Memorandum

Zealand 3Q18 – Debt eliminated following $205M sale of Soliqua + Adlyxin royalties; HypoPal NDA submission expected 4Q19; Late 1H19 readout of pediatric study; early-stage pipeline movement – November 15, 2018

Executive Highlights

  • Zealand gave its 3Q18 update today in a call led by CEO Ms. Britt Meelby Jensen (press release, webcast). Following the September sale of Soliqua and Adlyxin royalties plus $85 million in potential milestones to Royalty Pharma for $205 million in cash, Zealand has eliminated its debt and retained ~$150 million in profit. Management emphasized that this strengthened cash position has allowed for greater focus on Zealand’s pipeline, particularly phase 3 dasiglucagon and glepaglutide for short bowel syndrome.

  • Following recently-announced phase 3 results for the HypoPal glucagon rescue pen, excitement over Zealand’s lead candidate was palpable. The only remaining trial standing between Zealand and FDA/EMA submission is a phase 3 pediatric study, which is already underway and should read out in late 1H19. NDA submission was slated more precisely for 4Q19, and management again highlighted the potential for faster onset of dasiglucagon vs. other options based on phase 3 data. The company is in talks to potential partners for commercialization.

  • There were few updates on the phase 2b study of Beta Bionics’ dual-hormone iLet pump (using dasiglucagon cartridges). The phase 2b trial is still expected to start in the coming months and complete in 1H19.

  • In the early-stage pipeline, two BI-partnered candidates progressed in 3Q18: GLP-1/glucagon dual agonist BI 456906 progressed to phase 1b in August with results expected 1H19, and a new long-acting amylin analog (set to replace BI 473494) will enter phase 1 in 1H19. Significant milestones totaling ~$440 million and ~$335 million, respectively, are associated with these candidates.

Zealand gave its 3Q18 update today in a call led by CEO Ms. Britt Meelby Jensen – see the press release and listen to the call. Below, you’ll find our top four highlights covering Zealand’s recent sale of Soliqua/Adlyxin royalties, the HypoPal glucagon rescue pen, Beta Bionics’ dual hormone pump, and Zealand’s early-stage pipeline.

Top Four Highlights

1. Soliqua/Adlyxin Royalties Sale Enables Debt Elimination and Pipeline Acceleration, with Focus on Phase 3 HypoPal Rescue Pen and Glepaglutide for Short Bowel Syndrome

In September, Zealand sold its Soliqua and Adlyxin royalties plus $85 million in potential milestones to Royalty Pharma, for $205 million in cash. After paying off debt and shelling out 13.5% to third parties (which was always part of the royalty agreement), Zealand’s payout stands at ~$150 million – but the company is now debt-free and in a strengthened cash position, which management emphasized will allow greater focus on Zealand’s pipeline. In a conversation with our team, Ms. Jensen emphasized that those funds are primarily going toward the HypoPal rescue pen and glepaglutide, a GLP-2 agonist in phase 3 development for short-bowel syndrome, and the other dasiglucagon late stage opportunities (dual hormone and CHI), but the company’s earlier-stage pipeline is also benefitting. Moreover, she reinforced Zealand’s commitment to diabetes and obesity and explained that the decision to realize the value of the Sanofi royalties sooner rather than later was made to push the pipeline forward in order to create long-term value for the company. This is certainly reassuring to hear, and we can understand the logic of the deal. As a reminder, Zealand retained eligibility for a $15 million milestone from Sanofi in 2020, based on a previously agreed-upon and confidential settlement.

  • Zealand reported net result of $109 million (DKK 704 million) for the first nine months of 2018, compared to a $26 million loss in the first nine months of 2017 – this result can be attributed to the sale of Sanofi royalties. The company had $230 million (DKK 1,479 million) in cash and cash equivalents, restricted cash, and securities as of September 30, 2018, a substantial increase over $73 million in 2Q18.

2. HypoPal on Track for 4Q19 Submission Following Positive Phase 3 Results; Pediatric Study Now Enrolling

There was palpable excitement on the call surrounding recently-announced phase 3 results for the HypoPal glucagon rescue pen. In the trial, dasiglucagon met all primary and key secondary endpoints; 99% of participants recovered from hypoglycemia in 15 minutes, and median time to plasma glucose recovery was 10 minutes. Now, the only remaining trial standing between Zealand and FDA/EMA submission is a phase 3 pediatric study, which is already underway and should read out in late 1H19 (despite full completion expected in August 2019 on ClinicalTrials.gov). NDA filing has been precisely slated for 4Q19. Notably, management again highlighted the potential for faster onset of dasiglucagon vs. other options, based on phase 3 data. While the data so far don’t seem to reflect that dasiglucagon blows existing options out of the water, there is something to be said for a couple minutes of benefit when it comes to treating severe hypoglycemia. To date, Zealand hasn’t decided whether to conduct a head-to-head study vs. other marketed or under-review glucagon candidates, but faster onset could be a very positive edge for Zealand’s product. At the same time, we continue to think that the lion’s share of benefit in novel glucagon – be it Zealand’s HypoPal, Xeris’ Glucagon Rescue Pen, or Lilly’s nasal glucagon – comes from simplified administration, representing a quantum leap over current complicated and unwieldy reconstitution kits. Looking forward, Zealand also shared that talks on commercialization partnerships are ongoing, indicating that it’s very possible Zealand will not bring HypoPal to market alone; a partnership could potentially close in 2019.  

