Earnings Call: Q2 2021

Aug 19, 2021

Quarterly report

Yes. Welcome to this event with XPression Biotech. My name is Henrik Wegmann, Ecojournalist from Hazy Jose Anderson Capital, and I'll be hosting this event. With me today is CEO, for expression, Ben Pfannen and CFO, Keith Alexander. So welcome to you both. We have talked about that we will do the format for today. Today's Today's event will be that you will be speaking of the highlights for the second quarter and first half of the year. And then after for about 15 or 20 minutes and afterwards we will take Q and A from the chat room. So with that, welcome, and the floor is yours. Thank you very much, Henrik, and thank you for inviting us to this event with AT and TASEN Capital. First, the forward looking statement disclaimer and I'll Quickly moving to a description of our company and then highlight some of our achievements here in the Q2 before I hand over the mic to Kees. So, Expression Biotechnologies, we are a leader in advanced protein scientists and we have valuable pipeline, which address EUR 45,000,000,000 market. We Produce complex proteins using our patented Xpress technology. We've been doing that for more than 10 years, having had than 100 clients and collaborators around the world and our production technology has been very useful for making Therapeutics Vaccines and Diagnostics. AdapMak is a joint venture that we established in 2017, And they have virus like particle technology. We own 34% of this joint venture and the combination of our Express production technology and the vaccine technology, the VOP vaccine technology make some really highly immunogenic and cost effective vaccines and therapeutics. So now we have embarked on new strategy since the beginning of 2020 with a pipeline of novel therapeutics and vaccines addressing high unmet needs in a more than €45,000,000,000 market. We have a nice revenue stream from our services business using our production technology of around SEK 15,000,000 Swedish krona annually, and it's growing nicely. And on top of this, we are listed, as it says, And we have experienced more than 12 times increase in our share price since January 2020, which reflects the transition from a service based to a more pipeline driven business. Next slide, please. So we have a broad clinical stage pipeline. Our 2 primary products product candidates are our corona vaccine project, the first line and the second line is our breast cancer candidate. During this Q2, we have Progressed on our coronavirus vaccine candidate. It has moved into the 1st clinical Phase III trial and we have actually just released The headline results from these trials last week, they are extremely exciting because this study shows that it's a very safe and highly effective coronavirus vaccine candidate. I'll speak more about this later. The breast cancer vaccine is Vaccine candidate we have in license from ADAPVAC and it's 100% controlled by expression now and we're progressing on our preclinical activities and have done that very nicely also during the Q2. Furthermore, we have development activities within influenza and malaria. I should highlight here also in malaria, we have just here in July announced the initiation of another clinical trial in Tanzania, the first on-site malaria trial with this exciting malaria vaccine candidate. Next slide, please. So as mentioned, during the Q2 here, we have progressed with the coronavirus vaccine. We started the trial in March and announced the first safety data with the first 18 human test persons April 12. And we have then finalized the 45, the testing in the 45 humans and got the first results out here last week. They look really great. As I said, it's a safe and tolerable vaccine And efficacy shows high antibody titers and more importantly also high neutralization antibody levels, meaning that we can induce a long term response and get efficacy that is durable as well as strong. And this allows this particular vaccine to be either a strong stand alone coronavirus vaccine or a booster vaccine, which is highly needed at the moment of course. Secondly, within our breast cancer, as mentioned, we Initiated this project in February and already selected a lead candidate in May and have progressed on establishing the proof of concept animal models that need to take place here in the autumn and expect to dose the first mice here very soon. And the aim is here to obtain proof of concept in animals around the year end probably around January, February 2022. Furthermore, in influenza, we have So progressed on our work here. We have worked on a number of constructs within this consortium, EU sponsored project. And we are discussing within the consortium, which, candidate to to continue with in in vivo studies later on this year. And as mentioned, in malaria, we just got some The news that we started a new clinical trial with the lead candidate here. Next slide, please. Just a word on our breast cancer vaccine efforts. It's An area which continues to have high unmet needs, more than 500,000 women die every year. And we know that currently available treatments have some drawbacks in terms of patients developing resistance To these monoclonal antibodies and there is even risk of heart related serious side effects. And also the administration and the dosing is very costly. All of these drawbacks we address with our vaccine like approach. And we are very