Welcome to today's event, where we have the pleasure to present ExpreS2ion Biotechnologies. To help us through today's presentation, we are joined by the company by CEO Bent Frandsen and CFO Keith Alexander. Today's topic, of course, the Q2 result. Also a very busy quarter with outside capital raise and a lot of data coming out. I guess soon also starting the preparing for the COVID-19 phase III trials. As always, ask questions down in the box down below. I will try and see if it fits in during the presentation. If it doesn't, we will take it in the end. No worry, I will catch up on all the questions. Bent, for now, I think I will hand the presentation over to you.
Thank you very much, Michael, and thank you very much to HC Andersen Capital for facilitating this webinar with our shareholders. My name is Bent Frandsen. I am the CEO of ExpreS2ion Biotechnologies. As Michael said, I am joined by Keith Alexander, our CFO, who will take the latter part of this presentation. To start, we have our usual disclaimer that I will let you read in details, when we cover this slide deck after the presentation. Just to highlight ExpreS2ion Biotechnologies, we are a key player in the protein sciences field. We have a deep pipeline of vaccines addressing some of the most fatal diseases around the world today within infectious diseases and oncology. We have a very strong IP protection as well to back up our focus on our pipeline activities.
We have a vaccine development platform based on a unique protein production system, which was the foundation for the company when we started our operations back in 2010. It has, over the years, shown a very strong track record. We have made more than 500 proteins over the years for clients and collaboration partners. We have had a very nice success rate of more than 90% in actually expressing, meaning producing the proteins in question, which is a very high success rate also compared with other expression systems out there. We address the vaccine market, which on a global scale, has increased sixfold in the last couple of years to about $190 billion , obviously driven by the pandemic that we have seen from COVID-19.
This is also a key catalyst of our business focus, and especially this year, where we are approaching the start of phase III trials now, which our licensee, the Bavarian Nordic company, they are going to initiate, in fact, this month as we speak. To highlight our pipeline, it looks like this. I am very pleased to announce on the coronavirus and the breast cancer vaccine candidates that we are very closing in on the start of the phase III trial, on the COVID-19 vaccine through the licensee, Bavarian Nordic, as I said. Furthermore, on the breast cancer vaccine, we have also progressed and reached a step of now starting GMP manufacturing scale-up as well as preclinical safety studies. I am going to talk more about these important projects shortly.
Furthermore, we have pipeline activities within influenza and malaria, where these projects are very much driven and funded by academic collaborations and E.U. funding. I do not have sufficient time to go through these, but I will highlight coronavirus and breast cancer projects, where we have made the most progress here, even in the last quarter. On the COVID-19 vaccine, as you may already know, Bavarian Nordic communicated here in the beginning of the last quarter that they have confirmatory results from the phase II trial, that it works as a universal booster. Again, they saw a very strong boosting effect across all variants of concern, even the Delta and the Omicron variants. They show a very high level of neutralizing antibodies, even exceeding 90% level. Furthermore, they are going on with the phase III trial now, as we speak.
It is just about to start, and know that they want to inform the market as soon as the first test person has been vaccinated with this ABNCoV2 vaccine, as we call it in this trial. It has been communicated that it will start here in August, whether it is tomorrow or next week. August is this month, so it is literally right around the corner. It is a phase III trial that will enroll 4,000 previously vaccinated test persons, and they will receive a booster vaccine, either with the ABNCoV2, our vaccine, or an messenger RNA-based vaccine, because they want to demonstrate non-inferiority of the ABNCoV2 vaccine against the licensed messenger RNA vaccine. On the manufacturing side, all the processes and the systems are in place for this, and fill and finish activities have also been implemented at Bavarian Nordic's own manufacturing line.
As I mentioned, it will start here this month, and anticipated completion before year-end. In fact, Bavarian Nordic expect approval and launch already next year. The economics behind the partnership with Bavarian Nordic is such that the license agreement is between AdaptVac and Bavarian Nordic. AdaptVac is a company that ExpreS2ion set up in 2017 as a joint venture. We hold a 34% ownership of AdaptVac today. Under the license agreement between AdaptVac and Bavarian Nordic, they already received EUR 4 million when the license agreement was executed two years ago, and they can receive up to EUR 136 million in development and sales milestones, which are very near-term. Furthermore, from revenues from the vaccine, they are eligible to receive single to double-digit royalties. ExpreS2ion's technology is also in this vaccine.