  • Zealand is also developing dasiglucagon for congenital hyperinsulinism (CHI), for which the company is seeking a rare pediatric disease priority review voucher (the market is estimated at 300 additional children affected every year in the US and Europe). This would ensure a faster, six-month FDA review period and several years of patent exclusivity following NDA submission for a CHI indication; initiation of phase 3 is expected in 4Q18, representing a slight delay following comments from FDA that Zealand expects to simplify the program. A second phase 3 trial will begin in 1Q19. However, during Zealand’s 2018 Capital Markets Day, CMO Dr. Adam Steensberg noted that if recruiting issues delayed the CHI trial program too long, Zealand would have to make a “strategic decision” about whether to delay HypoPal NDA submission so as not to lose the opportunity for a voucher. Moreover, the approval of dasiglucagon for CHI could pave a smoother path for a hypoglycemia indication. As such, our best guess is that Zealand is pushing hard to complete these CHI studies as fast as possible, to get the CHI submission in before the planned 4Q19 HypoPal submission.

3. Phase 2b Study of Dasiglucagon in Beta Bionics iLet to Start in Next Few Months and Complete 1H19

Management was particularly excited about the company’s ongoing partnership with Beta Bionics and reinforced that, as announced in 2Q18, the planned phase 2b trial for the iLet pump will be simplified and reduced in scope. The phase 2b trial is still expected to start in the coming months and complete in 1H19. During 2Q18, Zealand explained that the change came as a result of Beta Bionics’ investigational device exemption (IDE) received in May; following this exemption, Zealand approached FDA with a proposal for a longer phase 2b study of dasiglucagon with the dual-hormone pump. The timeline for Beta Bionics’ phase 3 pivotal trial remains a bit uncertain: At ATTD in February, Dr. Russell said he expected the trial to begin in June 2019, but at Friends For Life in July, Beta Bionics’ CEO Mr. Ed Damiano projected a late 2019/early 2020 start, with approval targeted for 2022. Ms. Jensen commented to us that she expects the trial to start on the later side and “definitely wouldn’t guarantee 2019.” She also confirmed that the trial will use 4 mg/mL vials of dasiglucagon.

4. Movement in Early-Stage Pipeline: New BI-Partnered Amylin Analog to Enter Phase 1 in 1H19; GLP-1/Glucagon Enters Phase 1b Under BI

Two early stage, BI-partnered candidates progressed in 3Q18: GLP-1/glucagon dual agonist BI 456906 progressed to phase 1b in August and results are expected 1H19, and a new long-acting amylin analog (set to replace BI 473494) will enter phase 1 in 1H19. In fact, as Ms. Jensen clarified, BI is in charge of the development with these molecules as this point: BI is funding all research, development, and – down the line – commercialization costs, and Zealand is eligible for milestones and royalties. On the dual agonist, Zealand is eligible for up to €386 (~$440 million) in milestones plus royalties; €365 million is still outstanding. On the new amylin analog, Zealand is eligible for up to €295 million (~$335 million) in milestones plus royalties; €283 million is still outstanding. While much has to go right for Zealand to realize all of these payments, both candidates represent significant potential payouts for the company. Management emphasized that both have significant milestones at phase 2, and the dual agonist will likely reach that stage first.

Zealand Pipeline Summary

The table below reflects the latest updates, as far as we are aware, on Zealand’s diabetes pipeline products. Bullets highlighted in yellow indicate notable changes to the pipeline in 3Q18.

Product

Product Details

Status

Timeline/Notes

Dasiglucagon (ZP4207)

Liquid-stable glucagon

Phase 3 as hypoglycemia rescue pen; Phase 2 for use in Beta Bionics dual hormone artificial pancreas system

  • Phase 3 pivotal trial launched December 2017; Positive topline results announced in September 2018

  • Phase 3 pediatrics study now recruiting; Results expected summer 2019

  • Zealand targeting 4Q19 for NDA submission of HypoPal

  • Phase 3-ready for CHI

  • Positive topline results from phase 3 immunogenicity trial announced March 2018; Full results expected 3Q18

  • Phase 2b trial in Beta Bionics dual hormone AP scheduled to complete 1H19; Pivotal trial to start late 2019/early 2020; Approval targeted for 2022

