Welcome to the Nanoform Audiocast with Teleconference Q3 2021. For the first part of this call, all participants will be on listen-only mode, and afterwards, there'll be a question and answer session. Today, I am pleased to present Henri von Haartman, Director of Investor Relations. Please begin your meeting.
Thank you, and good afternoon all, and welcome to Nanoform's third quarter 2021 report presentation. My name is Henri von Haartman. I'm the Director of Investor Relations. Today our CEO, Professor Edward Hæggström, CFO Albert Hæggström, Chief Commercial Officer, Christian Jones, will present to you. This presentation is webcasted through Financial Hearings, and there is also the possibility to call in and listen by phone. The slides are shown through the webcast, but you can also find them on our webpage under the Investors section. After the presentation, we will hold a Q&A, and it's possible to ask questions by calling in. When you ask questions, please do ask one question at a time. Today, we will start with a short introduction to Nanoform and then move on to third quarter report. Operator, if I may ask you to move to slide three, please.
With these words, our CEO, Edward Hæggström, please go ahead.
Thank you, Henry. This is Edvard Haeggström, and I am happy to talk to you today and give you an outlook of what we have achieved during Q3. If you could go to slide four, please. Nanoform is a platform technology company, basically holding a proprietary technology platform, which is suitable to address a big problem in the pharma industry, and it does it by nanoforming medical compounds. Nanoform is listed on NASDAQ. It is growing pretty fast, and right now we have approximately 120 employees. We have produced clinical results that confirm our value proposition. Next slide, please. We are addressing the problem of having too few drugs reaching the market every year. Slide number six, please.
The reason why so few drugs reach the market every year is that they suffer from poor bioavailability, which means that even though the molecule is potent, the body doesn't take it up. This is a problem which is big, and it is increasing. We have a solution to address this big problem. Next slide, seven, please. There are basically three kind of profit pools that we can dip into. We can give unsuccessful drug candidates a second chance. There are a lot of those. We can improve existing drugs. There are also a lot of those. We can, of course, enable new drugs. All these profit pools are important, and we can address all of them. Our technology is the only one that can manufacture nanoparticles that don't contain solvents, excipients, and have a complex production process. Slide eight, please.
The reason why it pays to make these small nanoparticles is that their specific surface area goes up. When that happens, they basically are easier to dissolve. When they dissolve, you can basically get them to interact with the body. On the right-hand side of this slide, you can see what these particles look like when they are coarse in bulk form, and then what they look like after nanoformed. Slide number nine. When you can nanoform the particles, you can achieve increased solubility. From that follows increased bioavailability. That means that you can enable new drugs, you can potentially reduce the dose and the side effects. You can enable life cycle extension.
Since more of the drug is taken up, you don't need to produce so much of it, which means reduced production costs and reduce size for the factories. When you don't have to produce so much and when more is taken up by the body, you can also reduce the environmental impact. A lot of good cascading effect comes from being able to increase the solubility. Slide number 10. So far, we have focused on small molecules. We can also address the issues on the large molecule side, the biologics. Here we can see that we have been able to reach 50 nanometer diameter. We have retained the biological activity, and we have worked with peptides and proteins in the six-640 kilodalton range, which is a significant range.
Using this approach, we can potentially improve the delivery routes, improve the uptake, enhance the drug loading, tailor release profile, and enable new drug combinations, and also have an impact to create a lighter infrastructure for drug logistics. Slide number 11 talks about STARMAP, which is the digital twin to our line. It basically allows us to perform in silico experiments to tell our partner what of their assets can we nanoform, how should it be done, and in what order should we work on them. This also helps our operators at the lines to get a good start and start with the right knob settings right away.
You can see from the graph that we have evolved this capability a lot over the years, and we are reaching for 1 million evaluations per week in 2025. With this, I say thank you at this moment and hand over to Albert Häggström.
Thank you, Edward. If we go to slide number 13 please. Edward showed the market from R&D spending point of view. Here you have the revenue of the global market, and this is of course a tremendously large market, more than $1 trillion in revenue, so medicine spending. On the right-hand side you can see that the top 100 products on the market have sales of more than $3.5 billion on average. If you can come out with new medicines, blockbusters, the potential is enormous. If you go to the next slide please, number 14. Here you can see the last 20 years how the drug R&D pipeline has grown.
Today we are already more than 18,000 drugs in the pipeline, and this is very interesting when you think that our target is to have more than 70 new drugs coming in per year to us. Compared to 18,000, we are not talking about a big number. Another thing which is very interesting here is that this is clearly a growing market. Everything about the pharma market is growth. Even if you consider the worst financial markets in the last 60 years or 70 years, the years 2009, 2010, 2011, you can still see that there was no dip in the pipeline here. Basically, it was just flat and then it continued to grow.
