Recorded.
Good evening, everyone. I'm Verity from Monsoon Communications. Thank you for joining us for Clinuvel's annual results briefing for the 2022 financial year. I'll now hand over to Malcolm Bull to begin the presentation.
Thank you, Verity, and thank you for organizing the briefing for us. Welcome to everyone joining us online for the investor briefing, as Verity said, on Clinuvel's financial results for the year ended 30 June 2022. I'm Malcolm Bull, Head of Australian Operations and Investor Relations. Today, I am joined by our Managing Director, Dr. Philippe Wolgen, and Chief Financial Officer, Darren Keamy. Today's briefing will revolve around the results for the financial year 2022, the key activities of the year, as well as ongoing initiatives to bring the company's objectives to positive outcomes. Throughout the meeting, we will answer questions relating to our financial results, and at the end, time permitting, some recurring questions on other topics. Now before we begin, let's observe our forward-looking statement, which highlights that we may possibly talk about future plans.
Investors need to be aware of the varying risks that can arise affecting the realization of planned outcomes. Now, a copy of this statement is available on the company's website. To start, I'll hand across to our CFO, Darren Keamy, for the financial highlights.
Thanks, Malcolm. Hello, everyone. It's a true pleasure to summarize the excellent financial outcomes of the group's operations for the financial year ended 30 June 2022. Investors should note that the figures we refer to are in Australian dollars, and for most of these, they are rounded for ease of reference and changes in comparison to the prior year are provided. To summarize, compared to the prior year, total revenues has risen 37% to AUD 65.7 million, including interest and other income was AUD 67 million. Total expenses rose 44% to AUD 32.7 million. Net profit before tax rose 33% to AUD 34.3 million. Net profit after tax fell 16% to AUD 20.9 million. This is the sixth consecutive annual profit since the commencement of commercial operations back in June 2016.
There has been a positive overall growth across the group's activities, increase in internal investments and a year-on-year increase in headcount of up to 16%. Net assets have increased by 27.2% to AUD 125.6 million, with a key change of the balance sheet being a substantial rise in the cash balances, up AUD 38.8 million to AUD 121.5 million through the course of the financial year. Two other key measures of performance dimensions, our return on equity, which is at 17%, and our earnings per share of AUD 0.423.
To cap these results, we are now in the position to think about our shareholders even more, and we are declaring the fifth consecutive annual dividend, which is a 60% increase from AUD 0.025 last year to AUD 0.04 on current year earnings.
Thanks, Darren. You've got to say, they are welcome figures, and, you and Paul Lim and the finance team, must feel pleased about the delivery this year. To go beyond the highlights, Darren, can you give us, more depth to the growth of revenues and expenses and profit, as well as the context of the past six years of commercial operations? In other words, on behalf of investors, how should they look at these financials in the context of markets and our sector?
Well, for start of revenues, we've worked towards continuing positive annual growth over 6 years of being commercial. To put context to our growth curve, since we've entered the U.S., we've achieved an increase in our total revenues of 37% in the current year. That was on the back of a 47% increase in the prior financial year.
Mm-hmm.
This path reflects increased patients treated, with more physicians are prescribing, more patients are being retained. Above all, we're creating more efficiency through the work of our Clinuvel teams, who are proactively supporting the distribution by collaborating with the physicians, with insurers, with training and liaising with the accredited centers and with the patients. Yeah, what we're doing is that by being closer to our value chain, the better our results are proving to be.
Right.
Now that's on the revenue side. From the expenses side, you know, our expenses can fluctuate depending on the start of certain key activities. Overall, they have increased over the past 3 financial years in a very controlled and deliberate manner. The growth in expenses in 2020 was 49%. There was more, you know, controlled fashion in 2021 of a 2% growth, and then a further 44% growth in the current year. This is, you know, on the back of supporting the growth initiatives within the group. It goes without saying that the longer term positive trend in our growth and revenues has allowed us to ramp up our expenses, and that is driving us forward into new R&D, into our product development, and into new markets.
Now, as to reporting the profitability of the company this year, you know, in our annual report, we've made a distinction between three measures. Net profit before tax, net profit after tax, and we've provided a non-IFRS adjusted net profit. Since in the end, what matters is what expenses directly are affecting our cash position. These are some material expense items that are charged to meet accounting requirements that do not affect cash.
Mm.
The profit before tax figure has risen strongly in the current year. While the impact of non-cash expenses as well as income taxes payable have reduced the net profit after tax, nonetheless, it's a much desired result that we've lodged in for a life sciences company, not only in Australia but also in the US and for other markets. I'll speak later, somewhat more about the NPAT and on the non-IFRS adjusted results to see how the expense items have affected our net position.