  • Positive phase 2 PK/PD results released at ADA 2018

  • Orphan Drug Designation in US/EU for congenital hyperinsulinism, phase 3 initiation approved in 1Q18, trial expected to start 4Q18

BI 456906 (partnered with BI)

 

GLP-1/glucagon dual agonist

 

Phase 1

  • Phase 1a safety/tolerability study completed February 2018; Results expected 2H18

  • Phase 1b study initiated August 2018; Results expected 1H19

  • In development for obesity and type 2 diabetes

  • BI to fund all R&D/commercialization activities

BI 473494 (partnered with BI)

Long-acting amylin analog

Discontinued

  • Discontinued in favor of stronger “back-up candidate” in 3Q18

  • Phase 1 study suspended in 4Q17 to re-evaluate risk/benefit profile (no commentary from management)

  • Preclinical data reported at Keystone Symposia in May 2017

  • Obesity is primary development focus

Second-generation amylin analog; replaced BI 473494

Amylin analog

Preclinical

  • Expected to enter phase 1 in 1H19

  • BI to fund all R&D/commercialization activities

ZP-GG-72

GLP-1/GLP-2 dual agonist

Preclinical

  • Preclinical studies complete

  • Phase 1 expected to start in 2019; will investigate for short bowel syndrome and potentially other indications

Undisclosed

GLP-1/glucagon/GIP mono, dual, and triple agonist portfolio

Preclinical

Questions and Answers

Q: Could you tell us more about the two pump program with dasiglucagon?

A: We have discussed our good and fruitful discussions with FDA about what is required to go into phase 3 in the pump setting. We had originally thought a larger phase 2 study would be needed to bridge before phase 3. Now we expect that we only need a much more limited study which will demonstrate the functionality of the pump together with dasiglucagon. We can’t be more specific on design but we are excited. It looks now like a much easier and faster way to phase 3; we’re very encouraged by the dialogue. It could be a very big win for Zealand.

Q: Can you guide us on milestone payments from BI?

A: We have two separate licenses with BI – two completely separate programs, both of which have significant milestones at start of phase 2. It looks right now like GLP-1/glucagon dual agonist is ahead and will hit phase 2 first. With a new, stronger amylin candidate, phase 2 is moved into the future. We’re happy with both programs’ progress and with our cash position now we are not as dependent on these milestones as quickly.

Q: Is running a phase 3 on your own with the pump feasible after FDA discussions?

A: Right now, we have a very strong collaboration with Beta Bionics and good dialogue with FDA (both the drug and device divisions). Beta Bionics has a NIH grant earmarked for phase 3, which means we can move into phase 3 with limited investment, which makes sense for us because we see huge potential for this in patients with type 1 and type 2 insulin dependent diabetes.

Q: You have a few supportive trials on ClinicalTrials.gov for HypoPal – what extra supportive clinical work is needed for the NDA besides the pediatric trial?

A: What you can see from ClinicalTrials.gov is an additional smaller phase 3 trial with the actual autoinjector. We need to confirm the data from the prefilled syringe sitting inside the autoinjector; that study is being conducted right now and will read out in first half. Then we’re conducting PK phase 1 studies to describe that profile. We anticipate to start one extra study in a month or so which will support the dual source conditions of this product going forward.

Q: On the phase 1b BI-partnered dual agonist, the understanding was that maybe phase 2 would start next year. Could you elaborate on that?

A: In terms of the dual agonist, given that they have now progressed to phase 1b – which they should report on in 1H19 – we believe phase 2 could begin next year because BI is very committed. We deliberately do not guide on this because BI control this whole program, but with the commitment we see that could very well be the case. On the amylin program, given they went with another lead candidate, you can say that is a one year setback roughly; that could come next year but more likely 2020. We’re still happy to see their commitment to the amylin program.

Q: Could you clarify your intentions on partnering for commercializing HypoPal?

A: We have ongoing talks with potential commercial partners because our strategy is to have a partner commercialize. We plan to do registration ourselves because it is a manageable cost level and relatively straightforward. Given we only have our phase 3 results in September, we are in discussions and we could very well close a partnership next year, so that’s still a likely possibility, but not necessarily that soon.

Our strategy is to find a commercial partner for the rescue pen. On glepaglutide, we would like to go alone in the US market. Our development focus on US, EU and Canada and outside these market, there are other attractive markets, for example in Japan, where we are in advanced discussions on partnering. In order to reduce both cost and complexity, that’s where we believe it makes sense to partner.

Q: On the BI collaboration, the phase 1b will be a fast study in 1H19. Is there still a realistic opportunity for a milestone in 2019?

A: As Britt said, this is controlled by BI. They expect a 1H19 phase 1 readout. There is a chance for phase 2 in 2H19 but we are not guiding on that.

 

--by Ann Carracher, Peter Rentzepis, and Kelly Close