During the last four or five years when there has been a boom in the drug discovery market, they have been adding almost 1,000 new drugs in the pipeline per year. We are in a very good growing market. Next, please. The same goes for the number of companies. 20 years ago, there were about 1,000 companies having an active pipeline. Today there is more than 5,000. Of these 5,000, roughly half of them are in the United States. That is of course, together with Europe, our main market that we are targeting. There's lots of opportunities around. Next, please. Here you can see the different phases.
Of course, as we have had a booming biotech market for many years now, you can first see it in preclinical. The number of preclinical compounds have gone up a lot. We can work on preclinical, we can work on phase I, and in some cases we can also start to work on phase IIs and phase IIIs. There's lots of opportunities for us in the marketplace. Next, please. If we go to our business model and go to page 18. Our business model is quite simple. Client brings us or ships us the bulk API, we nanoform it and ship it back to the client who use the final product.
For nanoforming, we get fee for service, and then in the end when the product is on the market, a royalty or similar amount of money based on or through the supply price per kilo. We don't own the API, we just nanoform it. Client send it to us, and we nanoform it and ship it back. Next slide please. 19. This is a very interesting slide because it shows the probability of success in the pharma industry in the different phases. As we have now during the last two years brought in more and more new APIs, new projects on the non-GMP side, the preclinical side, and here you can see that the green pillar to the left, 25% of small molecules in preclinical go to phase I.
This is of course an interesting number now when we are moving towards GMP. We have already started more than 20 preclinical POCs. In the coming years, and already now we are starting to get a feeling for what will be the success rate of the projects where we are participating. So far we can say that we see nothing that would sort of divert or be different than the numbers on the market. Of course, we would like in the long time, long run to see a situation where we could improve these probabilities to have get a higher number than 25 and 68 and 26 for the market as a whole. That is our sort of dream.
The other thing you can see here is that the timelines, and here, of course, it's important to remember that if it's a drug on the market, the timelines are much shorter. You can talk about two to five years, and the probability of success is much higher. To the right, you have a 23% probability of success if it's a so-called 505(b)(2) present product that is being improved and brought to the market. Next please. Page 20. As I said, we have now started more than two dozen proof of concept projects with new APIs. Here the fee structure is such that we get between EUR 50,000 and EUR 500,000 per API. At the lower end, when we are younger and when the projects are smaller.
What we have seen clearly now is that the price we are getting has not come down. On the contrary, we have seen a slight increase in price as our brand value goes on and as we start to do sort of more projects, which is a positive thing. The line where we work on non-GMP projects
The cost of that is not high, so the return on investment, once we start to turn around more and more projects per the lines we have, the ROI will be good on those lines. Of course, the big thing for the coming years is when we move more and more of those projects to GMP. Because there, the fixed fee per project is between EUR 0.5 Million and EUR 10 million. We just signed the first customer GMP project, and there we said that the fee was at the lower end of the range. It was an early development, so it's natural. When you go to phase II and phase III, especially if they're a little bit bigger one and more complicated, you could be at the higher end of the range.
Finally, our target is, of course, to help our clients to bring many drugs, new ones and improved ones to the market. Next, please. We can go to the highlights under Edvard, please.
Thank you. This slide number 22, is basically to show our highlights from 2021 so far. These are the first nine months. We have showed strong clinical results, both in people and in animal. We have been awarded for our ability to innovate. We have promised and delivered on our promises. Maybe most importantly, we have signed our first customer GMP agreement. We have carried out successfully a lot of non-GMP agreements and projects. We have expanded both our technical and commercial teams. We have set for this call a new biologics near-term target that we're gonna talk about.
We have grown in presence both in the company and out in the marketplace. Number 23 slide, please. Here we have grouped the Q3 review into three groups. I think that on the new API intake, which is the sine qua non, in order to be able to be effective in helping increase the total output, we have shown an accelerated intake. This is something which I'm very, very happy about. This means that we are on the track to increase the number of APIs that we are working by a factor of 10 by 2025. Of course, we have wanted to strengthen our commercial team in order to be able to roll out the tech platform effectively. On the GMP project side, this is the second part in the business model.
The first one is, of course, really important. This means that we are already working on the second GMP project. The first one was the unicorn that we did last year. We have introduced shift work. We were able to do it in one go, and we have it already up and running on the GMP suite. This is important because it allows us to become more effective. Here, we put out a bullet point called biologics pilot plant for GMP in 2022. This is to pave way for GMP and biologics. What does this mean? Basically, it means the hardware that we need to have in place, and then, we will be working on getting all the approvals and all the stamps for it. This is really a new target that we have announced today for 2022.