Okay. Yes, certainly we'll return to the financials, but some participants have asked for a summary of operational objectives fulfilled throughout the financial year 2022. I'd like to invite our Managing Director now, Philippe Wolgen, to say a few words on the past year.
Certainly. Thanks, Darren and Malcolm. The results that Darren has summarized for the group are the outcome of longer-term strategy, very much based on the integration of the business functions and the model we started years ago. As a business, you wish to build in operating procedures at each level of the divisions while being sufficiently flexible to change course if and when required. Now, for the financial year 2022, we were able to expand more on the R&D initiatives, enhance our melanocortin portfolio with the NEURACTHEL and the ACTH analog, and start the DNA repair program, evaluating afamelanotide in xeroderma pigmentosum, with three ongoing studies, and complete the first stroke study, CUV801.
We manufactured the first pilot batch of the OTC product lines, and we brought in more specialized talents, 16% in total, and established a CBM, communication branding marketing team, mandated to build larger audiences for the group. We've been fortunate in managing the supply in the midst of the global economic geopolitical disruptions while overcoming the pricing pressures from insurers, as witnessed by the agreement reached with one of the most prominent EU reference countries, Germany. If I had to summarize the four key activities of financial year 2022, we've been focused on the ongoing distribution of SCENESSE, the development of the melanocortin drug portfolio, the progress of the expanded clinical program, and the ongoing development of the non-pharmaceutical consumer health products, preparing for the first product launch.
Now, for the longer-term shareholders, you have gradually seen a shift from a mono-focused team inching to a diversified one diversifying its activities. My main concern in spreading our wings is still for our teams to maintain the focus required to record meaningful progress. Now, for this to occur, we substantially increased our headcount in 2022. I think most relevant to today's discussion are commercial efforts translating into financial results. We saw increased patient access in the European Union, U.S., and Israel. We reached a milestone five-year agreement with the Gemeinsamer Bundesausschuss (G-BA) in Germany, the state and private insurers, and therefore we continued the reimbursement in Germany that there was a hard-fought battle over 60 months. We expanded the melanocortin drug portfolio by adding an ACTH analog and introduced NEURACTHEL.
We continued the development of PRÉNUMBRA Instant, which we recently announced will be the first in the clinic for the next stroke study, CUV803, and we secured exclusive manufacturing for this. We started three studies in DNA repair centered around xeroderma pigmentosum, a horrific genetic disease, and CUV151 serves as a control study in non-disease populations. We started, completed, and released the positive results of 801 study in arterial stroke, and we're reaching a path with the FDA with a way forward to start a monotherapy in vitiligo in darker-skinned populations. We also progressed the work on the OTC product line. We are getting quite close to the launch.
Well, thank you, Philippe. What a list of activities and achievements. I know in my role as head of Australian operations, interacting daily with the teams worldwide, it's clear that the group the past year has ramped up its activities on many fronts. It's good to see. These broader and simultaneous activities are very, very different from the company I joined three and a half years ago. Darren, back to you. Let's get back into the financial results. We've received a number of questions on the difference between the net profit before tax, net profit after tax, and the non-IFRS outcomes. Can you shed light on these and walk us through the differences?
Yes, I can. First, you can see the differences on the graph between the net profit before tax and the net profit after tax results over the six years of commercial operations and the divergence between the two profit measures that have widened in recent years. Broadly speaking, the company was able to benefit from setting off the tax losses that it had accumulated in those years prior to commercializing SCENESSE against the first five years of profits being recorded. This resulted in some negligible post-tax obligations, but it had afforded us to recognize income tax benefits in the income statement, which occurred upon recognizing a tax asset on the balance sheet.
In the past years, we saw the before tax result and the after tax result to be quite similar, and even in some reporting periods, a higher NPAT result relative to the before tax result. Due to recognizing an income tax benefit.
Right.
During the course of the year, those usable tax losses were consumed and the company's deferred tax assets were reduced as a result. This has contributed to a deferred tax expense for the year of AUD 6.2 million. In addition to this adjustment, current tax for the year and payable in the next year was reported at AUD 7.4 million. Also relevant for the group and also for myself as CFO, is to understand the impact of certain expenses, particularly those of material nature, and whether they impact the group's cash position. One of these charges is the expensing of performance rights, being prospective equity instruments that issue for staff who vest over a vesting period of up to four years. These instruments are valued in accordance with accounting standards, but they don't impact cash.