thrilled that we have already proof of concept in animals With the previous version of this that was released in the Nature paper a couple of years ago, now we have A novel, key candidate that we are using in this project and are excited about continuing with this. Next slide, please. With respect to the COVID-nineteen project, I think it's important to address the economics about this. As described before, the project is actually licensed from our joint venture partner at Dettberg To Bavarian Nordic, Bavarian Nordic, they hold a global exclusive commercialization license around this COVID-nineteen vaccine candidate. And you can see to the left the economics revolving this licensing deal. Now Expression owns 34% of a debt So that's obviously a very important value driver for expression here going forward. On top of this, we have licensing deal with Adaptec because there is also expression technology in the vaccine that's being tested. And You can see that's some minor milestone payments and also some royalties. But by far, the 34% ownership of a debt bank is It's quite important for us going forward. And as we have just recently seen the headline results of the first clinical trial and thereby Minimizing some of the risk we've had in this project so far, this becomes very valuable for us naturally. Next slide please. Sorry, I think you jumped 1. Okay. That's it from my side. Sorry. Over to you, Ki Bin. Sure. Thank you, Ben, and thank you, Henrik. And Henrik, if you don't mind going back one slide, that'd be great. During the Q2 of 2021, we continued to invest in the preclinical development of ES2BC001, our wholly owned breast cancer vaccine candidate And achieved the 2nd highest level of quarterly revenues since our 2016 IPO on the NASDAQ First North Marketplace. This was partially driven by scale up projects related to the COVID-nineteen vaccine candidate. Let us tell you a few key figures. And now Henrik, do you mind going to the next slide? Here you can see a summary of the Q2 along with comparisons to the Q2 of 2020 And similar comparisons for the first half of the year. Our quarterly operating income of SEK4.8 million was the 2nd highest since our 2016 IPO. Our operating loss of SEK9.1 million was more than double that of the same period last year. We concluded the quarter with SEK108 1,000,000 in cash after raising SEK39 1,000,000 through a warrant subscription, which was 97.6 Percent subscribed. We're looking forward to the next warrant subscription period, which will be from September 6 to 20. Brochures will be sent to warrant holders shortly. Next slide. We'd like to focus on a few developments in the quarter. First, our operating income growth was driven by the combination of COVID-nineteen scale up projects, royalty fees and a diverse mix of CRO projects. Grant income was de minimis. Our operating loss of SEK10.4 million was further driven by investments in the pipeline And changes to non cash personnel cost accounting, which I'll go into more detail on, partially offset by a one time dividend paid by Adapt Back. Cash increased by SEK25 1,000,000 to SEK108 1,000,000, primarily reflecting the SEK39 1,000,000 raised in the TO4 warrant subscription. Moving to the group income statement on the next slide. We'd like to spend some time discussing our operating costs, focusing on the largest figures. You'll note that raw materials and consumables and other external costs have both increased significantly. These continue to be driven by investment in our pipeline business And most notably, the preclinical development of ES2B C001, which is our wholly owned breast cancer vaccine candidate. Our personnel costs have also increased. It's very important to note what is driving that increase. We have increased headcount, but the key driver Is a change in the accounting treatment of incentive compensation. Most importantly, this is a non cash charge. You can see it reversed on the cash flow statement In the line, adjustments for items not included in the cash flow. Also of note, we received a one time dividend from a debt back of SEK463,000, which was reflected in result in jointly governed companies. Moving to the next slide. The final comment I'd like to make is about our research coverage and investor meetings. As the company grows, we have endeavored to expand our research coverage and broaden and diversify our investor marketing. Pareto Securities initiated sponsored coverage research of expression in June and raised its price target to SEK 66 Swedish kroner per share after the publication of the headline Phase 1 and 2 results for the ABN COV-two COVID-nineteen vaccine candidate. More broadly, we've noted that there is significant investor dialogue occurring on a variety of social media platforms. We have been participating in various conferences, including the LifeSci Conference in June and will be present at several conferences in September. We encourage you to meet us there and learn more about XPression. With that, I'll pass the mic back to Ben to comment on the key milestones for the rest of the year and closing remarks. I'll stick around for any questions after his comments. Yes. And just to finalize with some outlook comments. So you can see our pipeline here. And with respect to coronavirus, of course, having More or less completed the 1st Phase onetwo trial within expression and the PREVENT INCOF consortium, we are now handing over this