It's important because it opens up the entire space of biologics in the GMP domain. Finally, the logical steps in IT. We were able to secure an information security certificate, which means that when our clients ask, "Is our precious data safe?" We can say, "It's safe." The final one here is an enterprise resource management system, which is based on SAP, and Albert will give you a few bullet points on this. We wanted to be very, very innovative on the technology and get the best practices in the industry on this side. As a curiosity, these guys were the ones who work with one of the really, really fast growing biotechs that you have heard about in the COVID space. Next slide, please.
I would like to spend slide 24 and a little bit of your time detailing the significant synergies between the two technology platforms, the CESS® platform for small molecules and our platform for biologicals. Basically, we can address two very attractive markets that are interlinked. Both are platform technologies, and we can use a lot of synergies in-house to run these two in parallel. The brand awareness, the commercial team, and the client relationships show a lot of synergies, because people talk to people. On the R&D formulation and QA side, it's also clear that we can achieve a lot of synergies. On the manufacturing, some of the things are disparate, but some of the things are also similar and even identical.
When it comes to the business model, we have already shown that it's possible to use a similar kind of business model across both these technology platforms. I move on to slide number 25. It's my great honor to introduce to you Jeanne Thoma. She started on our board, and actually we had the board meeting yesterday, where she was for the first time. During our interview, she came across as a very, very knowledgeable person with deep insights in the industry. The fact that she has worked as a CEO and run businesses both on the technical HR and also commercial side means
that I will get a new sparring partner who can make me think more clearly about things. I'm really, really happy to have a person who has seen a lot, who has a fresh perspective, and who certainly will be able to make me go faster and hopefully also all the others in our company. I move over to slide 26 and hand over to Christian. Christian, please.
Thank you, Edward. It gives me great pleasure to introduce the expanded commercial team that we now have in both Europe and the US As you can see from this slide, it's very busy. We have a lot of people now, but we're not stopping there. We have also signed another individual that will join us in Europe, and due to start in quarter one next year. You know, customers and relationships are key to Nanoform, and establishing a sales pipeline is also key to Nanoform's success. Bringing on talented individuals is a must, and as you can see from this slide, we have a variety of individuals that are highly experienced in the CDMO technology, particle engineering space and formulation areas.
With this team, we have already gained significant traction in the market and established many relationships with small enterprises through to major pharma clients. If we move to the next slide. This slide summarizes on slide 27 our commercial relationships to date. You can see moving from 2019 through to 2020 to 2021, where we are now at the end of quarter three. These are the client relationships we have. You can see a mixture of small biotech through to major pharma clients. All of these clients are important to Nanoform. In actual fact, when we work with the small biotechs, sometimes these projects are critical to their success as a business.
When we work to the larger pharma clients, they really look at our technology as a platform technology to see where it can be applied within their businesses. We're here to solve the solubility and bioavailability challenges within small molecule areas, and we're here to support drug delivery in both small molecule and biologics. If we move to the next slide 28, let's just talk about how our technology can add value. Here we're delighted to be able to share feedback from one of our partners, TargTex, based in Portugal. They have a candidate in glioblastoma multiforme, looking at trying to address this significantly debilitating disease, cancer of the brain. They have been able to show that by using Nanoform's technology, they can increase the drug load in their hydrogel by 200 times.
This is astounding. They were previously using a nanomilling approach, which was the latest technology in the space before Nanoform came to the market. We have shown now that we can increase the drug load by 5x more than the nanomilling approach. This is hugely impactful. It's impactful not just for TargTex, it's impactful not just for Nanoform, but it's impactful for the patient. This is where our technology can add value, to touch the lives of patients and improve their lives. That's what we're all in this for. I'd like to now hand over to Albert. Thank you, Albert.
Thank you, Christian. If we go to slide 29. I think it's very simple to say that this is a four-step company. First, you start with the employees. Here you can see that we have grown the number of employees by 100%. That's the green line. In absolute number, three years ago, we were at 17, then we doubled to 34, 68, and now the absolute number has been increasing faster, but the relative number has already or the growth number has started to come down. We were at 116 at the end of the quarter. At the same time, you can see that we don't need to grow that fast anymore the coming four years to 2025.
We only need to grow by 15%-20% per annum to reach 200-250. I'm certain we're gonna do it. We have more than 25 nationalities in Nanoform, and we are getting great people from the West Coast in the US, from the East Coast in Asia, from South Africa, and from northern Finland, and from everything between. Adding 100 people plus in the coming four years, it's certainly gonna be possible. After you have the people and then you build the lines, and on the right-hand side, you can see a similar trend. There is a lag, a small lag between adding the people and getting the lines built. Here you can see the same. Three years ago, we had three lines. Now we have 14 lines.
