridge loan being repaid.
Speaker #2: And then we also announced that we had extended the loan maturity on our outstanding debt to Finnair Capital, until June 30, 2027. And that also a number of warrants were issued to Finnair Capital.
Speaker #2: As a consequence of the refocusing of Alligator toward the financial interest of methazolamab, we are reducing the headcount, and we'll talk about that in a second, but in October it was also announced that in a planned leadership transition, I will step down as CEO by the end of the year, and instead, and I'm happy to restate that, Johan will take over the role as CEO, continuing taking good care of the company's interests and thereby also of the shareholders' interest.
Speaker #2: If we take the next slide, Greta, let's talk a little bit about where we are. In the refocused Alligator, we will now focus on ensuring the financial interest in the asset called HLX22, which is a HER2 antibody at differentiated HER2 antibody that is in a number of clinical trials in China and globally, most prominently a phase III study in gastric and gastroesophageal junction cancer, the product is developed and by and owned by Shanghai Henley's Biotech, a big global Chinese company.
Speaker #2: Alligator owns approximately, or not approximately, Alligator owns 35% of the royalty and fees interest of Abclone, and I'll come a little bit back to that.
Speaker #2: Altogether, these numbers give an effective royalty rate for Alligator of up to 1.75% of the net sales of HLX22. And Alligator will not incur any development costs.
Speaker #2: Pivoting the company towards these interests, of course, requires less resources. That's why we have decided to wind down operations and reduce the organization accordingly, those activities already started in July.
Speaker #2: I've already said that we have discontinued the development of methazolamab. We have given notice to all employees who will leave gradually over the coming month.
Speaker #2: And the operation cost that includes these wind-down costs will be reduced to be fully effective in, to be in full effect around Q2 next year.
Speaker #2: So what will happen that? We will run an organization minimally staffed, primarily by Johan, appropriately sized board, that will of course also help out as boards always do.
Speaker #2: We are working hard to divest methazolamab and hopefully maintain some long-term value of that asset in the company to the benefit of the investors.
Speaker #2: And likewise, we are working to maintain future rights in other of our assets, for instance, ALG, APV527, that we are a co-developing with Aptivo in the US, and also some of our antibody technologies that are currently being assessed by potential partners under evaluation and option agreements.
Speaker #2: If we take the next slide, Greta, let's just spend a little bit more time on HLX22 for a deeper detail and a full overview of ongoing clinical trials, with the molecule please refer to the quarterly report, the Q3 report, which, as I said before, you can find on our home page.
Speaker #2: So, as I said, the antibody is a novel HER2 monoclonal antibody. It's targeting other epitopes than some of the already marketed antibodies, and have increased efficiency in inducing HER2 internalization.
Speaker #2: The antibody was originally discovered in a collaboration between a now fully owned Alligator subsidiary at the therapeutics from Stockholm, and Abclone, and under those agreements, Alligator then have a 35% ownership of Abclone's revenue from Henley's both in terms of milestone payments and, most importantly, any future royalties.
Speaker #2: Abclone have themselves disclosed part of that royalty scheme, the upper tier, and when you merge these two numbers, it gives a royalty rate up to 1.75 effectively for Alligator.
Speaker #2: I know some of you might want to have more insights into the specific dynamics and potential royalty ladder here. Alligator is not allowed to disclose these information, as these are part of an agreement between Henley's and Abclone.
Speaker #2: So 35% and up to 1.75% is the level of detail that we can comfortably share and legally share by the way. Then we have estimated an annual royalty and just to make sure that everybody gets this right, Alligator do not have specific insights into how Henley's will price or market HLX22.
Speaker #2: We don't have access to any non-public information. The market has not yet made specific detailed analysis of HLX22 sales available. So what I will share with you now is Alligator's own sort of assumptions and we are not in a position to share these in any detail in writing.
