YS Biopharma Co., Ltd. (NASDAQ:YS) Q3 2024 Earnings Call Transcript

YS Biopharma Co., Ltd. (NASDAQ:YS) Q3 2024 Earnings Call Transcript April 19, 2024

YS Biopharma Co., Ltd.  isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Ladies and gentlemen, thank you for standing by and welcome to YS Biopharma’s Earnings Call for the First Nine Months of Fiscal Year 2024. [Operator Instructions] Please note that this event is being recorded. Now I’d like to hand the conference over to your speaker host today, Ms. Alyssa Li, the company’s Investor Relations, Director. Please go ahead, madam.

Alyssa Li: Thank you very much. Hello everyone, and thank you for joining us today. Welcome to YS Biopharma’s first nine months of fiscal year 2024 earnings conference call. Today, you will hear from our President and CEO, Dr. David Shao, who will provide an overview of our operations during the past quarter. Our CMO, Dr. Zenaida Mojares, will then share more details on our product pipeline. Our CFO, Ms. Brenda Wu, will then provide a closer look into our financials. After the management team has given their prepared remarks, we will open up the call for questions. You can refer to our first nine months of fiscal year 2024 financial results on our IR website at investor.ysbiopharm.com. You can also access a replay of this call on our IR website, when it becomes available a few hours after its conclusion.

Before we continue, I would like to refer you to our safe harbor statement in our earnings press release, which also applies to this call as we will be making forward-looking statements. Please also note that all numbers stated in the following prepared remarks by management are in RMB terms. With that, I’m now pleased to turn the call over to Dr. David Shao, our President and CEO.

David Shao: Hello everyone, and thank you for joining us today for our first nine months of fiscal year 2024 earnings conference call. During the first nine months of fiscal year 2024, our top line continue to experience the lingering impact of inventory issues from previously supply chain disruption at our YSJA rabies vaccine manufacturing facility. Thanks to operational enhancement, including improved supply of raw material and refined inventory management strategy. Our vaccine production has returned to normal and our inventory situation is improving, as one of the top rabies vaccine producer in China, higher production circled and the healthier even to the level of finished product. We have maintained our leadership position in the marketplace.

Following the decline of our product sales in the first nine months ended December 31, 2023, we have returned to a growth trajectory and we estimate double-digit year-over-year growth in product sales during the three month period ended March 31, 2024. Based on the current information at the end, we expect the product sales in fiscal year 2025, starting April 1, 2024, we’d like to increase by double-digit year-over-year. This would solidify our leadership position as one of the top rabies vaccine producers in China. This guidance reflects our current and the preliminary views on the market and operational conditions, which are subject to change. Let’s begin by going over the details of our results for the first nine months of fiscal year 2024.

Our total revenue for the period was RMB 438.1 million, representing a year-over-year decline pf 24.6%. Gross profit was RMB 351.7 million, representing an 8.3% gross margin. For the first nine months of fiscal year 2024, we recorded a net loss of RMB 260 million. At the end of the period, we had cash and the cash equivalents of RMB 222.6 million compared with RMB 370.4 million as of March 31, 2023. Since we launched product sales of our YSJA rabies vaccine in late 2020, market intake of the vaccine has been consistent and strong. As of December 31, 2023, we have sold more than 25.6 million doses on YSJA rabies vaccine to approximately 1,746 CDC customers, which represent over 6% of CDC customers in China, since October 2020. Next, I’d like to share some insights into our business initiatives.

At the corporate level since late 2023, we have embarked a comprehensive series of initiatives aimed at fortifying our foundation for future growth this includes the change to the board of directors and the senior management team, which we announced in recent months as well as streamline organizational reporting lines – decision-making process. Additionally, we have implemented measures to enhance internal controls and governance. Starting in March 2024, we took further steps forward, including prioritizing our pre-clinic and clinical pipeline and optimize human resources across all our subsidiaries in the US, China and Singapore. We have also implemented more effective cost controls in our manufacturing, sales and marketing and the general administration functions.

These initiatives which include the cost controls and improvement of operating efficiency are ongoing and will remain a focus throughout the end of fiscal year 2025. We are confident that these efforts will serve as pillars for our future groups. We also took steps to build out our infrastructure, expanding our total numbers of satellite warehouse to 2026. These dispersed facilities enhance our production distribution capabilities, and how can take advantage of a position the demand for our YSJA rabies vaccine. Since impact to our effective implementation of this strategic adjustment, we are pleased to report that our production capacity returned to normal level during the third quarter of fiscal year 2024. Our second quarter our fiscal year 2024 was the last to come under significant pressure from impact of the past production delays.