Now we need to grow the number of lines by roughly 25% per annum in the coming four years. We go from 14 to 35. That means that we already added six lines in the last four quarters. Staying at that trajectory is already enough to reach the number. If we move to the next slide. After you have the lines, you have the people, you have the lines, of course, you need to get the APIs from the clients in. Here you can see that we have been adding new APIs coming in on an accelerating level. In 2020, we brought in 10 new APIs, and we set the target to bring at least 12 this year.
Now we have already got in 14 new projects during the first nine months. As you know, our target is to get more than 70 per year by 2025. This would of course mean that the total number of APIs we would had worked on and will be working on would be more than 200 or close to 10x , roughly 10x the amount we have worked on so far. That is the 276 number on the left. This was the third step. First the people, then the lines, then the APIs, and then we move to next slide, 31.
That is when you start to see the more and more projects going in, coming in, then you start to see the impact on the P&L as well. Here, of course, we are still in a situation where there's a lag between bringing in a project and recognizing the revenues. We use the revenue recognition. We try to be conservative according to all rules, and that means that we are, at the moment, roughly not even recognizing necessarily the revenues as fast as we get paid. There is a clear lag between getting the projects in and when we recognize the revenues. We had EUR 82 million in cash at the end of the quarter, so we have a very strong balance sheet. Next, please, page 32.
Here you can see that the first nine months of this year, the revenue stemmed from 18 projects. That's double the amount of last year when there were nine projects bringing revenue in the first nine months. The revenues are recognized over the lifespan of the project based on hours worked. That of course means that when people are on vacation in the third quarter, there are no hours worked, and therefore we don't recognize any revenue in the third quarter. That doesn't mean that the underlying trending is any way different. Actually, what we have seen during the last three quarters is a clearly accelerating year-on-year growth trend, quarter- to- quarter compared to last year.
If we go to the next page, 23, 33, here are the near-term business targets since we listed in the summer of 2020. As you can see, we have checked them off, all of them, for last year and for this year. We are very proud of that. If you go to the next page, 34, you can see that for next year we now added another one biologics pilot plant for GMP in 2022. Then we had the previously announced two new GMP lines in 2022. That would be on the small molecule side, and that project is on track. As you know, during the last two years we have had three to four near-term targets usually per year. At the moment, we have now two for 2022.
On page 35, you have the midterm targets for 2025 to get more than 70 new APIs in every year to handle them and all the other projects, whether it's non-GMP or GMP projects on 35 lines, of which 7-14 are GMP compliant, to have a gross margin above 90%. Actually we have already in a sense achieved that because we had 91% during the first nine months of the year. To have 200-250 employees and the most important point of course to be cash flow positive. As you know, we will become P&L positive before we become cash flow positive as we are still investing more than we are depreciating, and that should be the case also in the coming years.
With that, I would like to hand over to the operator for Q&A. Thank you.
Thank you. If you wish to ask a question, please dial zero one on your telephone keypads now to enter the queue. Once your name is announced, you can ask your question. If you find it's answered before it's your turn to speak, you can dial zero two to cancel. Our first question comes from the line of Christopher Uhde at SEB. Please go ahead, your line is open.
Hi there. I think I heard that we should ask one question at a time. My first one before getting back in the queue is, you know, just reflecting on what you've done so far this year. Now that you have a biologics capability more or less in place, to what extent has that impacted the range of small molecule chemistries that are amenable to nanoforming? Thank you.
Wow, that was a difficult one, Christopher. Let me see if I can give you a first sort of answer and then maybe somebody else can chip in a little bit. The first answer is that we don't, we still don't have a strong correlation on the science or technology side. You know, being able to do biologics would mean that we can make complex compounds where we combine them. It's something which is on our radar screen, but we don't have data to show for that yet. Second way to answer your question is the following. On the commercial side, we have already seen several locations.
Where people who have approached us with one of the asset classes, when they learn that we have this other one, they have also turned us over then to their colleagues and groups working across the fence, so to speak. Maybe Christian, you would like to talk about this.
Yeah. I think having the small molecule technology, where, you know, we're working on small molecules and have done up to the large small molecules, shall we say, and having the biologics technology which really goes into the sort of peptide area and up into the larger proteins, I think really pretty much covers most of the molecules that are possible for us to sort of explore. It's given us a very wide remit with our partners. Clearly, a lot of our large pharma customers have both small molecules and large molecules, which is always beneficial to look at both sides of the coin, so to speak.