Speaker #2: But what we can do is, of course, we can spend some time reviewing the facts that in Gastric Cancer and Gastroesophageal Cancer, there is approximately 1.1, maybe 1.2 million cases annually.
Speaker #2: Of these, the metastatic diagnosis range is somewhere between 40 and 50, giving us a combined number of patients of around 450 to 70,000 patients, annually.
Speaker #2: And if you then add the rate of patients that are actually HER2 positive, i.e., the target that the antibody addresses, then we are at around 110,000 to maybe a little bit more, addressable patients on an annual scale.
Speaker #2: How does this relate into the royalty rates that we are describing here? Alligator is working with a number of different assumptions about pricing and blended global pricing, and all that, of course, comes out to a readout of the data from the phase three study that we are all eagerly expecting.
Speaker #2: We see two scenarios here for us. One, that is based on a set of data that is positive, but maybe not as fantastically positive as the phase two.
Speaker #2: Here we are working with a low scenario with a relatively modest rate of adoption in market share, somewhere in the teens. So somewhere between 10 and 20%.
Speaker #2: And a blended global price which is sort of remarkable or sort of comparable to monoclonal antibodies. And that will give a sort of a revenue to Alligator that hits around the bottom of the bracket here.
Speaker #2: And you can do your backwards calculation what that would mean in peak sales. And then on the other hand, we are working with a scenario where the data is still not as good as in the phase two study, but are significantly better than competition.
Speaker #2: And this market, based on this scenario, we will see a higher market penetration globally. You'd see a higher price up to 50% of higher than what you see in the low scenario.
Speaker #2: And in that scenario, you will reach approximately the middle of that bracket that we describe here. And then I also have to remind you that this phase three is not the only shot of gold.
Speaker #2: The company is currently in other phase three studies in breast cancer, and the company has also recently registered phase two studies in other indications on clinical trials.gov, but has not yet announced the first patient dosed.
Speaker #2: And there's also a number of other phase two studies going. So we have a relatively high level of confidence that the combined market potential of HLX22 will land us comfortably in this bracket here.
Speaker #2: Between 150 and 450 million circ on an annual basis. And just to sort of assertion that the system works, we have over the years received payments from Henley's via Abclone, and we have a good and constructive dialogue with Abclone.
Speaker #2: So sort of the business mechanics behind this agreement are in place and functionable. Can I have the next slide, Grayson?
Speaker #1: Yeah, this was maybe a better slide to have discussed the gastric cancer indications on. You have some of the specifics here. We still believe that the top line data from the phase three study are due in second half of next year.
Speaker #1: It may be before, it may be later, but this is a good estimate as we see it now. And the company has not been or Henley's have not been clear on their launch plans for the molecule.
Speaker #1: And again, we take a sort of a company or not a company, an industry sort of standard approach to this and say, from the first top line data to the potential loss, it may be somewhere between 18 and 24 months potentially shorter but let's err on the side of caution here.
Speaker #1: And that will then result in the first royalty revenue to Alligator the year after that. And with those words, I will hand the floor to you, Johan.
Speaker #3: Thank you, Søren. So a little bit about the financials now for Q3 2026 then. I mean, we still operate, have an operating cost level that is higher than we will have going forward, and that's mainly due to that we still are incur cost for closing down the optimized one study, which is now in the very, very final stages.
Speaker #3: But there's also the quite a lot of cost that we had ramped up during the spring to be able to start the phase three including CMC cost and other costs for the phase three that we are now are closing down and that are, of course, has a trading effect both in this quarter and the quarters to come then.
Speaker #3: And there's also some financial items then that I don't want to bore you with due to the rights issue and the TO 15s and warrants etc.
Speaker #3: that we need to disclose and report in a certain way then.
Speaker #1: But moving over to the next slide is a little bit more forward looking.
Speaker #3: And as you can see then going back a couple of years now, we have really taken down our operating cost level from the high 250 above and then as expected going down over the last couple of years now.
