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..

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..

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..

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..

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..

Thank you. [Operator Instructions] Our first question for today comes from Miles Dixon of Peel Hunt. Miles, you line is now open. Please go ahead..

Hi, thank you so much for taking the question, Bharatt and Eric. If I could firstly ask about the rate of returns. I mean it’s incredible rate of return, $50 million buyback, $100 million tender offer.

How might we think about that moving forward? And how dependent – sorry, how might we think about that moving forward on any new capital realization events? And how affected is it by the macroeconomic backdrop, for instance? And then maybe I’ll ask another question to follow-up..

Thanks, Miles. So we are very proud of the progress we have made and returning capital to our shareholders is a commitment that we have made, and they have indicated that in the past. And so we initiated the $50 million share buyback that we completed last year.

And in addition, we have announced a $100 million tender offer, which we’ll launch in early May. Together, that will be about $150 million of capital we would be returning back to the shareholders.

And the Board will continue to assess ongoing opportunities to improve the shareholder returns, including additional capital returns from future monetization events while maintaining a cash runway and operational flexibility going forward..

Got it. Thank you. And I guess, I mean, despite the – even after the buyback and the tender offer, you still have an incredibly healthy balance sheet.

I was just wondering how you were thinking about deploying that moving forward? How are you going to skew it towards new assets or enterprises? Will you support to a greater degree, greater ownership of the Founded enterprises moving forward? Is it about faster development? Or is it a – we’ve got a great template already and we’re going to continue to use it?.

Yes. So as we’ve have a capital allocation strategy that we have outlined, which will include a number of components, right? So – which starts with capital returns to the shareholders with the $100 million tender offer that we have announced. We also have one of those few biotech companies that are actually paying taxes.

In the past, we’ve optimizing our tax burden through a combination of R&D tax credits, net operating loss as well as R&D tax credits, that allow us to optimize our tax. In 2024, we would – we don’t have access to a lot of those tools, although we continue to look for ways to optimize the tax as allowed by the U.S. tax code.

In addition, we have a commitment to supporting our Founded Entities to the extent we can be helpful in advancing their programs as well as their capital raise. And we look at opportunities to maintain our ownership position in some of these Founded Entities going forward. A third – fourth component on this involves supporting our existing programs.

So we have LYT-100 and LYT-200 programs that we are – currently, they are in different stages of clinical trials. And we’ll continue to fund them through the upcoming next milestone. We look at the data and evaluate opportunities and optionalities to further advance them rapidly towards the patients.

And then finally, the components include looking at our new programs that we are evaluating. This is part of our ongoing strategy of generating new product concepts and from our hub-and-spoke R&D model that we have pioneered, and we’ll continue to evaluate that.

And we have – on an average, we look at least or up to two programs – two new programs per year. Initially, these programs do not require significant capital investment. And so those are some of the key components of how we look at allocating capital going forward while maintaining, as we indicated, 3 years of operational runway..

Thanks, Bharatt. And maybe if I could just quickly finish with a question for Eric. I know quite how many ideas you go through in order to finalize before you start talking about an actual idea to the public markets.

But can you give me an idea as to – have the particular flavors or themes of the early-stage ideas that you’re considering? Have they changed recently over the last, say, 6 to 12 months? Many thanks..

Yes. Thanks very much for the question. So you’re absolutely right.

There’s a very high bar before we would consider going forward with the program and that inherently entails looking at quite a few opportunities and ideas before settling on something where we would feel comfortable expanding more than a minimal amount of capital or any capital for that matter.

Going forward, we would really see ourselves focusing on therapeutics and new programs would really fall under that therapeutic category. And a lot of the criteria that we used in the past really will be the same in terms of looking at areas of very high unmet patient need, having a reason to believe in the approach and science.

So really that the underlying data is strong enough that we have that reason to believe that there is a clearly defined path in terms of derisking events and that we can derisk the technology approach in a reasonable and timely manner. And then that it can be protected by intellectual property.

And a lot of this coming down to the idea of patient impact. If there’s a very large unmet need, and that large unmet need can be settled or affected by a new technology rather approach then that is a very good sign.

And of course, as part of that patient impact, we also and always would assess commercial impact to ensure that the commercial impact would follow the patient impact..

Thank you..

Thank you. [Operator Instructions] Our next question comes from Lucy Codrington of Jefferies. Your line is now open. Please go ahead..

Hi, there. Thank you for taking my questions. Just on LYT-200, I guess, what is the – is there a bar or a hurdle, I guess, for the data coming up this year that then could determine whether you definitely see external investment into that and follow a similar route to Seaport.

And then on a similar basis for Seaport and Gallup, is there a minimum level of ownership that you would like to keep to those programs? Thank you..

Thank you, Lucy. For the first part of the question, I’ll transfer over to Eric..

Thank you for the question. So right now, LYT-200 is in a Phase 1b trial for those solid tumors, so with a particular focus on head and neck cancers, and that is in combination with tislelizumab, and then also in hematological malignancies with initial focus on AML and high-risk MDS. As is typical for these trials, the primary endpoint is safety.

And we’re looking for any safety signals that could be a problem going forward. Now as is typical and the oncology space, these types of trials are run with patient participation rather than healthy volunteers.

And unfortunately, the patients who go into a Phase 1b trial, really are patients who have exhausted other options and tend to be at end lines of therapy. Therefore, because we will have patients in the study, we will be looking for signals of drug activity. And that really is reflected in standard measures in the space.

So really, if you look at disease control activity, it’s stable disease, partial response or any complete responses. So we will be looking at those kind of standard measures of efficacy, bearing in mind that the primary purpose is looking at safety..

That’s great.

It is safe that – is that just enough – sorry, safety is enough for you to then look to get external investment within it?.

I think we’d really be looking for signals of activity by the drug. So we’re going to look for the drug being an active drug. And of course, you have to bear in mind that this is in label study and in oncology.

As you know, really the key in assessing activity of the drug is what line of therapy of patient is in because the bar and the expected results, of course, will vary depending on if someone is frontline or if they’re in further lines of therapy..

And to the second part of your question, Lucy, so in terms of ownership stake in these Founded Entities, it all depends on a case-by-case basis and where we can be helpful in catalyzing future rounds of financing for these Founded Entities.

So for example, when Karuna, for example, went public, we – PureTech’s ownership interest was somewhere in the 32% post the IPO financing. So that’s an example of where we were able to invest a total of about $18 million and ended up with about 32% ownership stake post-IPO.

That’s an example, but it doesn’t mean that every Founded Entity will follow the same path. It all depends on how many rounds of financing they go through before an IPO and the number of programs they have in the pipeline, the capital required to advance dose to a meaningful milestone and value inflection points.

So there are a number of factors that go into evaluating how we want to be helpful in advancing those programs with the Founded Entities..

Great. Thank you..

Thank you. That’s all the time we have for today. Therefore, that concludes today’s conference call. Thank you all for joining. You may now disconnect your lines..