I think we are constantly evolving as we explore the technology into the value that it can create in all different molecule classes. There are indeed some very interesting molecule classes that are starting to develop in pharma pipelines, and I think our technology will be highly relevant for them.
Great. Thanks for it. That's really helpful. If I could just quickly follow up on the same line. So generally, I mean, you're gonna be when you're nanoforming peptides of the sizes that you can get up to, I guess, there's a fair bit of polarity there. Does that mean that you can also nanoform polar small molecules? Thanks.
In principle, yes. Here, of course, we always have the option of sort of changing the supercritical fluid we use. In carbon dioxide, of course, you need to follow, in principle, the rule that like dissolves like. I don't know if I answered your question directly, but that's my answer for now.
Okay. Thanks. I'll get back to the queue.
Okay.
Operator, this is Henry, the IR talking. Christopher, you are allowed to ask more questions, but I want to have one question at a time. It's easier to answer them. If you have more questions, please go ahead.
All right.
One at a time.
I appreciate it. You noted that a customer in the report had initiated a fourth new API project. Would you please tell us how the relationship has evolved over time and how representative that is of relationships that are perhaps less advanced?
Christian, would you like to take this?
Sure. I mean, every customer is different. You know, we have some customers that come to us for a single molecule. We have other customers, as I mentioned before, that you know, really look at our technology as a platform. Obviously, the customers that have more molecules in their stable are likely to see when they see value to want to explore the technology on other compounds. You know, our remit is, at Nanoform, to try and expand the technology as widely as possible. We want to support you know, clients that have a single molecule. We want to help with clients that have lots of molecules. You know, I think this is reflective of our mission.
It's to try and touch the lives of a billion patients, and we're only going to do that if we can roll out our technology as widely as possible and as quickly as possible. You know, if we have clients that have lots of molecules, then we certainly try to encourage them to think more broadly about how they could apply technology on other compounds as well.
Okay. I guess.
Yeah.
I'm sorry.
Albert here. If I could add to that. If you think about it, our sort of preferred situation in the future would of course be that the large pharma companies and any other companies that have many, many APIs, we would have a sort of relationship where we would get, you know, up to 10 per year or something, new APIs. We would have a sort of recurring relationships, almost like.
Subscription
Subscription-based model where they would be using us and lots of APIs every year, and we wouldn't have to sort of negotiate on every single API. That is of course our target for the long run. We are not yet there yet, but we believe that there's a good chance that we might end up in a situation like that, and we would of course appreciate that a lot.
I guess what I was trying to get at was, I mean, obviously that's helpful color, but what I was trying to get at is a little bit, it sounds like this is probably a larger client and, perhaps, you know, in the beginning, they were probably looking at different sizes, spans, maybe looking at, well, you know, various types of amorphous formulations. I mean, do they need to explore less as they go? Or, I mean, each API is unique, right? Do they tend to be kind of curious about what you can do on all of them to the same degree, when they're larger partners, as I say, or customers? Thanks.
Maybe I could take this one, Edward.
Yeah.
Even if we have a client that is a large client and they have lots of different molecules, they don't always come to us for the same reason for each molecule. Every molecule is different.
It's like having a different child in your family. They're all unique in their own way, and they all have different personalities. You know, when we look at our technology, the technology can be used in lots of different ways. If we're working with a client, for example, on a single molecule, and if you know, they want to increase solubility for this active or bioavailability for this active, it doesn't mean that the next three compounds that they give us will be looking at the same aspect. They could also be looking at different drug delivery routes. They could be looking at completely different phenomenon that the technology can deliver for their products.
I wouldn't make the assumption that we would work with one compound with one company in just one area.
If I may add on that, I would say like this is also a situation, as you know, that we have been taking in new clients as fast as we have been adding new lines. We have not been in a position where if a client comes that we would sort of give many lines to one client because we don't have enough lines for that. This is also sort of a significant event that they are adding more APIs, you know, to the new ones coming in from the same client.
It's also showing you that if you have one line and you put one API, then you have to do that project and then comes the next one and then comes the next one. It's not like if you give several APIs that all the projects necessarily would start at the same time on three or four lines because we don't have that many lines.
Okay, thanks. Yeah, I guess you could tell I was trying to get a sense of timelines and progress. They're converting customers. I guess one last question for now. You've previously said you're fully financed to cash flow positivity. Can you confirm that remains the case? And under what circumstances would you be likely to raise further capital? Thanks.
Yes. We are fully financed when you look at the estimates and the targets we have for 2025. Being cash flow positive means that you are being P&L positive earlier. You can already now see that the number of lines, and if you calculate from that, you can see that money we had is well enough to finance that, those investments until we are cash flow positive.
Okay, thanks very much.