Speaker #3: And as you can see there was it was starting to gear up here and as I mentioned and continue to be at a little bit higher level than going forward then.
Speaker #3: Before we turn it down to the really rock bottom, which will be expected in the Q2 of 2027 then when we will primarily then cover or manage the interest in HLX22 then.
Speaker #3: After the rights issue, we have some 41 million in our cash account. And that is then after the repayment of the bridge loan. So this is the net net that we then can have for the spending then.
Speaker #3: And the obvious question is how long will this last? And the it's a little bit of a tricky question then because depending on how we will manage some of the outstanding obligations including metered sum related obligations, this will have a very different effects on the runway.
Speaker #3: So I need to defer that to the next quarter then where we have better visibility on how the wind down and potential sales of certain assets have hopefully then been solved.
Speaker #1: So let us then move over to the next slide, please. A little bit around the rights issue that we completed in September and then also then there are some trailing effects in October then when I come back to that.
Speaker #1: But we have some just shy of 50% subscription rate and that meant also that the guarantors then came in, had to step in with some 20, 29, 30% and that's predominantly two larger guarantors we believe and we haven't seen the details in the share ledger yet because that will happen then in October.
Speaker #1: But as soon as we can report on that, you will have that on our web page then.
Speaker #3: It will also then mean that we have now issued first a number of units, 1.4 billion units, and then this has been then transferred into shares, 2.9 billion shares that should be available on your accounts if you hold shares.
Speaker #3: And then there is also warrants then for those who subscribe for units then for TO 15 and TO 16 then for 27 and 28 respectively.
Speaker #1: So next important event then will be the TO 15 and that is exercised in January 27 and we will then prior to that have a pricing period that goes from mid-December to early January then to set the price for the TO 15 then.
Speaker #1: And as agreed then with Fenya in the recent negotiation, we are also then expected to do some repayments of the outstanding loan to Fenya out of the process that we will hopefully then incur from TO 15 then and as you hope we know then we still owe Fenya 6.6 million then as part of the initial loan that we had in from 2024 then.
Speaker #3: And TO 16 is one year later then and with a exercise period in January 2028.
Speaker #1: And the use of process, I mean, been communicated before both in the press release and the prospectuses and it's to fund the wind down and the wind down as Søren mentioned and is going according to plan.
Speaker #1: We hope to have some positive outcomes in certain of the discussions then. But as a prudent CFO, I'm always count on the worst. So we need to really be careful with our cash, of course, but also to make sure that we have the visibility of our cash forecast going forward then.
Speaker #1: And this all is just to preserve the future royalty potential of HLX22 as discussed earlier then. And we depending on the outcome and depending on a few other things then we will I'm quite certain that we will not have enough money until we can see the first royalty income and that is expected in 2030.
Speaker #1: So that's quite a long way. But hopefully we can extend it to get at least a better visibility of the outcome of HLX22 then.
Speaker #1: As expected then in the second half of 2027 then. So Søren, over to you.
Speaker #2: Thank you, Johan. And here I am. Good. I think this was the last slide. For today, I think we have a number of questions from the audience here or from you.
Speaker #2: There is a number of questions and I fully can sympathize with these. About a wish to have a larger transparency in the royalty situation for HLX22.
Speaker #2: I would share it if we could. We cannot. I think what we can share is what we share today. That the royalty for Alligator is 35% of whatever royalty is paid to AppClone.
Speaker #2: AppClone has a royalty rate up to 5% on the global sales of HLX22 across all indications. Currently, the broadest developed in several indications with gastric cancer being gastric cancers being the lead indication and I try to illustrate for you that we believe that even in a low in a positive but low penetration scenario, we will in that indication alone hit the bottom of the bracket.
Speaker #2: In a more I wouldn't say mediocre because that's not what I mean, but in a more positive but still modest scenario, a mid scenario you could say, we will hit the middle of the bracket and in a bull scenario that may not be completely realistic for these indications for this indication alone, we will hit the top of the bracket.