While resolving our inventory issues, we took steps to strike a balance with our current strategy with the importance of building up our inventory against the need to fulfill market demand. This approach has led to improvement in our inventory situation to-date. Ideally, we aim to hold nine to 12 months worth of finished product inventory at any given time. We are working towards achieving this target sometime during next year. Second, despite the short-term pressure on our top line, we continue to invest in our relationships with customers throughout China. As of December 31, 2023, our sales network in country, 30 out of 31 province-level CDCs and these 1,746 CDC customers across China represent over 6% of CDC customers in the country. Our sales and a marketing strategy either based on a long-term perspective through robust sales network we have built up over the past several years.

For warehouse we’ve solid foundation from, which we can drive future success, maintaining a network of loyal customer makes it easier for us to reap the benefits our production capacity improvement, especially as a demand for a variety of rabies vaccine remains robust. Our enhanced production capacity combined with this expanded pricing power is a testament to the utility and the value, while with existing sales networks. With our CDC customer recognition of the safety and efficacy of YSJA rabies vaccine, we are optimistic that this relationship will remain an integral part of our operational strategy. And finally, we believed on our goal to reconfigure our research and development efforts to both reaching us for long-term business success.

By later 2023, we had to shift our focus away from our PIKA COVID-19 vaccine candidate in light of the evolving global health environment, while our R&D expenditures in the first nine months of fiscal year 2024 were still impacted by the 12 month monitoring period for the PIKA COVID-19 vaccines Phase III trial. We have delivered our goal on prioritizing development of PIKA rabies vaccine. We just recently announced interim results of [indiscernible] Phase III clinical study of PIKA Rabies Vaccine. The interim results of this study indicate that PIKA rabies vaccine has successfully met the primary endpoint of the clinical study and it has the potential to achieve best-in-class, accelerate the production and meet the WHO’s goal of one-week rabies vaccine regimen to replace the conventional three or four week long regimens.

After the completion of Phase III study, the production registration and the eventual commercialization of our PIKA rabies vaccines remain a top priority and we are pleased with the progress we have made towards this goal to today. As such, we plan to craft a pricing strategy, which distinguishes the PIKA rabies vaccines from other market competitors. To summarize why we have spent a fair portion of the 2024 overcoming lingering production issues with temporary stack back, we’ve seen by the time it’s been overcome as we refine our operations, and we stood by our beliefs. Since later 2023, we have embarked on a comprehensive series of initiatives aimed at fortifying our foundation for future growth. Looking ahead, we will continue to advance our product portfolio towards commercialization, focused on operational efficiency and the leverage our refined inventory strategy and the robust sales network to build a sustainable long-term shareholder value.

I will now turn the call over to our CMO, Dr. Zenaida Mojares to discuss our product candidates in more details. Zenaida, please go ahead.

Zenaida Mojares: Thank you, David. Now from the clinical development pipeline mentioned earlier, we have gone through internal evaluation on current pipeline products, and have made a strategic decision on budgeting and prioritizing the preclinical and clinical pipeline. PIKA rabies vaccine and PIKA HBV 002 vaccine remain as the key development product candidates going forward. Here, I would like to spotlight two studies sponsored by YS Biopharma. First, the YS 002, this is the ongoing Phase 3 clinical trial of our PIKA rabies vaccine and second, the YS 101, the upcoming Phase 1 trial of YS HBV 002, which is a therapeutic vaccine intended to be used as a treatment for chronic Hepatitis B. Now let me begin with YS 002 the PIKA rabies study.

In this large scale study, we enrolled subjects across seven sites in the Philippines and Pakistan in September 2023, with a total of 4,500 randomized subjects. We compared the safety and immunogenic profiles of PIKA rabies vaccine using a five dose regimen completed in the span of three clinic visits in only seven days. So that of our leading market competitor with the traditional five dose schedules completed in five clinic visits is spread throughout a 28 day period. Rabies virus proliferation within the muscle and nerve tissue can occur as early as the seventh day from viral inoculation. Moreover, face patient compliance to rabies vaccination has been shown to drop significantly after seven days as well. We have designed the PIKA rabies vaccine regimen with these factors in mind.

