Welcome to today's presentation, where we have the pleasure to present ExpreS2ion Biotechnologies. With us from the company, we both have CEO Bent Frandsen and CFO Keith Alexander. Today's event, we will take a deeper dive into the messages that was in the Q3 report coming out this week. Of course, there will probably a lot of focus on the current headlines on the COVID-19, which is due before this year, the phase II. I guess there will be a lot of focus on that because it's in everybody's investor's mind. As always, you are very welcome to ask questions on the right-hand side in the box. Do feel free to do it through the presentation. I will make sure to collect all the questions.
See if it fits in the presentation, and if it doesn't, I'll make sure that we get through all the questions at the end after the presentation. I think for now, Bent, if you will take over from here.
Sure. Absolutely. Thank you, Michael, and thank you, HC Andersen Capital, for hosting this webinar. My name is Bent Frandsen. I'm the CEO of ExpreS2ion Biotechnologies, and with me, I have Keith Alexander, our CFO. We will be going through the Q3 report that we released on Monday this week. Before I hand over the word to Keith Alexander for that purpose, I'll just go through our pipeline and some of the major achievements during the previous quarter. Before doing that, we have the standard forward-looking statements and disclaimer. I'll let you read that, and we'll carry on with the presentation. Our pipeline is still high value and address some of the highest unmet needs, including the current pandemic with a COVID-19 vaccine project that is already fully out-licensed to Bavarian Nordic, who's right now conducting a phase II trial. I'll get back to this shortly.
Furthermore, we have our breast cancer vaccine project, which we fully out-licensed in February this year and are on full speed ahead with our preclinical development and hopefully within a few months can release proof of concept in animal data on this. On the influenza and our malaria initiatives, we are progressing significantly as well. All of these projects are fully financed and partnered. When it comes to the breast cancer vaccine, this is 100% controlled by ExpreS2ion through the exclusive license from AdaptVac, which is our 34%-owned joint venture. Let me go through some more details with respect to these projects. Highly interesting, we are in the COVID-19 vaccine field and are developing a vaccine which we say is probably the best vaccine around, especially when we look at the preclinical testing that we did last year.
And we are now seeing clinical outcome which emphasizes that we are on the right path. We have very recently updated the outcome of the first clinical phase I/II trial. This is an open label safety trial that has been running in the Netherlands, and has been investigating the safety and tolerability and some secondary efficacy parameters in 45 test subjects. In August, we released the first data from the first doses from 6 to 25 microgram, also on the neutralizing antibodies, and saw a very encouraging level of neutralizing antibodies, which was significantly higher than what you see in human convalescent sera, i.e., from patients having been COVID-19 hit. Now we have just released here, within the last week, the additional data from the highest doses in the 50 and 70 microgram. Interestingly, we see a plateau of the immune response.
If you look at the right chart, you have a very nice dose response curve, and you see that on the 50 and 70 microgram doses, we have reached a plateau. The level of neutralizing antibodies seem to be on par also with the 25 microgram levels that we saw before. That's good from the perspective of understanding the dose level requirements that we are at a right level of dosing. We can also argue that it's also good for manufacturing purposes that we don't have to go higher in the doses than what we see here.
And Bent, I don't know whether I should break into here because I saw some confusion around when Bavarian just talked about this on their conference call that people were reading something negative into that you see a plateau on doses. But, and of course, the study being designed or the next one for 100. So I don't know whether you can clarify maybe why you don't see it as negative. In normal medicine, you don't want to see plateauing on higher doses and maybe also on the current phase program, which is running on 100 as I saw, and somebody talked about that might delay something. So I don't know whether you can clarify a little bit about your thoughts. I know it's not in your hand, but
Well, this is very positive to me is that we are reaching this plateau and see this level. It's good that we don't need a higher dose than what we see here. Actually, in the next slide, I'll go into the details behind this because there I will tell some more about the phase II trial, which is ongoing now, sponsored by Bavarian Nordic. This all relates to this fact actually. Interestingly also, I just want to mention also the right part of this chart where you see strong cross-neutralization across variants, and also including the Delta variant. All of this is super good. Let me move ahead. As you know, it's fully out-licensed to Bavarian Nordic.
