Welcome to today's event, where we have the pleasure to present ExpreS2ion Biotechnologies. To help us through today's event, we are joined by CFO Keith Alexander. Of course, today's topic is very much financial. It's your Q4 results out this morning. So I think it's naturally that it's the CFO who does it. So I think the focus will be mainly on those results today. As always, you can ask questions in the box down below, do it in Danish also. I will try and translate to the best of my ability. But for now, I think I will hand the call over to you, Keith.
Great. Thank you, Michael. As Michael said, my name is Keith Alexander. I'm the CFO of ExpreS2ion Biotech. Today's announcement and the slides for this call will be available on our website, investor.expres2ionbio.com. Please note that a recording will be made available on our website as well. The call is scheduled to last 30 minutes, including 10-15 minutes for Q and A. Comments made on this call are subject to the risks and uncertainties that could cause actual results to differ materially from expectations. For further information on the risk factors, please read the disclaimer in greater detail in the slides prepared for this presentation.
My prepared remarks from today will be split into three sections: a brief review of the company's profile for those who are new to the ExpreS2ion story, an update on the business for the fourth quarter, and a review of financial results for the fourth quarter and full year 2023. ExpreS2ion Biotechnologies was founded in 2010 in Denmark, and its business is comprised of the protein expression platform technology, vaccine pipeline, and CRO business. We are around 20 employees based in the DTU Science Park, 20 minutes outside of Copenhagen. The ApS is 100% owned by ExpreS2ion Biotech Holding AB, which has been listed on the NASDAQ First North Growth Market in Sweden since 2016 under the ticker EXPRS2. The ApS owns 34% of AdaptVac ApS, which owns a unique virus-like particle platform technology.
Our management team brings a wealth of experience and education in key areas of biotechnology, virology, biochemistry, finance, and strategy, with over 100 years of combined experience. CEO Bent Frandsen has been with the company since 2016 and CEO since 2019. I joined the company in 2020. Our CSO, Dr. Farshad Guirakhoo, joined the company in January of 2023, and SVP of R&D and Technology, Dr. Max Søgaard, has been with the company over 10 years. The foundational component of ExpreS2ion's business is the ExpreS2 protein production platform. Our platform produces antigens using patented expression vectors, adapted cell reagents, which can then be combined with a delivery vehicle to create vaccines targeting specific pathogens. Our vaccines teach the body to fight viruses by triggering the production of antibodies.
Compared to other protein production platforms, the ExpreS2 platform is faster, higher yielding, creates more homogeneous batches, is thermally stable, and has options for functional modification. Some of the modifications ExpreS2ion can offer include various modifications to the glycosylation pattern, which can enhance the immunogenicity of a vaccine. Our antigens can be used on their own or with a delivery vehicle to trigger an immune response. As shown in the illustration to the right, there are options when it comes to delivery vehicles, and each option has a different immunogenicity and safety profile. The combination of virus-like particles, or VLPs for short, with soluble proteins results in safe and highly effective vaccines. VLPs are used in highly successful approved vaccines, including Gardasil and Cervarix for HPV. These are the reasons we use VLPs for our lead asset.
On the next slide, you can see a list of vaccine projects using our ExpreS2 platform. Not only has it been validated in phase III clinical trial with the ABNCoV2 COVID-19 vaccine licensed by Bavarian Nordic, Oxford University uses the technology in one phase II study and three phase I studies, with more studies expected in the near future. Additional projects at preclinical stages are listed here, as well as the fact that many biopharma companies have licensed our technology for their own assets. Moving to the next slide, we have chosen to present our pipeline as a project for which we have significant control or ownership. Our lead asset is a therapeutic vaccine for HER2- positive breast cancer, which is nearing CTA readiness. In addition, through collaboration with Evaxion Biotech, we are developing a cytomegalovirus preventative vaccine, which is currently in lead optimization.
We also have additional undisclosed exploratory projects currently in the discovery stage. I'll now move to the quarterly business update, starting with the breast cancer vaccine. In the fourth quarter, we made significant progress across all aspects of the asset's development. The safety studies are complete, and we're excitedly awaiting the completed draft report. In CMC, we initiated GMP drug substance production in December and look forward to production of the drug product, which is production of the drug in its finished form. In terms of clinical preparation, we're making progress with the design of an investigator-initiated trial. This takes time as it is a new trial compared to our previous plan, and we want to be sure we do it right, so we need all the appropriate experts to weigh in.
As we have stated before, we will not start a phase I clinical trial until the funding for that trial is in place. Finally, as we said in the Q3 webcast, we have also been conducting a concurrent search for a partner for further development. There are remaining steps before the vaccine is ready for testing in humans. In non-clinical, we need the final drug, or we need the final safety study reports. In CMC, we need to complete production of the drug product and IMPD, or Investigational Medicinal Product Dossier. In clinical, we need to revise the protocol and prepare the investigator's brochure. Finally, in regulatory, we need to submit the CTA and have the green light from regulators. Moving to the cytomegalovirus vaccine, ES2B-I002, the project is on track with in vivo experiments conducted and CMC experiments underway.
