CEO-comments Interim report Q3 2021

For the third quarter of 2021 IRLAB has shown a positive result of SEK 120m, primarily due to the licensing of our drug candidate mesdopetam to Ipsen, a global pharmaceutical firm. The mesdopetam deal is transformational for IRLAB – we have shown that our business model works and that our ISP research platform is an effective tool for developing drug candidates that are attractive to the market. At the same time, we have laid the foundation for taking the next step towards our vision of creating a sustainable and profitable drug development company. The deal is one of the largest ever made within Swedish biotech, and gives us completely new opportunities for increasing and broadening our ISP research activities, focusing on the pirepemat project and taking new drug candidates from our preclinical project into clinical studies.

After the mesdopetam deal – focus on P001, P003 and pirepemat

From the very start, IRLAB’s business has been focused on our two clinical drug projects, mesdopetam and pirepemat. At the same time it has been important to further develop ISP, our research platform, to enable early research and continually discover new drug candidates.
Thanks to the focused and goal-directed efforts of our research team, we now have several very promising drug candidate projects that are rapidly approaching clinical Phase I studies.
The mesdopetam agreement enables completely new opportunities for adding value for shareholders by developing pioneering treatments of a number of CNS illnesses. The license agreement means significant revenues and reduced costs, as Ipsen will be responsible for investments in the remaining developmental stages of mesdopetam, except for the current Phase IIb/III study. Moreover, internal resources tied to mesdopetam will be freed up. IRLAB will now expand preclinical activities in the P001 and P003 projects and focus on developing substances that have the best potential for being safe and effective for patients, and therefore attractive for future partners.

P001 – for better cognitive function

This project aims to develop new drugs that improve the interconnection and signals between nerve cells in thecerebral cortex, in order to strengthen patients’ cognitive functions – and to do it in a way that not only eases their symptoms but may also slow down the course of the illness. Using ISP, we have developed several substances with varying inherent characteristics that can be appropriate for treatment of Parkinson’s as well as other broader disease groups in neurology and psychiatry. We believe that this new class of potential drugs should be able to improve treatment of dementia-related illnesses, depression, schizophrenia and even ADHD. IRLAB has already nominated IRL942 as a candidate drug and generated preclinical proof of concept in several disease models for cognitive improvement. We have initiated scaling up manufacture of IRL942 in order to carry out the animal studies required for regulatory approval to begin clinical Phase I studies. Additional candidate drugs
are expected to be nominated from this project.

P003 – transforming treatment of Parkinson’s

n the treatment of the basic symptoms of Parkinson’s disease, the most effective drugs today are based on levodopa or apomorphine in different preparations. These two substances deliver a good effect, but with varying absorption from the gastrointestinal tract and very short effect durations, which leads to poor treatment results. It has long been an explicit goal in the field to find a better,
longer-acting alternative to these two drugs.

As part of IRLAB’s P003 project, we have discovered long-acting substances that have the same or better effectiveness than levodopa or apomorphine in animal studies. Here we see a great opportunity to transform the treatment of the core symptoms of Parkinson’s disease with new candidate drugs. The project has achieved preclinical proof of concept, and we are now optimizing the first drug candidates.

Pirepemat

Pirepemat is a unique development program. Today there are no drugs that specifically address the problem of falls in Parkinson’s disease. Problems with balance and falls are one of biggest issues for these patients, and it is estimated that about 50% of all diagnosed patients fall often. This gives rise to reduced quality of life for the individua as well as very high societal costs and a which means there
is a very large need for an effective treatment. Pirepemat has shown very promising results in preclinical and clinical studies. Cutting a new path of our own requires, however, that we are thorough in planning our studies and charting the regulatory journey forward. After considerable efforts together with government authorities and research experts in both Europe and the US, we have an elaborate study plan. We will begin a Phase IIb study as soon as authorities approve our application.

Our cooperation with Ipsen on Mesdopetam

It’s very exciting for us to work together with a global partner, and thus far the cooperation has exceeded all expectations. This quarter we worked together with Ipsen to create the working groups and processes required for continued successful development of mesdopetam towards a market launch. A technology transfer of all data and knowhow took place early this fall, and Ipsen is now forging ahead with preparations for the Phase III studies. IRLAB continues to be responsible for completing the current international Phase IIb/III study, while Ipsen handles all the other activities and costs associated with them. It is important for both Ipsen and us, however, that IRLAB’s accumulated experience and knowledge of mesdopetam benefit the project, which is why IRLAB staff will continue to engage in the working groups that are driving developments toward Phase III and a market launch.

A deal resonating around the world

A relatively small northern European research firm like ours usually demands enormous efforts to gain the attention of potential business partners. The agreement with Ipsen, however, has put us in the spotlight of our entire industry, and we are now experiencing inquiries from a great many actors regarding our projects and ISP, our research platform.

Accounting of upfront revenues from the mesdopetam deal

The mesdopetam deal gave IRLAB an initial payment of SEK 240m, which was paid during the third quarter, contributing to a cashflow exceeding SEK 200m. The revenue and results for IRLAB is, however, will differ due to two factors. Revenues are affected by the fact that IRLAB is responsible for carrying out the ongoing Phase IIb/III study, which means that revenues to a certain degree will be deferred and continuously recognized during the study period. A total of about SEK 55m has been deferred, of which SEK 5m will be recognized in the third quarter, and the remaining SEK 50m is to be recognized in the remainder of 2021 and 2022. Costs are affected by the fact that the booked value of the mesdopetam project must reversed, which increases booked costs by SEK 39m.
Neither the deferred revenues nor the reversal of the booked value have any effect on IRLAB’s cash flow.

Effects of the Covid-19 pandemic

Within the clinical program we see signs that the healthcare situation in certain countries and regions is stressed, CEO’s comment and that regulatory authorities now have longer decision times for approvals. We also see that hospitals’ capacity for participating in and carrying out clinical tests is limited, due to the need for acute care for Covid-19 patients. While this can affect IRLAB’s clinical studies, we are following the situation closely and are taking measures to minimize the
effects on our projects and schedules.

A new and stronger position

IRLAB is now situated in a much better position than at any earlier phase. We have a partnership with a global pharmaceutical company, a strong cash position, pirepemat on its way into Phase IIb and new projects and drug candidates with very exciting characteristics on their way to clinical
development. We have also received attention and expressions of interest from our biotech and pharma sphere in a completely different way than earlier. We are now in a position to accelerate the development of IRLAB and strengthen ourselves with important core competencies in R&D, business development, finance and IR, in order to continue building a strong, business-oriented organization.
We have every reason to view the future with confidence.

November 2021
Nicholas Waters, CEO IRLAB Therapeutics