Bavarian Nordic in August actually announced the initiation of phase II trial. At the same time actually also that they've been granted SEK 800 million from the Danish state to fund the phase III trial. This slide is actually taken from Bavarian Nordic's Q3 report presentation on Friday last week. You'll see there's been a slight update on the phase II design. It was actually set out to be tested in 150 test subjects who were seropositive with the 100 microgram dose. Now, they have amended the trial, so they will look at 90 test subjects receiving the 100 microgram dose in this setup. Here, there's actually been a full enrollment, all of the test subjects, meaning that, and Bavarian Nordic communicates that it's possible to see the data from this within a few weeks.
Secondly, the amendment of this phase II trial is then that they're actually looking at half the dose, the 50 microgram dose, in another arm of 90 test subjects. Here they are initiating this, and that will be conducted over the coming months. In addition to this, they will also look at an arm, a third arm, where 30 test subjects who have not had COVID-19 before, were seronegative, will be primed and have two doses of the 100 microgram level. All this is going on as we speak. I find this actually super exciting, that what we have seen from the first clinical phase I/II trial in terms of that plateau is good, that you don't necessarily need 100 microgram dose. We'll see what that means here on the current ongoing phase II trial. It's good.
As I mentioned from a manufacturing perspective, Bavarian Nordic may actually not need to produce that much to get the right efficacy level and long-term effect from this vaccine.
Then Bent, if I may ask just one question. On the data, I'm not sure, did you see any Grade 3 systemic adverse effect as you're seeing in the RNA vaccines? There was none of them.
No
even going up in the doses. Even if you had the high doses, if I understand you right, there was no of these Grade 3 systemic adverse effect you are seeing with your big competitors, the RNA vaccine. Is that correct?
That is absolutely correct. We have seen across all the doses in the phase I/II trial across 6- 70 microgram, no serious adverse events, no adverse events of note worthiness. Actually, this is very encouraging, and also as stated from our principal investigator at the clinical site in the Netherlands, who has also been working with vaccines based on mRNA and other vaccine technologies. He has not seen safety, so safe. That is actually quite cool. Going onwards, on the breast cancer vaccine, we are progressing as we set out since we in-licensed this in February of this year. We are continuing the preclinical development, and in this quarter, we have initiated the animal proof-of-concept study in collaboration with University of Bologna in Italy, who have these state-of-the-art animal models in the cancer field.
Furthermore, on the manufacturing side, we have established the process so we can actually transfer this to a contract manufacturing organization. That is also another important step. In this quarter, Q4, we are of course continuing with the proof-of-concept study, and as soon as possible, early 2022, we expect to be able to announce the headline results from these proof-of-concept in animal studies. At that point in time, we will also be able to transfer our manufacturing process to a selected clinical manufacturing organization, and we will also be selecting a clinical research organization. During 2022, it is of course important for us to progress towards the first clinical trial, which will take place in 2023. Before the end of 2022, or early 2023, we expect to file the IND application. We are progressing as planned.
Furthermore, in the influenza and malaria projects, as mentioned before, we are working on a flu vaccine, which is under the INDIGO consortium. This is a huge consortium where we have obtained funding from the EU. From ExpreS2ion side, we have shipped the first proteins for testing, and we have seen the right proteins with the right activity, so we have a good indication that our proteins are binding as intended. Furthermore, within this development consortium, there is also already a delivery technology which is being explored, a patch-based technology. We will have a patient-friendly, or even children-friendly, administration at the end of the day. This is progressing as planned. In malaria, we have our lead project. There are five blood-stage malaria projects being conducted in collaboration with the University of Oxford.
We have seen, in the beginning of the year, publication of the results from the first phase I study that took place in 67 healthy volunteers in the U.K., which was very good on the safety and tolerability side. Now here in 2021, there is even an initiation of a phase I-B clinical trial that will take place in Tanzania and Africa, where 60 adults and children will be investigated during the next year and a half. We expect outcome from this study in 2023. All in all, we are progressing across our pipeline activities. Needless to say, on the coronavirus vaccine project, we are relying on the exclusive licensee, Bavarian Nordic, to continue as planned. What we are communicating on this here going forward is really based on what Bavarian Nordic achieve. So far, it is very good.