As a reminder, the project was launched in December 2022 as a 50/50 collaboration with Evaxion Biotech. The aim is to develop a novel CMV lead vaccine candidate before the end of 2025. At that point, ExpreS2ion has exclusive right to license the vaccine for further development. Finally, I would like to just briefly touch on the grant-funded VICI -DISEASE p roject. This project is a consortium-driven effort to develop a vaccine for disease or diseases with pandemic or endemic potential, with initial focus on the Nipah virus. The consortium is similar to, but not the same as, the consortium for the COVID-19 vaccine, comprised of the members shown on this slide. Sorry, Michael, I think I'm hearing some background noise. Thank you. The consortium is similar to, but not the same as, the consortium for the COVID-19 vaccine, comprised of the members shown on this slide.
In December of 2023, click it there. We announced that the consortium has won a EUR 8 million EU Horizon grant, and that 53% of that amount will 100% fund ExpreS2ion's contribution to the project. Now I'll move to the financial results. Starting with operating income, we experienced a 44% increase year-over-year in the fourth quarter to approximately SEK 2.2 million. In the middle chart, we focus on net sales, which reflects revenue from projects, licenses, and our webshop. They were below the long-term average in the quarter. In the chart on the right, we show other operating income, that is, grant-related income, which increased materially to the highest level since 2020. Moving to the cost side, which is, as I always say, much more significant than the income side.
Operating costs in Q4 amounted to approximately SEK 23 million, which is a decrease of 58% compared to the fourth quarter of 2022. The decrease is primarily driven by external R&D costs, which I'll dive into in more details in the next slide. We've broken up operating costs into four components to illustrate some of the underlying drivers of costs, which should help investors with their forecasting. Starting at the top left with external R&D costs, you can see that these peaked in Q4 last year due to preclinical development costs for the breast cancer vaccine. This item is large, volatile, and very much driven by our pipeline activities. Moving to the top right chart, we have removed the cost of share-based compensation from personnel costs to calculate an underlying personnel cost. This underlying figure is approximately the cash cost of personnel.
It peaked in Q1 of 2023 as we ramped up our activities to prepare for the clinical trial of the breast cancer vaccine and has since decreased. Note that this line is, of course, sensitive to inflation and wages. Wages are something that are set by the market for talent and FX, since we report in SEK and pay wages in DKK. The Swedish krona has dropped 12% versus the Danish krona since November of 2021, so this has had a material impact on personnel costs. Moving to the bottom left chart, this is the share-based compensation charge we removed from the personnel costs. I want to be clear, this is part of personnel costs in the income statement, but the impact is reversed on the cash flow statement. It does not consume cash.
Share-based compensation is comprised of award programs that align employee incentives with those of shareholders. They only have value to employees three or four years down the road if the share has appreciated materially. The impact is highest at the beginning of a program, and then decreases on a graded schedule. Finally, moving to the bottom right chart, we provide other operating costs, which combine costs like raw materials, consumables, administration, facilities, and other items. While these costs increased slightly in the quarter, I would note that there is some lumpiness in the timing of these costs. For example, related to annual system upgrades and facility account adjustments. Moving to the net loss for the period. After financial expenses and taxes, we had a net loss of approximately SEK 18 million in the third quarter, a decrease of 63% versus the year-ago quarter.
For the full year, the loss decreased 19% to SEK 96 million. Our next slide shows how our cash balance developed in 2023. At the start of the year, the company had a cash balance of SEK 111 million . Cash flow from financing activities was SEK 48 million, primarily reflecting net proceeds from the second quarter rights issue. We spent SEK 103 million on operations and investment activities, primarily reflecting investment in the breast cancer vaccine. Finally, we realized a small gain from currency exchanges.... putting this all together, sorry, currency changes, not exchanges. Putting this all together, at the end of the year, the company had a cash balance of SEK 58 million . In our final slide, we show the trend in our cash balance, which ended the year at SEK 58 million .
This balance should carry us into 2025 under the current budget assumptions. That concludes my prepared remarks. I'll pass it back to Michael for Q and A.
Perfect. Yeah, but I think let's start by the cash side. Please, can you provide an update on cash reach and your restructuring program cost base things? I know it's a very wide one. There's also a question: Is this cost base that you are seeing right now, is... Are you finished with the, you might call it restructuring or alignment of your new organization? Or is your cost base, well, the here Q4, is that a good indicator for what we can see in the next year?
You know, I think it's very tempting to look at the change in cash in each quarter and assume that's the burn rate going forward. But there are some factors that make it not exactly the best thing to do. For example, if you look at changes in working capital, that is a large component of the difference between the Q3 change in cash and the Q4 change in cash. So I don't think that we can look at just the quarterly change in cash and estimate the forward burn rate. In addition, the demands of the business change quarter to quarter, so it's not the best indicator.
I think it's maybe best to look at the operating cost composition that I provided and try to use that to come up with an estimate of forward cash burn. Regarding the question about our cost-saving initiatives, whether they're fully reflected, I think they're mostly reflected. But there's some things like changes to facilities that take longer than five months to have their full impact. And there are other things like employee contracts, they have varying terms, so you can't say that it's 100% done. But it is getting pretty close from that perspective.
