Welcome to today's earnings call of Marinomed Biotech AG, following the publication of the company's half-year figures for 2023. The CEO, Andreas Grassauer, and the CFO, Pascal Schmidt, will give you a presentation on the results in a moment, and the floor will be opened for upcoming questions following the presentation. Having said that, the stage is yours.
Thank you very much, welcome everybody, to our half-year earnings call. We'll jump right into the presentation.
Next to me is Pascal Schmidt, our CFO, and also want to welcome to Pascal.
Today, we will talk about the year-to-date highlights . Pascal will provide a detailed review of the first-half financials .
I will take back, talk about the growth strategy and the project outlook, how we will see the rest of the year. and the progress of the key projects . At the end, we'll briefly talk about the financial calendar. what have we seen in the first half of 2023?
First of all, we've seen record revenues for Carragelose business, although after the strong jump in the Q1, still we have records.
Pascal will talk later on on the outlook of that business. Very important for us, we are planning to launch a new product in the beginning of next year, the Carragelose eye drops.
Also, we are currently planning to launch the allergy product, which could probably come a little bit after the eye drops, but also planned for launch next year, right into the strategy in the growth of the Carragelose business. We received the marketing authorization for Carragelose nasal spray in Mexico.
I'll talk about that later in the presentation, since I consider it a really important market. We did our first partnership, what is Solv4U platform. Remember, this is the external customer platform for the use of Marinosolv technology.
Here we allow others to use our technology to solubilize their own compounds. It's SPH Sine, it's a Chinese company, a daughter of Shanghai Pharma, which uses our technology for the solubilization of their compound. This partnership demonstrates that we are able to form such agreements , which is pretty important for the future.
Since it's a financial call, I'll hand over to Pascal for the financials.
Thank you, Andreas.
let's just try to jump in. We, as Andreas said, record revenues of EUR 5.2 million, which is the strongest first half in the company's history. It's a +7% year-over-year, which is, it's great because overall, we see a post-pandemic slowdown in customer orders .
We see that customers anticipate that the pandemic has ended, and with that, are very cautious in ordering. Overall, w- we are still on a very high level.
It appears that we almost can maintain the level of the pandemic, which you can see in the bars on the left side of the chart, where you have the development. Especially look at the first half years, first halves of the year, where you see this rising trend of the Carragelose revenues.
Here, the situation is as said, that customers order carefully, and with the current lead times, we can already tell that overall from product revenues, we will not post a growth for the full year.
We are very confident and have an optimistic outlook for early next year because of the various things that have been prepared and are underway, especially the Marinosolv assets, Budesolv and Tacrosolv, we are in full swing for licensing deals. It's always difficult to tell because it's discussions with third parties to tell when such a deal can be stricken. Overall, we have two processes ongoing which have the chance to still see a deal this year.
We have the Mexico where we have the approval. The preparation for the launch is ongoing, which is not materializing this year, but early next year.
In the next season, in Mexico, it will be on the market, which is great. We have the eye product, we have the allergy product, which are also in preparation for launch this early next year.
There are lots of elements that will turn the situation for compared to second half this year. We're coming from a very good first half, see a weaker second half, but have confidence that first half next year will again be a very good first half.
Looking shortly at the EBIT line, you see that overall, it's fairly stable. We finished the first half with EUR 2.9 million in negative EBIT.
This also tells you that a reasonable licensing deal can turn this positive. With the two assets, Budesolv and Tacrosolv, there's good chance that this can be turned around. Looking a bit more into the details of the profit and loss, here you see on the right-hand top side, sale of goods is EUR 4.5, which is stable compared to last year.
The increase comes from licensing revenues. Licensing revenues are obviously not sale of goods, but the difference between EUR 4.5 and the EUR 5.2 is licensing income also related to Carragelose.
The margin is a bit weaker this first half, which has to do with A, that the licensing is not part of this calculation. And B, because we have some investments into production of batches for the switch of the Medical Device Regulation, because you have to prepare validation and stability charges, batches, production slots, lots that basically sometimes can be used, but sometimes not.
These investments put pressure on margins . Overall, we're confident that we're back into the thirties again, and we are in the thirties definitely if we look at sales to customers only.
On the personal expense, service expenses and overall R&D expenses, what you can see is that we have another increase in the service expenses, revenues, and also personal related expenses.
Because that's the remainders of the COVID trial that we did. There's some readouts for Tacrosolv, and this still pushes the overall R&D expenses. Important also for you to know, from the financial result, that's always difficult to interpret in IFRS, because there's always a valuation element.
I n this case, there's a EUR 0.7 million valuation element that makes it a smaller number than compared to last year.
Overall, the interest paid is a little higher than last first half of EUR 0.7 compared to EUR 0.4. Looking at the balance sheet, obviously, the property, plant and equipment didn't change. This is still our headquarter.
The inventory is always important to look at. Here you can see goods for sale is EUR 500,000, which shows that because our revenue recognition is related to the pickup of the goods by the customer. EUR 500,000 of revenues haven't been picked up at the cutoff date at the 30th of June, which leads to this relatively high goods for sale level.