We are continuing with the other projects in breast cancer, influenza, and malaria, as mentioned. We have been active in various events over this year, in the recent quarter, and also in the near future. This is just to highlight events. If you look from the top left through the right and line by line, you can see what we have participated in. Here in December, I just want to highlight that I will be attending for the first time, finally, physically, Aktiedagen in Stockholm on December 2. I am looking very much forward to meeting our investors face-to-face at that event. We have another HC Andersen Capital event coming up, the Growth Day on December 9, where I will be presenting highlights as well. That said, I will pass over the microphone and the word to Keith. Thank you.
Great. Thank you, Bent, and thank you, Michael, as well, and thank you everyone for joining us. During the second quarter of 2021, we focused our efforts, both in terms of manpower and money, on supporting the testing of the ABNCoV2 COVID-19 vaccine candidate and the preclinical development of ES2B-C001, our wholly-owned breast cancer vaccine candidate. I will walk through the impact of those efforts on our financials in the coming pages. Starting with operating income, we experienced an 18% decline year-over-year in the third quarter to SEK 2.6 million , and a decline of 7% on a year-to-date basis to SEK 9.3 million . Looking at the trend shown in the chart to the left, you can see that operating income in the quarter was slightly below the long-term average. In the middle chart, we focus on net sales, which reflect revenue from projects, licenses, and our web shop.
You can see the net sales in the quarter were in line with the long-term average. Year to date, they increased 98% compared to 2020, marking a continuation of the significant recovery from last year. They benefited from follow-on projects related to the development of the COVID-19 vaccine, strong royalties from licensed products, and direct sales of ExpreS2ion-produced proteins. In the chart to the right, we show the other component of operating income, which is essentially grant-related income. As a reminder, in 2020, we received a significant amount of grant income from the COVID-19 project. On the topic of income looking forward, I would like to comment on what is on everyone's minds, potential proceeds from the COVID-19 vaccine. While we cannot comment further on the actual size of the proceeds, we would like to provide some additional color about the timing.
Before I start, I want to emphasize that the product is still undergoing trials, so there's no certainty that we'll receive these proceeds and that the timing is based on what Bavarian Nordic has communicated. Starting in late 2022 or early 2023, we would expect to receive a very small approval submission-related milestone payment. In 2023, assuming the vaccine is on the market, we would start to receive sales milestone payments, which in total can be up to approximately EUR 2 million , and sales royalties, which are a lower double-digit percentage of AdaptVac royalties. Beyond that point, we can continue to receive any remaining sales milestone payments and ongoing sales royalties. Larger milestone payments and royalties will also accumulate during this period at our 34% owned joint venture, AdaptVac, and could become quite valuable. We are aware of that value and will consider ways to monetize it.
At this point, though, it is too early to discuss exactly how that will happen.
Keith, if I may ask a question regarding this one. Someone was speculating that there might be a presale. Before you have the final approval, before you start the sales process, that there might be a pre-ordering. If data progressing and Bavarian, as your partner, speaks to those, we have seen that with another company where there was actually a pre-ordering from the European Union before it was approved and in reality on market. I don't know whether you want to be that detailed, but would that also give you some kind of income if it's a pre-ordering? I know it's a little bit detailed, and I don't know whether you want to answer it. That potentially could be in 2022 as it was discussed on the Bavarian conference call.
Hi, Michael. That's a very interesting question. I think we should cross that bridge when we get to it. At this point, it's too early to say. But certainly it's something that is on our minds and we'll be on top of it should that come to happen.
Perfect. I know that is a speculation. I needed to ask the question. Another question is because we are lowering the dose, the production capacity is probably going to be higher by Bavarian Nordic on a lower dose. Just to understand whether you want to be this detailed, that the agreement on the sales milestones, it is not on the protein as such as how much is produced and sold. It is your milestones on the value that Bavarian will get out of it. If it is cheaper to produce, less micrograms needed, they still can keep the same sales price. To get a clarification that whether your sales milestones are dependent on the micrograms used or it is on the sales that Bavarian will go out, just to get that clarified. I do not know whether you want to go into those details.