project to Weber and Nordik, who will develop this onwards. And they have already filed a clinical trial application with the German authorities for initiating a Phase 2 study in 210 people and have communicated that this will take We'll start already very, very soon, perhaps here in August. Furthermore, with respect to a Phase 3 trial, they continue to look for funding and as far as we know, are in discussions with a range of All types of relevant funding opportunities. Hopefully, all this will lead that With respect to the breast cancer vaccine project, as I said, we have continued on the preclinical activities and We will work closely on this in the autumn with the aim of getting the first proof of concept animal data early next year. That will enable us to continue on production scale up during 2022 in clinical preparations with the aim of filing the first clinical trial application before the end of 2022 and starting the clinical trial in early 2023. And afterwards, we expect to be much active in the partnering with respect to ongoing development on this opportunity. With influenza, we continue to work on the various constructs within the Indigo Consortium. And On malaria, as I just said, we have the first clinical trial with the new construct, with the new novel adjuvant starting in Africa here this year. And it had This year, and the headline results for that will come in 2023. So that's how it looks at the moment. And based on this, we are available here for another 15 minutes for another for a round of Q and A. Yes. Thank you for that, Ben, and thank you for that, Keith. Yes, there is already coming in a lot of questions from the audience. So if you take sort of the bigger picture, there's one concerning As you the short term focus is to fund the progressing pipeline. But on a longer term basis, when do you actually I expect this development to result in a positive profit outlook. When will it be profitable? What's the longer term picture here? Sure. And that is, of course, related to our pipeline projects. So within the coronavirus, if that is successful during 2022, some of the proceeds getting into a DAPMEC will Naturally also spillover to expression due to our 34% ownership of that joint venture. And that's really near term potential cash flow coming there. As I have said earlier, we have actually not really calculated with this income, but Having the first clinical Phase III trial announced last week that looks so good, we see a better likelihood of that revenue stream coming in a year's time. With the breast cancer, as I said, we need to do our homework. Right now, it's in a preclinical stage and We want those proof of concept data to be good, which I'm sure they will be, but we'll see. And we'll progress on this and getting this into clinical Phase 1 in 2023. And then we're in a clinical stage with this where we will Progress partnering discussions, not necessarily to do a co development deal before the end of the Phase I trial or even before the end of our Phase II trial, but we need to start promoting This is a fantastic breast cancer vaccine opportunity. You mentioned regarding the In the statement, it says that the coronavirus or the corona vaccine will ultimately either could be a vaccine on its own or a booster vaccine. What's the difference from a regulatory timeline financial perspective of this? That's a good question. And some of these questions related to this vaccine going onwards, I would Like a very nodding also to comment on those. It's exclusively their product now and all The interaction with regulatory authorities are now being handled by Vabiran Nordic going forward. So, When we say it's a standalone or a booster vaccine, that's definitely also the Veronautics' communicator strategy around this. There is, as far as I understand, a question from the audience regarding the VLP substance from a competitor that has reported 10 times the effectivity on their update. How is that different from this substance, from Edelcaro's ERP substance? We Reported last week at 12 fold, 12 times higher level of neutralizing antibodies compared with human convalescent sera from infected COVID-nineteen patients. So that's better. On top of this, our VLP approach, as we've seen, It's a very, very stable vaccine and it can be handled in up to plus 49 degrees Celsius temperature. So, Administering this in storage and transportation wise, a lot of advantages there. So the VLP itself is based on a bacteriophage molecular structure and The antigens that we have been making are in expressions insect cells here for this vaccine candidate. And as far as I know, Medicarcos vaccine is based on some plant based technology. And From scientific literature, at least we know that in terms of stability, it's not easy to assemble proteins based on plant based technologies. That's the only thing I can comment on. The Ukrainian data from last week suggested that it also has a good effect relating to the delta virus. Will you provide further more complete data on this, the effect on what can you say about? Yes. Actually, the analysis of neutralizing data is not a trivial matter because we need secure laboratories And it takes time and that's why we said we will detail the complete Neutralization data here before the end of the year when we actually also have the full analysis done. The headline results are based on some of the data we have so far and they