Speaker #2: And I think it's important for investors in Alligator to also understand that beyond this, there are trials in breast cancer, there are trials in colorectal cancer.
Speaker #2: Been registered and coming up, the trials in pancreatic cancer and Henle's is really investing significantly in HLX22 and pushing it forward across a broad set of indications.
Speaker #2: As you would do with a grog that is as differentiated as HLX22. And you all know that if you follow other companies their expectations is to HLX22 at least they are expressed expectations to HLX22 is somewhat more aggressive than what we are describing here.
Speaker #2: So that I think was answered to quite a number of the questions for Alligator. Or from you. And without making commitments for the company as you know as I'm stepping down, so not making forward commitments for the company, but it is clear that when sort of consensus analyst reports or even just single analyst reports becomes available, that would be all natural for the company to share those analysis with you as investors.
Speaker #2: Then there is a question and I think it's a little bit hard to answer, but why is nobody interested in buying your shares? I don't really have an answer for that.
Speaker #2: I have one my only observation is that this is now a share that has defined probably outcome and that is royalties from its seller mark.
Speaker #2: And as you had mentioned and I think I mentioned as well, that will take some years for that to realize and we of course see the next big value inflection point being the announcement of phase three data for HLX22 giving us a very strong indication of whether the milestones or the royalty predictions are realistic or even maybe being too modest.
Speaker #2: But it's always hard to second guess other people's intention. How close are you with selling the Mr. Salomon project and how much do you expect from that?
Speaker #2: We are making progress with that. I cannot commit closer than that. that? I think in deals when companies like Alligator have announced that this continuing on own development, there would be value in the agreements, but it will probably most likely be more backloaded than you would expect in a what can we say a traditional business development deal.
Speaker #2: Then we have a number of questions from are they from Richard? Can you walk us through the assumptions behind the bracket of royalties? I think I've already did that at least once.
Speaker #2: So I think we'll leave it at that for now. What is the target run rate for the minimal organization and when will this cost base be reached?
Speaker #2: I think that's for you, Johan. If you have not already discussed that.
Speaker #3: Yeah. No problem. I think the current estimate is that we will come down to in the regional one million per month in running cost and for that minimal organization.
Speaker #3: And that will be reached in the Q2 of 2027. But that's a rough estimate, but still something that we are aiming for.
Speaker #2: Yeah. Thank you, Johan. I can see others had that question as well. So hereby addressed. Yeah. What is the runway of the current cash and what financing options are you working on?
Speaker #2: I think you've already touched on that a little bit, Johan, but maybe reiteration.
Speaker #3: Sorry. Could you repeat this?
Speaker #2: Yeah. So what is the runway with the current cash? And what financing options, if any, are you considering?
Speaker #3: I think we need to come back. We need to sort out the Mita Salomon situation as you mentioned before and few of the other wind down so we have the clear understanding on where we are.
Speaker #3: And before I can do any predictions on the runway and of course we monitor this very closely, but going out now and try to forecast a runway that will be obsolete in a day or two months is not the appropriate either.
Speaker #3: And so I need to come back on that.
Speaker #2: Thank you. And if you could just as a last one here, reiterate what loans are still outstanding to finance.
Speaker #3: Yeah. What's the loan? Yeah. That's the loan with Fenya and nominal value 6.6 million then. And it's now prolonged to the end of June 2027.
Speaker #2: Thank you. And I think this sort of covers all the incoming questions. Some of them may have been answered or asked in a little bit different language, but I think the answers from me and Johan sort of covers the these questions.
Speaker #2: And with that, as this is my last quarterly call for Alligator, I want to thank you for your support, your loyalty, for our collaboration.
Speaker #2: And maybe also once in a while for your patience. It's been a pleasure. So thank you for today and have a good afternoon.