Yeah, I am a little bit hesitant. Of course, what I would like to emphasize is that our sales royalties are just that. They are based on sales. I think I will leave it at that for now.
Perfect.
The sales milestones, of course, yeah, I will not comment on that. They are up to EUR 2 million which if you put them in scope comparison to the sales royalties, it is a smaller portion of it. So I am not even sure it is material to comment on.
Perfect. No problem.
Okay, I will move to the next slide. Operating costs in the third quarter amounted to SEK 12.4 million . That is an increase of 72% compared with the third quarter 2020. On a year to date basis, they increased by 73% to SEK 41.5 million. This reflects primarily costs related to the preclinical development of our breast cancer vaccine candidate, and that includes the initiation of the proof of concept study that Bent mentioned earlier. It also reflects some slightly higher personnel costs due to changes in how we accrued for incentive-based compensation. Those we made earlier this year, and they have no impact on cash. It also reflects a slightly higher head count. Looking forward, as Bent mentioned, we will start accruing costs related to CMC manufacturing. That is much more expensive than any other development that we have had so far.
We expect our costs to increase from here. On the next slide, we show the profit and loss for the period. This is after financial expenses and taxes. We had a net loss of SEK 9.3 million in the third quarter. That is an increase of 92%. Year to date, the net loss increased similarly to SEK 29.6 million . Commenting on the difference between the operating income and operating costs and this profit and loss, financial expenses have been much lower year to date than in 2020 due to the termination of the bridge loan. We do mark that negative interest rates have an impact on our cash balance, and it is a factor that we evaluate and/or look at on an ongoing basis. For the last slide, I will just take a quick comment on cash.
This shows the trend in our cash balance, which ended the quarter at SEK 142 million , which is the highest level in ExpreS2ion's history. In the third quarter, we completed the last step of our 2020 rights issue, which was the subscription of the TO5 warrants. Through that process, we raised SEK 44.3 million before transaction costs, and we now have runway into 2023. I would like to end by thanking our investors, without whom we would not be able to finance the innovations that are happening at ExpreS2ion. With that, I will pass it back to Michael and stick around for any Q&A.
Perfect, and do feel free to ask questions. I have a question I would like to start with. We saw some insider sale actually a little bit close to the date. Can you give a little bit color on any of the reasons? Is it the normal Danish tax reason? Is it other reason that he needs to pay for some warrants? I do not know whether you can give some clarification on that, either Bent or Keith Alexander. I guess it is always on people's focus or mind.
Yeah, I can comment on that, and please feel free to chip in, Keith. I think, Michael, you're referring to a disposal of shares by our Chairman of the Board yesterday. Of course, he is a founder of the company, and his setup of owing shares in the company has been through a company setup. That's actually not that beneficial in Denmark, because in Denmark you are taxed by capital gains, even irrespective if you have any liquid cash in your holdings. Of course, there will be a need in light of the huge and significant share price increase that ExpreS2ion has had to actually realize some liquid cash to pay off this tax. That's unfortunately the case. Of course, I'm quite sure I can speak on Martin's behalf when it comes to backing up the company consistently, and he's been doing that for 12 years.
It's only good with the value increase that we've seen. The tax situation is an unfortunate matter in Denmark.
Yes. The unfortunate situation we are seeing in Denmark when people are holding in companies that they need sometimes to liquefy to pay current tax bills. That's nice to have that been there. Also to allude a little bit on maybe what some of the Bavarian, we are progressing, maybe preparing investors to understand a little bit about the data that is coming in phase II. There was some discussion. You have now in the current phase I/II study seen that there was the 12x effect, but there was a little bit of discussion on what to expect from the common data.
I know you are not commenting on it, but maybe express a little bit about this one, that this trial you're doing on will be very different on, or there will be a lot of different study persons that some has been vaccinated lately will have a higher immune response already in the body and such stuff. I don't know whether you can elaborate a little bit on this, what the expectations are, what people should expect regarding the next one.