We have a license agreement allowing AdaptVac to having made the license agreement with Bavarian Nordic. As I mentioned, we own 34% of AdaptVac, and under that license agreement, we can receive up to EUR 2 million in commercial milestone payments and a lower double-digit percentage of AdaptVac's royalties. All in all, a revenue stream which can be expected in the very near term, as we know that Bavarian Nordic actually plan to have a commercial product in 2023.
But I do not know whether I can just put in a question here. There is a question. The development milestone under the COVID-19 agreement, is that for initiating the phase III for results or for positive results? I do not know whether you have communicated or are allowed to do that, but there is a question here.
I am not even sure if it has been communicated, but it is not in the beginning.
It is not in the beginning. Okay.
Put it like that. We can return to this during the Q&A later.
That's true.
I will now go into our breast cancer vaccine project, the vaccine candidate that we call ES2B-C001, which is a very exciting vaccine candidate that we have in-licensed from AdaptVac back in February 2021. This addresses, of course, a fatal disease that takes more than half a million women's lives every year. It's a market that is dominated by monoclonal antibodies, which are the standard of care treatment today, and alone generate more than $11 billion in sales. Well-known products here are Herceptin, also known as trastuzumab, and Perjeta, also known as pertuzumab. But they actually come with some flaws. First and foremost, resistance to the monoclonal antibody therapy can develop over time. That is known to happen in 20% - 30% of treatments, and there's a risk for heart-related side effects.
Furthermore, not least also, the administration is quite cumbersome, requires frequent hospital visits, and it's quite expensive. All these drawbacks are actually what we are going to handle with our vaccine-like approach, where we, through our vaccine, will have the body generate internal antibodies and have a therapeutic effect in this manner. We announced in the beginning of this year, around New Year, the very nice in vivo proof of concept. So we have proof of concept from the first animal studies. To the left, you can clearly see that we inhibit tumor development. We have a mouse study where we have three different groups of mice, a group that doesn't get vaccinated, and two groups that get vaccinated with our vaccine, with an adjuvant or without an adjuvant.
You can see the black curve, which is our vaccine with an adjuvant that you have- sorry, the black line is the control group. There you can see the development of tumors growing, whereas in the red line, which is our vaccine with an adjuvant, you actually don't see any tumor development at all, which is very encouraging. Also in a mouse study to the right, you see survival curves, where eventually over a 32-week treatment, mice that don't get our vaccine treatment, they will eventually pass away, whereas survival in all but one mouse in the group with the vaccinated group. That one mouse that actually passed away had nothing to do with the vaccine, according to our principal investigator at University of Bologna. We have, in the second quarter, released new preclinical proof of concept data.
Very important because we see that we can overcome this resistance that I talked about earlier and that you see with monoclonal antibodies. To the left, you can actually see that if you do an in vitro analysis, where you look at cells that are trastuzumab sensitive or trastuzumab resistant, you will see that in trastuzumab resistant cells, you do not get an effect. But our vaccine can actually handle the resistance. Also very encouraging. Furthermore, again, we saw new inhibition of tumor development in another mouse study. All this we communicated in May, and it makes us very pleased that we have these preclinical results so far. This is taking it onwards that we, too, with our plans and what we have also communicated, we want to start clinical testing of the ES2B-C001 vaccine candidate in 2024.
To take us to that position, we need to scale up the manufacturing, and we need to conduct the preclinical safety studies that authorities, they want us to carry on with. I am very pleased that on the GMP manufacturing side, during the last quarter, we have executed agreements with manufacturing partners handling the antigen material as well as the VLP material, which are the two important components in this vaccine. GMP manufacturing processes are being transferred from ExpreS2ion to the manufacturing partners and is progressing as planned. This is important because eventually we also want to, of course, with the scaled-up manufacturing batches, test them in the preclinical safety studies. Here we have also a contract research organization agreement in place now.
We have planned, as we know from the meetings we had with the Danish medical authorities in the beginning of the year, that we know we want to test this in two different animal species, and that we are carrying on with. In fact, we have already undergone the first safety trial in rodents. It is a 30 days rodent trial where we have not seen any side effect related observations at all. Now there is a process which takes several months where we have to study and analyze the data, and that will again be handled by our collaboration partner at the University of Bologna, and we will see the final report of that at the end of the year. We are on path.