You say with the current, your current model, you still expect to have a run rate into 2025 on cash. And by the way, we should be able ourselves to calculate what you expect for a burn rate. Is that correct? That's the only guidance you want to give on the burn rate and so on?
Yeah. I think that's all we can say at this time. Into 2025, of course, is a vague term. We don't say how far into 2025, but I guess you can be conservative or you can be more optimistic. It's up to the analyst who decides.
And then, there's on the NIFA, the SEK 90 million you get some money from. How is that calculated in your cash preparedness? Are something already taken in, or is it the deduction of a cost base calculated in? So can you talk a little bit about how you have calculated in those, your statements here, that you're part of the grant from the NIFA?
Sure. I, I'm not gonna go into the specific cash flows associated with that grant. What I can say is that we have built it into our forecast model, and so some of the upfront payments related to the grant are reflected in our cash runway. But also the work that we do with that. So yeah, it's part of our model now.
Yeah.
Our forecast.
Will that actually be taken as other income, and you will show, or will it be a deduction of the cost base? Just so we understand how maybe to look at your reportings in the future.
Yeah. It will show up in other operating income, as all our grant income does.
So the income will show up there, but the cost will be, it's part of our operating costs. It'll show up in different lines there.
Perfect. And then there's a question: When can we expect the final payment from AdaptVac regarding the COVID-19?
I wish I could answer that in more detail. As we have stated before, we expect it in the first half of this year, but we don't have anything further that we can say about that right now.
Okay. Perfect. And there's a question here: If you get funding, can you start phase I on breast cancer in 2024? You showed how preparedness. So if you reach a partner agreement, getting some funding, will you be able to start that in 2024?
I'm hesitant to provide too much color on that because, you know, those plans, they are still under development. They're not fully fleshed out, and until they're fully fleshed out, I don't think it makes sense to set expectations too much. We would, of course, like to start it as soon as possible, and that might mean 2024. But until we have a final plan in place, it's really hard to say that. I don't wanna disappoint people by saying sticking to a date.
No, no, no, and it is not asking whether you will do it. It's more whether you're preparedness, you know, if you early get the funding, you know, then you are prepared to start it yourself. I know the funding-
I mean, we'd love to get started yesterday, so...
Yeah.
But as I mentioned on one of the slides, there are some things that we need to check the boxes on, and they take some time. But I think... Yeah, I don't wanna say how much time they take.
Nope. Nope. Perfect. Perfect... There's a question here, will you increase focus on getting more CRO business in 2024?
No, I don't think so. I think it remains as we stated previously, that the priority is our pipeline business. We have, when we have additional capacity, we'd love to fill it with the CRO business, because basically then we can fund part of our business. It is at least break even to cash flow positive when we take on this business. However, the scale is much smaller than the pipeline business, so it is not sufficient to fund the pipeline business.
Perfect. Then there's a question, why can't you find any big investors? I don't know whether you are looking for it, but whether it's in your plan, in your books, to find any larger scale investors, whether you are trying to talk to get more, you know, stability. And there's a question here, I'm sure you probably can't comment much on it, Keith.
I think a better way to phrase that question is, why can't you find any big investors yet? And you know, the appetite of institutional investors, if we're talking about big investors, is very much tied to the stage of the company and the data that's available. And we're working toward that. We're working really hard. And I think we have a great asset with the breast cancer vaccine. The preclinical data has been extremely strong. We just need to get it to the right stage. And once we get it to that stage, then I think that access to institutional investors will be hopefully quite a bit easier than it is right now.
But of course, we'd love to have a bigger investor on board now, and we're gonna continue to pursue them as much as we can.
The final question, then I'll let you off the hook, Keith. How is the success of the mRNA technology affecting the business environment of the ExpreS2 platform? I know it may be a little bit out of the financial region, but I don't know whether you have any thoughts about that.
Let me see. I mean, yeah, mRNA has been a huge innovation for vaccines, and I think we should give it credit. It's really fast for developing new vaccines. I mean, I'm not somebody to comment on the pros and cons of it, but I do understand that there are cons that make it not the perfect technology for every type of vaccine. You know, we still think there's a great opportunity for the vaccines that we're developing. Our technology is phase II validated. We've shown tremendous safety and a great safety and efficacy profile with the vaccines that have been clinically tested. I mean, there's still a lot of companies like ours who are developing non-mRNA vaccines.
I think with time, we'll see that the mRNA vaccines are suited to a particular vaccine type, and that they have a purpose. I don't think I'm the one who should be commenting on that. I think maybe go with an expert on vaccines. I'm a financial guy, so, I can talk about our numbers. But I do think there is a time and place for different technologies, and each one has strategic value.
Actually, if I can just get in, because are NIFA or other agreements included in the cash statement? Are there anything yet in your books? That was the second part of the question.
Yeah, I think you just have to trust us on that one. I don't think I'd want to provide that level of detail. I'm not sure that it's relevant, to be honest.
Oh, perfect. Yeah, but I think that was all the question, Keith. Thank you for taking us through your results and answering the questions. May everybody have a nice day.
Yeah. Thank you.