Thank you. Our next question comes from the line of Christian Glennie at Stifel. Please go ahead. Your line is open.
Yeah, good afternoon, and thanks for taking the questions. The first one, let's start off just a bit more on the financial side. Just think about Q4. Anything particularly to note about Q4 in terms of OpEx and revenue, as it compares to the sort of run rate through the first three quarters?
Albert, please. We don't give any, you know, revenue guidance or targets for the quarters or the years. We only have the. If you think about the costs then, as you know that, if you look at the last four quarters from the first quarter and second quarter last year was a little bit disturbed by the IPO related costs. If you look at third quarter last year to third quarter this year, you get a very good feel for what the cost level is. One important thing to remember is that when we are now hiring more and more operators to GMP, for example, and we already have the management level and the in place sort of.
We don't expect the average cost per employee to go up in the coming years, even if there is some, you know, wage inflation in the world. We have already, as I said, hired more people early on to build the lines, and then the next phase would be to do more projects on the lines that we are building. Don't expect any big things on the sort of cost side in the sort of coming year or coming quarters. You can very well take it from the number of employees.
If you look at it, for example, number of employees and cost per employee, and then you look at other operating costs that are related, they are. There is a clear correlation between other operating costs and how many employees you have. That is also something that correlates. Basically that's it. On the top line, remember that in the third quarter when you don't book any revenue because people are on holiday, you also get a slightly lower margin in the third quarter. The good thing was of course that the impact was much smaller now this year than last year, meaning that the underlying top line growth accelerated through all quarters and the margin expansion was also bigger every quarter of the year so far.
Thank you. That's helpful. Then just to focus in a bit more in terms of the sort of mix of APIs and to clarify as well what you previously said. The sort of mix of APIs that you've been working on so far, obviously you've got the sort of 26 so far, and I think you said that 20 of those were sort of preclinical POCs, as in presumably they are sort of new drug enabling programs.
Is that the correct number? So three quarters currently is sort of on new naming new drugs, and then the remainder on you know whether it's 505(b)(2)s and things. Obviously, we know one of them or one is there, but is that the right mix at the moment? How do you think that will evolve over the next year?
So if-
No, if I answer this, I don't know where you got your number. We gave a number of what the situation was at the CMD, but we have not regularly on the quarterly reports or calls given the split between the 505(b)(2)s and the new chemical entities and the biologics. We won't give that either. You can look at the number, what it was in the CMD, and then I'm sure we're gonna update you on that also in the future when we have CMDs and we go into more detail about that. We don't give it out on a quarterly basis.
I would like to add to that, on a general level, I don't think we are at a sort of final mix yet. I think we are still in an evolving mix. This thing is still evolving. The reason is very simple. So far, if you look at the time backward, we have been a young growing company, which means that we have gotten what people have wanted to give us. Now, when we see that we start to get endorsements and we start to get inbound traffic, I foresee that we will have more ability to, in a meaningful way with our partners and clients, to together sort of choose what kind of molecules it's worthwhile to work on.
That means that there will be a little bit more ability to drive the mix, not only on single asset level, but also on mix level. I think that in the really big scheme, one should look at both the mix and the single items in order to maximize the probability of getting a lot of assets to the market.
Yeah, if I may add to that. That was a good point. Let's say five, 10 years ago, the industry was talking quite little about the 505(b)(2), if I have understood it rightly. I think that there is clear trend. Christian can probably add to this, but there is a clear trend potentially also coming from the financial market, and because the probability of success is 10x higher and because the timelines are much faster. It's a natural trend that over the coming five, 10 years, you will probably see more and more of these 505(b)(2) kind of product. Of course, if that is the case, our share of those will also go up. Christian, do you want to add to that?
Yes. I would just say that if you look at the existing products in the marketplace, they are not all the most optimized products. There is a huge opportunity to optimize them further to add value for patients, to develop differentiated formulations, to find repurposing of existing drug candidates. There are some quick wins, where we have a novel technology where you can apply that technology to add further value for patients. Clearly, this is a growing and very interesting space for the pharma industry, with the 505(b)(2) regulatory pathway only really, you know, having taken shape in the last five to six years.
We're seeing a huge increase in interest in that space from both the large pharma clients looking at life cycle expansion, but also from the smaller companies, the specialty pharma, and those companies that have either drug delivery-based technologies like ourselves or particular engineering technologies that wants to try and add further value for patients.
Okay. Thank you. Finally, if I may, just a bit of an update on recent customer reception engagement on the biologics offering. Obviously, you know, still presumably sort of relatively early days, six months on since you formally sort of said you're open for business on the biologics side. You know, what's been the level of engagement there? What are maybe customers saying?