Hence, by removing certain material non-cash items from the statutory reported after-tax result, we arrive at a non-IFRS adjusted profitability measure of approximately AUD 27 million. Compare that same measure to the prior year. We are nearly equal. Going forward, we do intend to continue highlighting certain expenses charged and the effect that these material non-cash items may impact on profit, because sometimes this impact can be confusing for shareholders.
Okay. Thanks, Darren. I think that clarifies and does answer some important questions. As you've mentioned, Darren, expenses have increased significantly over the past three years. Can you comment on where the expenses are being incurred?
Yeah, the increase in our overall expenses is, you know, very deliberate and very controlled. We're clear on that in our communications, and it is to support the growth of the company. You know, as Philippe has already provided an overview of the diversity of the group's activities to which, you know, these expenses are applied to. To give an overview of the increases in the current year, our largest expense category is personnel. That did increase 14.1% in the current year. As we did indicate in the annual report, the year-on-year increase in the number of employees of the group was 16%, from start to end, and an average headcount of 13% increase. That broadly reflects the increase in the personnel costs.
We also experienced a hike of 48% in materials and related expenses, and some of these do reflect marked up activities within the inflationary environment that we find ourselves in. Thirdly, non-cash items disclosed in the income statement, and aggregated together, such as depreciation, share-based payments, and unrealized movements in foreign currency balances. Combined, they rose 42% in the current year. Combined, you know, it does equate to our second largest expense category for the year. Lastly, other expenses, once again, combined, being our administration, legal, and marketing functions, they also increased 23% year-on-year.
Okay. A useful graph on screen or was on screen to track those categories. Perhaps I can go back to you, Philippe.
Right.
We had projected a positive trend in expenses over the five years to 30 June 2025 to support the growth and expansion of the, of the group. Can you comment on these, please?
Yeah. You're likely alluding here to the projected expenses and the expenses recorded during the financial 22, and whether these fit the overall targeted results.
Correct.
As stated in 2021, to achieve a number of value-added objectives for five years, both the board and management laid out a plan costing out cumulative expenses of under AUD 75 million over the five years ending 30th of June 2025. Now, at the end of this trajectory, that's important to note, a number of key objectives would need to be fulfilled. In essence, the regulatory approval of SCENESSE® for an additional indication, the launch of NEURACTHEL®, several consumer health products, and other R&D projects engendering further value. If one adds the total expenses over the last two years, one arrives at a total of AUD 55.5 million, and that leaves AUD 119 million to be expended over the next three financial years. We are now on course adhering to our five-year plan.
Right. Look, just for an investor, can you clarify that these expenditures are operational in nature and do not include CapEx?
Yeah. That's correct. Yeah.
Okay. Darren, let's look into the balance sheet, and an obvious observation is that our assets have increased over the last six years and in absolute terms, tower over our liabilities. For you to comment.
Yeah, that's right. That's a deliberate strategy that reflects the approach we have to the business in general and the strength of the company in particular. As can be seen, the balance sheet is extremely strong. We have no debt and high liquidity due to the accumulated cash reserves. Our liabilities are largely comprised solely of trade payables and short-term tax obligations. The net cash generated during the years bolstered our cash reserves significantly and the rate of increase in our cash reserves is particularly noticeable in the current year when compared to prior years.
Well, yes, that's a great gradient to have in your favor. Philippe, we covered the deployment of these accumulated cash reserves in the last.
Mm-hmm.
News communique, number four for the calendar year. We do continue to receive questions on our approach here. Do you have more to say as to the cash reserves being built and how they're gonna be used?
Sure. Plenty to say. I think we can state our approach often enough in the interest of all shareholders. R&D biopharmaceutical companies would be well off in carrying sufficient cash to operate 2-3 years without leaving shareholders and market second guessing as to when a company is to raise funds to either debt or equity. The overhang of further funding required depresses notional value, introduces uncertainty among investors. Yet as a reasonably successful commercial company, Clinuvel returned in 2022 to increasing its R&D expenses to drive the pipeline for future accretive value. This R&D was projected to be financed by the cash or the company's own cash reserves and the future proceeds from our operations. Now, second, a margin of cash is needed to withstand economic downturns and what I call Six Sigma events.