In terms of looking forward, this is to show you that, of course, with the coronavirus vaccine project, we are heavily dependent on the Bavarian Nordic progressing. So far so good. Let us see how it works out here when we are in the phase III trial here in the very short run. It is extremely interesting the fact that it can be ready for market launch in 2023. On the breast cancer side, as mentioned, we are in a GMP manufacturing processing phase now, and we have initiated preclinical safety studies.
The full outcome of all the preclinical safety studies should be in the middle of 2023, which will by then allow us to file a clinical study application at the end of 2023, so we can start the first human testing with our breast cancer vaccine candidate in 2024. That should by then actually allow for going into deeper partnering discussions. Furthermore, we progress on influenza and malaria without going into details with them. This was a brief introduction. I will now hand over the word to Keith, who will go through our Q2 financial results.
Great. Thank you, Bent, and thank you, Michael. During the second quarter of 2022, we continued to focus the majority of our efforts, both in terms of manpower and capital, on the preclinical development and CMC manufacturing of our breast cancer vaccine candidate. This quarter, more than any other that we have reported to date, our financials resemble that of a fully pipeline-driven business. I will walk through what this means in terms of our financials in the coming slides. Starting with operating income, we experienced a 67% decline year-over-year in the second quarter to SEK 1.6 million , and a decline of 46% on a year-to-date basis to SEK 3.7 million . Looking at the trend shown in the chart to the left, you can see that operating income in the quarter was the lowest in the last 10 quarters.
In the middle of the chart, we focus on net sales, which reflects revenue from projects, licenses, and our webshop. They were below long-term average and year-to-date. They decreased by 48% compared with 2021. This is exactly as expected due to our increased focus on the pipeline development. In the chart to the right, we show other operating income, essentially grant-related income, which remained at low levels compared to 2020 when we benefited from a COVID-19 related grant. Moving to the cost side, which is much more significant than the income side at this point. Operating costs in Q2 amounted to SEK 28.8 million , an increase of 89% compared with the second quarter of 2021. The increase is primarily driven by the external R&D costs, for which we have shown the progression over the last seven quarters in the chart on the right.
These costs are increased due to higher preclinical research and CMC costs for our breast cancer vaccine candidate, as I mentioned on previous quarterly calls. Bent mentioned the significant progress we have made in these areas in his comments. More specifically, these costs included preclinical safety studies and bioanalysis and CMC project design, master cell bank creation and analysis, process transfer, and raw materials. On a year-to-date basis, operating costs increased 57% to SEK 45.5 million . Aside from R&D costs, the other main driver of increased operating costs is higher personnel costs due to, first, changes in how we accrue for incentive-based compensation, which we made last year, and two, higher headcount. Salary related costs scaled approximately with headcount. After financial expenses and taxes, we had a net loss of SEK 25.5 million in the second quarter, which is an increase of 182%.
The year-to-date net loss increased 95% to SEK 39.4 million . The total result from financial investments was positive due to the intercompany transfer of cash related to the rights issue. More specifically, this means we had an FX gain related to that transfer. On the next slide, we show the trend in our cash balance, which ended the quarter at SEK 168 million . That's the highest quarter end level the company has ever had. The increase in the quarter of approximately SEK 43 million reflects SEK 73 million in proceeds from the rights issue, partially offset by the negative operating result and transaction costs related to the rights issue. We also note that the Danish tax authority, SKAT, lowered account payout limits to DKK 200,000 during the quarter. Consequently, the company no longer stores the majority of its cash at SKAT.
On the final slide, I'd like to note that the number of investors in ExpreS2ion Biotech Holding AB at the end of the quarter was approximately 14,000, as based on Euroclear data. Looking in more detail, our largest investor is Avanza Pension, which I believe is a pension program through which customers select individual equities. Our top 10 investors in the shareholder register include several other broker-related accounts similar to the Avanza Pension. This would seem to apply that our investor base could be substantially broader than reflected in the shareholder register by counting the number of investors.
Regardless, we'd like to thank all of our investors for their continued support and interest in ExpreS2ion's pipeline activities. The ExpreS2ion team is working very diligently to meet the milestone goals we've set as a company in order to increase the value of our pipeline assets. With that, I'll pass it back to Michael.
Perfect. Thanks. Let's run through some questions. Any status on the malaria vaccine? When is Pfs 48/45 going into phase I? I saw you had it on your I don't know whether we can just jump back to this one. Any news regarding this?