You know, they'd like to see, you know, more of or first, will they sort of get more involved potentially? If any color there.
Absolutely. I'd like to start this and then hand over to Christian. Suffice it to say that we have been open for a while, and we have already gotten both open and sort of clandestine endorsements, which has been very encouraging for us both on a scientific, technological and commercial level. The shop is open, and customers are liking what they're getting. Christian.
Yeah. I would say, in the biologics space, we've obviously shown positive results with Herantis on the CDNF intranasal administration of that. Being able to nanoform that molecule, and that worked very well. We see interest in that space from the drug delivery angle. We see interest in oral delivery of proteins and peptides.
We've seen interest in monoclonal antibodies. You know, from our perspective, if we can show with the technology that we can increase the drug load per unit volume in the monoclonal antibody space, I think that's a very interesting area. Clearly, we're looking at all the ways in which our technology can add value in that space. There is a significant interest of how pharma can use our technology to add value in that space. It's one step at a time. We're, you know, building some good relationships, but we have limited resources as well, so we have to make sure that we focus them in the right way, for the right customers and at the right time.
Great. Thank you.
Thank you. Our next question comes from the line of Lars Hevreng of Danske Bank. Please go ahead. Your line is open.
Yes, thanks. Could you just remind us a bit on the characterization of the client collaborations? I mean, this year you have characterized a few of your collaborations as new clients. I guess that's eight of them. You also have characterized three of them as collaborations and one as a co-development collaboration. If you just could remind us how, you know, what's the distinction there and what makes these collaborations different?
Okay. Albert Hæggström, I'm gonna hand over to you because sometimes I don't remember all the technical details. I think that the classification we went through it in the Capital Markets Day, and right now from my point of view, all of them are such assets that we hope to be able to bring them onto the market. There are different kinds of business relationships in place for these different classes. Maybe Albert Hæggström, if you have any details there, then you could help out Lars Hevreng with this.
Yes. Basically, a client, Christian, correct me if you want to say it differently, but the way from a sort of a finance point of view is that when you have a client relationship, it's very clear that the client is paying you for the work you do. When you have a collaboration, you are working together. Both are taking their own costs, and you are not booking any revenues from that sort of if you take your own costs. If you have a co-development, it's a little bit more that you are trying together to co-develop products that go all the way. There the situation can be such that it can be both sort of a client relationship and a collaboration relationship.
These are never 100% clear unless it's a very clear sort of client relationship where they pay and you do the work.
Lars, maybe if I can add a little bit before I let Christian loose. You know, sometimes we work with people who have devices and they're, of course, the client is different than if the client has an API. Christian, please.
Yeah, that was gonna be my point, Edward, as well. When we say we've got a collaboration, it tends to be where we're looking at a technology. For example, like Aprecia or Celanese, and they have specific drug delivery-based technology, and we're applying our technology as well. The idea there is to look at does one plus one equal three. Can by combining our technologies add more value for patients? You know, in those types of examples, they're more a collaborative project to establish does 1 + 1 = 3 . If it does, how can we co-market that value to the pharma industry? Are there products that make sense to look at with our technologies? I would say that's another aspect to consider.
You could also say that if you have a relationship or a collaboration or a co-development, it might be a situation where at some later point we will sort of find a big pharma or somebody who wants to take over the project, and then nature of that would change to a client project. Then, of course, there might be, you know, financial impact from that that is different from if you have a normal client relationship where you have according to our business model.
Okay. I see. I guess a collaboration that's today being characterized as a collaboration step could lead to projects that end up as these projects being characterized as client projects. You develop something together and then your partner says, "We're gonna take this further," then they become a client.
Yes.
Yes.
Okay.
Please, please, Christian. Christian.
Yeah. No, I was gonna say absolutely. They could be. If we find that, you know, by adding the two technologies together, on a specific product, we get something that looks commercially interesting, then, you know, it's likely that we would then go and talk to certain pharma companies in the market to see if they would like to help to develop that as a product and to be a client on that product. So absolutely.
You know, Lars, you know as well as we that there is one part which is quite a lot used in the pharma industry, and that is the sort of milestone thinking, and that is something that we don't have in our sort of traditional business model here because we don't want to make it too complicated. Of course, there might be some situation, for example, if you have a collaboration or something where you would have a sort of not according to the normal business model we have described here. These would then be special situations where we would sort of inform the market if there is something to inform.
Mm-hmm. Okay. Thanks for that. Can I just ask regarding the two new GMP lines that's to be completed next year, what's again the time lag between the completion of these lines and when they can start to serve a client collaboration?