Those force majeure events are notionally the ones that we never see coming, but actually take place more often than one projects. It's part of Clinuvel's risk management to control its finance and maintain a liquidity ratio. Now, with it, this particular approach, all shareholders have benefited from a going concern not being re-rated by our auditors and not being forced to raise further equity in uncertain markets at deep discount. This cash allows for redistribution of a percentage of the profits to our shareholders. Of our net profits this year, we redistribute 10% to our shareholders, and that is without jeopardizing or impacting our plans. From a personal perspective, 35% of our shareholders consist of family offices, retail investors, institutions, who willingly have chosen to stay more than 15 years in Clinuvel.
For those who supported us, I believe dividend strongly communicates and sends a message of appreciation, since it remains rare for biopharmaceutical company to do so. As Darren mentioned, the board declared a 60% increase in the dividend this year in relation to the last year. It's excellent.
Okay. Look, for me to summarize our discussions to this point. We have seen a sixth consecutive annual profit reflecting strong demand for SCENESSE, and established a viable track record as a first-in-class drug therapy. This is the outcome of a long-term disciplined strategy and the deployment of an integrated business model. The returns to shareholders are sound. We currently have strong foundations to allow growth and are amongst a very few biopharmaceuticals, as Dr. Wolgen was saying, in Australia or the US to post profits year on year. We focused on particularly the safety of SCENESSE to allow translation of its use in wider audiences. The group's financial management allows for diversification, redistribution, and security, benefiting all shareholders, patients, and their families.
The group's ongoing activities are focused on the growth in the distribution of SCENESSE®, the building of regulatory dossiers to expand use, and the launch of the first polychromatic dermato-cosmetic product. You may see some announcements on readouts of study results when available, and clinical programs, in general, as they commence and progress. Now, in the time we have left, I'd like to turn to some non-finance questions. Noting there will be further opportunity for questions at the annual general meeting. Philippe, first, we have a few questions on SCENESSE® for EPP. First, what is our market penetration? Is demand likely to level off?
Well, the growth we're experiencing, particularly in the U.S., is well beyond our own expectations and projections. The product penetration of the EPP market is set by independent analysts to be relatively low. It's 2%-3%. In general, we've never commented on penetration of the EPP market, but there is a consensus that there's ample room to grow, and we're not foreseeing a plateau soon.
Okay. All right. Another area of investor focus is possible competition. Can you address this, please?
Yeah. Well, we've addressed this on more than one occasion in public.
Yes.
Clinuvel is a pioneer in photomedicine in having developed the first systemic photoprotective therapy. Of course, there will be competition. We've always foreseen that in the fields that we explore and pioneer, and there will be others. This is not a winner-takes-all scenario, as one of the uninformed commentators recently stated. These statements should be contrasted with the assessment of one of the most revered independent analysts of Clinuvel with the lengthy experience as a physician. To understand that there is room for more than one therapy in EPP, and that this should a competitive situation arise.
Mm.
Now, Clinuvel will compete, but we're certainly not about to telegraph to the world and our competitors, our plans in answering, maybe a well-intentioned question. Let's not be naive. The competition is about strategy and tactics, and we will guard our competitive, armor and firepower until it needs to be used.
Okay, thanks. Turning to healthcare solutions, the rationale is to translate our expertise in pharmaceutical drug development and photomedicine and regeneration of the skin damaged by exposure to light to audiences in the general population, which are currently underserved by existing dermato-cosmetic products. Philippe, who are the targeted audiences?
Right. That's a broader topic. I'm happy to talk about this in the upcoming strategic updates five on the seventeenth and the eighteenth of September. We will spend much time communicating the why, the how, and the when. I'll leave that to then.
Okay. That's good forward advice to look out for those to look out for the update. Look, at this time, I think we need to conclude the investor briefing with thanks to Darren and Philippe for their informative comments and answers to questions.
Thanks, Bull. Thanks very much.
You're welcome.
Thank you, Darren. Welcome for hosting this.
No, that's. It's always my pleasure, and I wish to thank all shareholders attending the briefing and for sending in questions. We do appreciate your support throughout the year and long term, and we trust you appreciate the dividend increase coming your way. Our appreciation is also extended to the independent analysts on the phone and who have provided new reports on the company during the past year. You can look for a transcript of this investor briefing to be released to the Australian Securities Exchange for all stakeholders to read at their convenience. Now, the next key shareholder events are the Strategic Update 5, as Philippe mentioned in September, and the annual general meeting 2022, which will be held late October in Melbourne.
Now, this will be an in-person meeting and provide an opportunity for shareholders to also dial in and view the meeting. We wish you all good health and progress in your individual objectives, and thank you again for your support of Clinuvel. Thank you.
Thank you. Thank you.