Not at this stage, except at University of Oxford, who is the principal investigator clinically, working hardly to progress on it. You can find details on this already on the database, ClinicalTrials.gov. But to my understanding, they have just started dosing the first person in this trial.
Okay. That's the status there. Is this level of R&D cost, is that extraordinary high in this quarter regarding the breast cancer vaccine, or is that a level to expect the rest of 2022 and going into 2023?
What I'd say there is that we've been saying that R&D costs would increase on previous calls, and we're starting to see that. I'd rather not give forward guidance, but aside from to say that perhaps it could continue at this level.
It should continue. Okay, perfect. You are also switching to be a more internally driving your pipeline. Do we have all the key personnel because that's kind of a change in the business model? Are all the key personnel that you need to be more in the regulatory process, do we have that on board and thereby I'm asking, is it in the numbers?
Of course. I can comment on that. First of all, we are about 30 people in the organization now here, which is an increase from about 20 - 22 people at the same time a year ago. Most of that increase has also been in, let's say, pipeline development experienced people. We are still reliant on some consulting, as well, which is also part of our expenses here. Consulting is never a trivial or cheap matter, unfortunately. I am pleased that we have actually hired in some persons here. I also want to highlight actually our Chief Medical Officer, Mattis Ranthe, who started in February this year, who is setting up our infrastructure here in this as we speak.
Then there is a question regarding the CRO business. You are stating that you are scaling down on that to focus on driving your internally pipeline forward. But if you go up to your business model, it is still mentioned as a part of your business model. Is this a short-term capacity issue? Will you return to that, or is it a kind of a change where this business will be not so big going forward because you are really focusing on your own pipeline?
That is a very good question, and of course our legacy is in the CRO business. That is how we started, and we have been working on that for 10 years. We had actually, over the last couple of years, just ahead of the pandemic, in 2020, increasing sales and it looks very nice, but we also had to acknowledge that it is difficult to both be a CRO service provider and actually focus on high-value pipeline opportunities.
So the fact that we are not promoting our CRO services business as we used to is going to have an effect, and that is what we are actually in effect seeing here this quarter. Going forward, it is a good point and we will have to evaluate how we actually show our business model because it is a transition phase where we are being a more traditional drug development biotech company, like what we are looking into.
Then there was a question I asked during the presentation, the development milestones, whether it was for stats that you have said no to, not to start the phase III, but result or positive result. What is the main driver of those development milestones?
I'm not sure I understand that question.
The development milestones under the COVID-19. You can split them up to initiate phase III, when the results is coming or whether you have some results or going to regulatory filing and such stuff. Where is the main part of the milestones, the development milestone, not the sales milestones lying there? I don't know whether you have-
I can actually not really comment on the-
Right.
-in that detail. It's proprietary to AdaptVac and Bavarian Nordic, of course. But I think EUR 136 million in development and milestone payments, and where we are now, that's still the case.
That is still the case.
You can count for yourself, so to speak. But I cannot comment on the size of the phase III milestone or anything like that.
Perfect. There is a question. I know you have the share group where you can see your shareholders, and we were very satisfied with only 15% going to the guarantee, as you know. It is always, do they want to sell faster than the long-term shareholders do? There is a question here whether you have experienced them selling or still keeping or do we have a number of that? I do not know whether you have looked into that detail.
Keith, do you want to comment?
Not really. The information, the shareholder register is confidential beyond the 5%, those who have to report above 5%. I don't think I should reveal that information on those investors' behalf.
That's okay.
If they'd like to, that's fine, but it's not our data.
That's a fair answer.
Yeah.
Do you expect approval for COVID-19 on the E.U. or fuller approval by region? Do you know anything about the strategy, how they want to file this?
We are all dependent on the public communication from Bavarian Nordic in this sense. That's difficult to comment on, except as far as I know, it's very much European-based to start with.
I think there's a clarifying question, and I actually think I said it wrong, me and not you, Bent. There's a question here. The EUR 136 million, is that just for development or also sales milestones?
No, it's as it's stated exactly in the slide there, actually. Up to EUR 136 million in development and sales milestones, yes.
Perfect. I think that was the last question we had on the call. Thank you to you, Bent and Keith, for taking us together, and thank you for the audience to listening in and asking questions. Have a nice day.
Thank you very much.
Thank you.