I answer briefly. It's as short as possible and basically, of course, first you have the hardware in place, then you have the paperwork in place, then you have the people prepare in place, and then you have the stamps in place. We have a lot of control on many of these steps. Of course, the stamps part is such that they're the granting authority is the one who determines the phase. That's why we wanna be prudent with how we formulate this new target.
From you announcing that they are completed and commissioning, say from your side, when should we expect them to start to serve the first client?
Albert, how would you like to frame this one?
I would put it like this, that as you know now, it has been that first the line needs to be ready, and then you apply for, so every single API you apply for a license. We will expect to get a multi API license, and that means that the time when you bring in a new API to the facility would be much shorter. When we did the first campaign, it was roughly three months, and it will probably be somewhere around the same we expect in the second one now when we do that. In the future, we expect it to be less than that. When you have a multi API license, you should be able to do it sort of faster.
It could be sort of shorter lag between when it's ready and when you can start to produce the client material.
Okay. No, thanks for that.
Thank you. Our next question comes from the line of Christopher Uhde at SEB. Please go ahead. Your line is open.
Hi there. Just to follow up firstly on Lars' question. How long do you anticipate it will take to get a multi license for the first GMP line, and what do you actually need to do to get it?
Okay. Basically, what we need to do is we need to show that we can clean the line. There is something called a MACO - a MACO analysis, Maximum Allowable Carryover. That basically means that we need to convince Fimea that we can clean the line, and that we do it by carrying out this kind of MACO analysis. Of course, in the first instance, you know, they will be looking more thoroughly at it. As we move on, it's gonna be more an announcement because, you know, you can just send in the paperwork basically. We expect them to be thorough with the first one, and we are prepared to do it the way it should be done.
We already have internal number, which at least to me shows that we should be okay with the macro numbers.
Okay. By the way, you know, there have been articles in trade journals, I guess, about safety issues when manufacturing drugs as related to the Maximum Allowable Carryover.
Mm-hmm.
I mean, what would be the cost to you guys of changes in that level? I mean, a reduction, in other words, in that level.
I'm not sure I'm able to answer that question.
May-may-may-
Yeah.
I was just gonna say, Chris, maybe it's possible for you to just elaborate a little bit about what you mean by Maximum Allowable Carryover.
Well, I mean, you know, at the end of the day, what it means is that you have always some level of contamination when you change.
Sure.
from one product to another.
Mm-hmm.
I guess, you know, there have been some discussions, perhaps they always go on, but in any case, they're there, you know, about whether or not what is allowed as the industry standard is sufficiently safe for patients.
Mm-hmm.
If people would decide that actually, it's too high as it stands, and we should be having a greater stringency on that, what would be the cost to you guys?
Well, if I may answer like this, I think this is in that scenario, Nanoform would be in a good position, a better position than many other.
Companies, because our process is quite straightforward. We don't have a 20-step process, and we are using sort of we are creating pure API in a bottom-up process. Compared to if you use lots of surfactants and have many steps and you have a top-down technology where you smash it and so forth. I think on a general level, the impact on us would be clearly smaller than for many other technologies.
Yeah. I think I would just add, Chris, that we're used to analyzing small. You know, we do it on a daily basis. You know, we look at particles in the nano range. Most companies don't look at you know, particles in that space. So we're very used to being able to understand how clean something is, whether there are particles there or not. I think from a quality perspective, we have a lot of very strong analytical techniques that would serve us very well to characterize and to confirm that you know, a piece of technology is clean, shall we say.
I think in that space, we'd probably do better than other companies to sort of be able to confirm and clarify that we have a clean piece of equipment to move to the next product.
Okay. Thanks. I'm cognizant of the fact that time is perhaps running short, but if I could just ask one more question. So R&D costs have been low in the past two quarters. Should we expect this to continue? I guess, you know, you're not running a clinical trial at the moment. And then on costs as well, is growth of other expenses likely to continue to outpace employee benefit expense given the US organization has probably been growing faster than the rest for recently? Thanks.
Albert, please.
I would answer that, the short answer would be yes to both questions. In the long run on the second one, I don't see a very sort of The number will not be that big in an absolute time, absolute matter. In a percentage it might be that it goes up a little bit, from a The other cost shouldn't be I think that in the really long run, the other costs compared to the employee cost should not sort of change that go up very much at least. I would think that when we become much more efficient, the ratio shouldn't go up even if you hire some more people, certainly will.
Okay. Thanks very much.
Thank you. There are no further questions in the queue at this time, so I'll hand back to our speakers for the closing comments.
Thank you, operator. On behalf of all Nanoformers, we would like to thank you all participants today. If someone has some more questions, you will find our contact details on the webpage and in the end of the presentation as well. With these words, we wish everybody a great Thursday evening, and thank you for today.