Our interim analysis results show that the PIKA rabies vaccine surpassed expectations as highlighted by the three key findings. First, early onset of protection, seroconversion rate or the production of protective antibodies against rabies, let’s note that to be thrice that of the competitor in as early as seven days. Second, non-inferior and durable protection against rabies, as evidenced by similar seroconversion rates with the competitor on date 14, 28 and 42. And finally, assuring safety profiles with the majority of adverse events being mild to moderate local and hispanic complaints. And there were no serious adverse events suspected to be related to the tests and vaccines. In brief, not only that the PIKA rabies vaccine offers substantial protection using a shortened regimen, it also demonstrates promising superiority in generating an earlier protective response compared to a globally marketed comparator.

A shortened treatment regimen may improve treatment compliance and completion among patients, where it has been found that a major barrier to treatment completion is the long vaccination schedule used by current rabies vaccines. Now, we turn to the YS-101, which is a chronic hepatitis B vaccine study, we successfully received the approval of the Philippine FDA on February 15th of this year to conduct the Phase 1 study by Q2 of this year. The clinical trial unit where the study will be conducted is managed by one of the most prominent researchers in the Philippines. This study will evaluate the safety, tolerability, and preliminary efficacy of YS-HBV-002 for the treatment of chronic hepatitis B in adults. YS-HBV-002 is the proprietary formulation of YS Biopharma of recombinant hepatitis B surface antigen, recombinant hepatitis B core antigen, and our signature immunomodulating platform.

This vaccine is intended to be injected intramuscularly with a 14-dose regimen that can be completed in 40 days. We designed this investigation as a double-blind, randomized, placebo-controlled dose escalation study. Without getting too technical, this means that we will conclude the study with the knowledge of the appropriate dose to be used further along in the clinical development of the vaccine. Chronic hepatitis B is responsible for around 80% of cases of hepatocellular carcinoma in the regions with historically high rates of hepatitis B virus infection. At the moment, there is no approved curative treatment for chronic hepatitis B that is tolerated well with only a low frequency of severe adverse events. And we are hopeful in the potential of our vaccine to change that.

Thank you for your attention. And I now pass the floor to our Chief Financial Officer, Brenda Wu.

Brenda Wu : Thank you, Zenaida. I will now provide a close look into our financials. Please know that all numbers are in RMB terms, that the reporting period is the first nine months of fiscal 2024 versus the comparable period of fiscal 2023, and all comparison are on a year-over-year basis, unless otherwise stated. For the first nine months of fiscal 2024, our revenue was RMB 438.1 million compared to RMB 581.2 million in the comparable period of 2023, representing a change of 24.6%. This was mainly due to COVID-related disruptions affecting our manufacturing operations and production, which negatively impacts batch approvals and doses available for sale. This was partially offset by an increase in price of YSJA rabies vaccine approximately RMB3.0 per dose.

As David discussed earlier, starting October 2023, we returned to false trend and we estimate double digit year-over-year growth in product sales during the three month period ended March 31, 2024. Gross profit was RMB351.7 million compared to RMB449.0 million in the previous year, while gross margin improved by three percentage to 80.3%. Now, coming to our operating expense. Selling and marketing expenses was RMB229.2 million compared to RMB224.5 million in the comparable period of 2023. The change was primarily driven by the increase in promotional and marketing service fees as we continue to promote our YSJA rabies vaccine and established relationship with CDC. General and administrative expense with RMB142.8 million compared to RMB68.6 million in the comparable period of 2023.

This was mainly due to increase in provision for inventory impairment and the provision for trade receivables. Research and development expense was RMB244.7 million compared to RMB221.8 million in the comparable period of 2023. The change is primarily driven by the increase in testing and the clinical trial fees associated with our PIKA rabies vaccine and Hepatitis B vaccines as we continue to advance our product pipeline towards commercialization. Net loss was RMB252.3 million compared to RMB64.2 million in the comparable period of 2023. Turning to our balance sheet. We have RMB222.6 million in cash and the cash equivalent as of December 31, 2023, compared with RMB370.4million as of March 31, 2023. Finally, I would like to provide some commentary on our financial outlook.