look good. We have no reason to believe Not anything to change based on this. That's the clear communication we have from our science Yes, the mentioning in the financial part of the report. This has been a major change in revenue mix because COVID is now reducing or is not affecting Your revenue as much. So is it back to normal now that you can meet clients and have further revenue from clients instead of just grants. Sure. Maybe both Kees and I can comment. Kees, if you like to start with how the mix looks at the top line. Yes, sure. I'm happy to do that. Henrik, just as you mentioned, the mix has Changed drastically, but it's a reversal of the mix shift we saw last year, where most of the revenues went from CRO business to grant driven revenues. And a lot of that was driven by, 1, people couldn't travel anymore, so the ability to do sales of the CRO business were impacted. And then 2, we had very big success in raising grant revenue for the COVID vaccine and other vaccines we're working on. But now our grant revenue from the COVID vaccine is has been fully earned. So we don't expect to have any more of that. And we're seeing an uptick in our CRO business as we have some time to work on that outside of the pipeline development efforts. Ben, do you want to take it from there? Sure. We can see here in the first half, we also have some revenue that is actually driven from the Werrenordic and ADAPMEC because we have been asked to do some additional protein work on the project, which was outside the scope of the Prevent NCOVE grant project. So that's of course nice that we can even invoice some of that work in that respect. The pipeline regarding the malaria projects, the market potential, What how can you elaborate on that in terms of sort of because it differs when you talk for experts, it differs a lot. So what can you tell? It's an area, of course, which well, first of all, the disease takes Place in Africa primarily, and there has been various assessments of the market potential. And when it says 0.4 €1,000,000,000 here. It's actually based on old data from Boston Consulting Group, which assessed the market value to be of this size. And I'm pleased that the technologies that we work with actually allow for A very potentially very, very cheap vaccine and that means that we have a place in the market to address the disease in these markets which are based on more poorer countries. Okay. There is, of course, since you reduced the ownership of Adaptec. There is, of course, question relating to the joint venture in that regard. And what can you say about the overall longer term relationship in terms of How we should see the cooperation with that back coming forward. Well, it's been a very, very nice collaboration since the establishment and we are very thrilled We have been allowed to in license the breast cancer vaccine project from the scientists who invented the VLP technology and part of the ownership in the 66% owned next gen vaccines. Going forward, we have no intentions to divest anymore. The divestment from 50% to 36% was based on the in licensing of the breast cancer vaccine candidate. We cannot say for sure that anything like that should happen if there is a new candidate coming from the deck pack's internal efforts that they Can see that expression could be a licensee too, but so far it's 34% and we are very happy with that. As we can hear, you were very thrilled with the results, preliminary results from the COVID-nineteen vaccine starting last week in Ghana. But the market doesn't seem to agree. What are your thoughts about The adaption or the assessment of the news and because I understand from you that you think these results are as good as they could get and that was why you actually made the announcement. So what are your thoughts on your market direction, if any? Absolutely. It's super thrilling with the data and we really believe that there's a marketplace here for Bavarian Nordic with this exciting vaccine candidate for sure. Now, you know, Pareto has issued a report saying a share price of HESI. And I'm not really the one to comment on share prices that would not really be prudent. But Of course, I think, we have derisked the COVID-nineteen vaccine project Somewhat with these nice data, that's for sure. That's my comment to this. Of course. And you touched on the funding time line in terms of the 1 program being probably being accepted in September. But he's trying to take us through the sort of the longer term funding structure. I know this is very much also part of Bavarian's decisions, things of Perkienstern, sort of take us more detail through the timeline of the funding structure after the Swan program. Sure. I can touch briefly, but there's not much that I can actually say about that. Our fundraising plans are private until they become public. I would just say that we are a biotech company That is using cash. And at some point, we will want to raise more capital. It makes sense to The time capital raises with times when the market is open. And so we're watching that closely. We talk to our advisors. And When the timing is right, we'll proceed as we need to. Okay. Thank you. And Ben Franssen and Keith Alexander, thank you for taking this time to discuss your latest results, and we will Speak to you soon and hear more from you soon when there are more results to be published. Thank you so much for this. Thank you, Henrik.