It's difficult to speculate on Bavarian Nordic's behalf. But obviously, it will be interesting to see the outcome of also the 100 microgram level in people who have already had the COVID-19 disease. So it's in seropositive test persons, so they've had it before. And of course, it's all based on a booster strategy, and that's a good thing. So we'll see how it works to maintain or increase the neutralizing antibody levels so we can get the long-term effect, which is really the unique feature of this vaccine, where we are standing out very well indeed compared with other vaccine technologies.
Yeah, I think it's worth to remind, if I understand correctly, that the 12x is so much higher than everything else you see, and that actually just one times give you a very strong protection. So you don't need to reach those numbers, I guess. Also just to make sure that the next phase II programs will. Is there something about the differences of the strings also? Will there be some data also covering that? Is there something underlying there? I'm not quite sure. On looking on the different strings of the COVID-19 vaccines.
Now we've seen a plateau of the, if you're referring to the level of neutralizing antibodies across the highest doses in the first phase I/II trial. Let's see when we see the data that Bavarian Nordic they release. I can only think that it will be encouraging, of course.
I know it's wrong of me to ask questions. I know the data will come so soon that we might have to wait for it, but of course, it's right. There's a question out here. Do we have any thoughts on merging with AdaptVac? Your partner there. To get some kind of synergies between ExpreS2ion and AdaptVac. I don't know whether that's possible even, but can you give some thoughts about that one? It seems like it's a strong technology partner and such. Could you get some synergies out of this if you would merge or if it's even possible with the setup you have right now?
Well, from a technological perspective, it has made very good sense to combine the ExpreS2ion protein production technology with the virus-like particle technology that AdaptVac holds. That combination is the basis of our two projects, namely for the COVID-19 vaccine and for the cancer vaccine. I would rather respond on a high-level strategic perspective that we are always looking into ways of increasing our value through collaborations in all kinds of manners. It is on our plate, but I cannot comment specifically on that.
No problem. I know it was speculation. There is a question here. Are you working on a new price target from Analyst House? I am guessing that are you in collaboration with doing something with those right now.
Bent, shall I take this one?
Sure.
Yeah. I just want to be very clear that when it comes to price targets, those come from the research analysts. We are not involved in the valuation or price targets that they issue. We do, of course, fact check what they would like us to fact-check, but it does not have to do with valuation. I think if you want to think about price targets, though, they make it pretty clear in the reports, both Analysguiden and Protos, what the key drivers are. If you read them closely and see what they are, then you will have a pretty good idea of what could cause them to change. But I will not comment further than that.
I understand that. It was maybe more a question whether you were working together with them, or I think it was a question trying to see if there was something. Perfect answer. There is a question here, and again, goes a little bit back to the technicalities on your royalties and such stuff. Bavarian Nordic has struck a deal with the Danish government, meaning that they fund them, but on certain levels, they will pay back that money depending on the sales development. There is a question here, just whether you want to go into those details, whether it is you get it on the sales, or you get it on the sales deducted from the payment back from the Danish state. That is the question.
Will you get from the total sales, or is there also something in your agreement that will deduct what they need to pay back to the Danish state if certain criteria is met? Sorry.
Well, I can respond to that. The agreement is between AdaptVac and Bavarian Nordic. To my understanding, it is based on sales royalties, and there is no amendment to that due to that state funding.
Yep. Perfect. That was as clear as we could get. There is a question here. If your COVID-19 vaccine stays best in class in phase III, could an emergency use be applied? This is what we were talking a little bit about also on the Bavarian Nordic. This possibility, pre-orders and emergency use. Any of your thoughts on that, Bent?
I will refer to the statements from Bavarian Nordic. It may be possible in a late stage after phase III trial. That may be an opportunity.
Yeah. Perfect. I do not think we have more questions. I also know you guys are very busy, so thank you for taking us through these steps. I can maybe recommend that people listen to the Bavarian conference calls. They were very upbeat and positive, and a lot of questions, which I know you, Bent, for reasons cannot answer, was actually maybe answered, not directly by them, but indicating there. It could be a good idea to read through or listen to that conference call from Bavarian from last Friday. Just from me, a small tip. But thank you, Keith. Thank you, Bent. And thank you for the audience for listening in here today. And have a nice day.
Thank you.
Yeah, thank you, Michael. Thank you, everyone.
Thank you. Bye.