We expect product revenue in fiscal year 2025 starting April 1, 2024 to increase at the double digit rate compared with fiscal year 2024. At the same time, we are taking further measures to walk prudently manage our expenditures and improve our bottom line at the end of fiscal 2025. This guidance reflects our current and preliminary views on the market and operational conditions which are subject to change. As we emerge from our pivots disruption with enhanced operational approach, we’ve been dedicated to address per system was [indiscernible] financed from rabies vaccine across China and Southeast Asia. We will continue to strategically advance our pipeline of promotional product candidates. And we are excited to take advantage of all the opportunities which lie before us with this big fat focus on trading success.

We are confident that we will generate long term success and building sustainable value for our shareholders. That concludes our prepared remarks for today. Operator, we are now ready to take questions.

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Q&A Session

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] First question comes from Hunter Diamond with Diamond Equity Research. Please go ahead.

Hunter Diamond: Hi. Firstly, congratulations on the recent results. My first question was can you provide an overview of the timeline for the registration and commercialization of the PIKA rabies vaccine following the positive Phase III trial? And then additionally what level of market acceptance you anticipate once the vaccine is commercially available?

David Shao: Hey Hunter, this David. Let me take your call first, then probably I’ll ask Dr. Zenaida Mojares to provide additional detail. As you know that just a few days ago, we announced the internal readout of Phase III trial, which is multi-country multi-center study from Philippine and Pakistan and the right now, we are still working on the final report for this clinical trial. Afterward, we will move out more update for multi [indiscernible] product registration progress. At this moment, actually we started discussing with the potential regulatory organizations at the different countries. So, the information for the — like a condition — overall occupation and other related application process already. Right now we haven’t given the guidance on the specific model commercialization timeline, but a different [indiscernible] could be different, that’s the kind of situation, probably, Zenaida can provide an update on that part.

Zenaida Mojares: Thank you, David. Yes, Hunter, this is Zenaida. With regards to the PIKA rabies vaccine, we mentioned about the interim analysis and we have the high level preliminary results. Actually, the final interim report will be released by next week. So, our plan as indicated within the study, using the interim analysis data, we are really applying for a conditional approval in some countries where it is feasible. Aside from that, we also have an orphan drug designation. Because of the good results, we would try using the interim data. Now, with regards to a timeline. So, the study will complete all study basis [ph] towards the end of December. And once you close that study by quarter one of next year, we will be having our final study reports.

And using those data, we intend to submit using rolling submission strategy, because there are still a lot of things to be done in the background. Nevertheless, once all documents are ready, all things that have to be done will continue and we’ll check with the regulators for rolling submission. And then with that, I think, securing marketing authorization would take around one to two years, it depends on the country. So it would probably be out in the market within maximum of two years time. Did I answer your question, Hunter?

Hunter Diamond : Yes, no, thank you. That was a very clear answer to that question. My second follow-up question, then I’ll open the line for other questions, but could you offer an update on the development status of the other drugs in your portfolio and key upcoming milestones for these projects, whatever you can mention on your other assets?

Zenaida Mojares : Right, yes. Right now, we’re really looking forward to start our vaccine for chronic hepatitis B treatment. The scheduled start is either May or June. As you know, there are also other HBV vaccines that are in the trial stage, but having HBV vaccine would maybe a better option to really come up with a treatment for this chronic disease, because currently, we only have antiviral medications, which have their own side effects, and patients will be taking this for life. Whereas if we come up with an HBV vaccine, a single regimen, which will take around 40 days would really help them turn back to the normal condition. Now, another thing that we are doing, aside from our PIKA rabies vaccine outside of China, this is also being done inside China.

So these are the things. And the management team is also trying to brainstorm and discuss of a probability of using our immunomodulating platform, that is our PIKA adjuvant in coming up with an adjuvanted flu vaccine. But that is not yet confirmed. Is that okay?

David Shao : Hunter, I guess, the…

Hunter Diamond : Yes, yes. Thank you. That was a great answer to the question. Yes.

David Shao : Hunter, I just add one more sentence on this approach with the hepatitis B vaccine. We do have a clinical team on ground in Philippines, and we also very fortunate to have this Phase 1 clinical trial license approved by the Philippines FDA recently to conduct Phase 1 study. If you look at the details we disclosed on this study, we are able to directly use this clinical candidate among chronic hepatitis B patients at the Phase 1 trial. It’s not easy to get. If we apply Phase 1 study in other countries, probably we have to start with healthy volunteers. But in Philippines, this time, we are able — we’re fortunate to have a chance to directly to use this medication for chronic Hepatitis B patients that do actually, hopefully we can collect more meaningful result from this study very quickly, to provide additional evidence for us to move this project forward.