On the unfinished goods and raw materials, you see that we are working towards reducing inventory levels, which is obviously also difficult in this circumstances of long lead times for some raw materials, especially still the glass vials for the nasal sprays. As we're moving more to HTPE, this situation has the chance to further improve. Cash and cash equivalents, we'll have a chart on that later, was EUR 5.4 at the end of first half.
Looking at the equities and liability side, here, you see the usual picture. Equity is negative as planned.
We have the borrowings, which one for, for the headquarter, which is nearly EUR 5 million, and obviously the most important and largest one, EIB, which is EUR 50 million.
Here we are in the process of repaying. On the current contract liabilities and other current liabilities side, this is mainly the deferred income related to the COVID-19 trial. This is going to be final, finalized and fully accounted for by the end of the year.
This, this is ongoing and will disappear towards the end of the year. Looking into the cash situation, we show here 4 quarters.
What you can see is that on the financing side, this is overall negative because we are in the repayment process. We haven't drawn down the any, any convertible note tranches recently.
Therefore, the financing is mostly related to the repayments and interest payments. On the working capital side, this is nicely positive, which shows that we earn money with the Carragelose business.
There's some nice contribution, which has obviously been quite significant in the Q4 last year and the Q1 this year. Still, this quarter, even if it was a weaker quarter, it is positive, so Carragelose has a nice contribution to the burn rate.
On the operational side, this is mostly related to the expenses that we have with regards to R&D, mainly headcount and services that we purchase. What you have seen in the R&D table on the previous slide, that was there you can see that cash out goes down as the COVID trial in particular is refunded by the government grant.
Overall, to say the cash burn is under control, although we may make use of the convertible note program going forward, as we need to be cash conscious and always keep often eye on sufficient cash, because it's a negotiation element with regards to the potential licensing deals.
With that, I turn back to Andreas, with the growth strategy and project outlook.
Thank you very much, Pascal. As there are potentially people on the call who don't know us that well, Marinomed is based on 2 therapeutic areas.
The one is the virology side, which is based on our Carragelose , Carrageen moss is a polymer derived from a red seaweed that creates a protective layer when used and basically blocks all the respiratory viruses, including SARS-CoV-2 and others.
That led to a complete marketed OTC portfolio that's now marketed in more than 40 countries, with a series of partners, just mentioned the new authorization in Mexico. Then the other side, in the immunology side, where we work with our Marinosolv technology, which basically is a technology that allows the solubilization of otherwise insoluble compounds.
Here we solubilized 2 lead products, budesonide and tacrolimus, which account for those 2 names, Budesolv and Tacrosolv. Basically, we create a full solution of these compounds with the effect that faster and onset of action and a better bioavailability.
That technology is interesting not only for us, but for others as well, and that we brand offer under the brand Solv4U, where we offer other customers to use our technology with the ultimate goal at the end of the day, to earn royalties here. Of course, this is a business where when we get to work, we get paid for our development work.
Each activity that we're doing here should be at, at least in the beginning, get some margin for us, and at the end, contributes to the results when the customer pays licensing fees. That brings us to our strategic priorities. We start with those, our revenue generating core business, where we already have earned money or are earning money, as Pascal mentioned, with the Carragelose, with the recurring business. With Solv4U, we just got the first partnership with Budesolv, where we are in, already had the first partner in China and working on other partnerships currently.
Fully focused on our high-value assets at the moment, where we have the carrageen moss side, our eye drop program and our allergy products, which we receive quite some interest from the market out there. The two lead products from the Marinosolv platform, Tacrosolv and Budesolv, where we are currently in partnering processes that run parallel for those for both assets. It's ongoing, very interesting discussions. That's the main focus. In the future, once we are with successful here, we progress the new assets for additional growth. That translates to our pipeline. You see, separated in immunology and, and, and virology.
You, you see, of course, the, the Budesolv program and the Tacrosolv program, the most advanced progressed, and that, that's the ones we've been speaking before already. Looking for Carragelose, the growth strategy, it's based on 3 pillars. Basically, it's the territory expansion, the expansion of the indication, and the expansion of the product portfolio. What are we doing here in the territory? Of course, there where we already have partners, in the United States with Procter & Gamble, of course, an important market. Here, we're working on the registration, in the United States. We just reced, received the registration in Mexico, received the market approval, so Pascal already mentioned that we can progress for launch here. We're working, on the US and also on the registration in Brazil.
Since we have been successful in so many countries in the past, we are really optimistic that we can do this in those big market, two big markets as well. The other part of the territory expansion is looking on white spots. I already mentioned that in previous calls, where we look on Asia, especially, Japan is an interesting market. Here we are continuing our business development and negotiate deals, of course. We hope we have some news here as well, in the future. Then we are the expanding of the indications or making the product broader.
That results we reported earlier this year basically mean that Carragelose can be also used for the block of pollen, of grass pollen or other pollen, with the ultimate effect that you can turn the Carragelose portfolio into full year portfolio. That means, y our partners cannot only sell products during the cold season, but also during the allergy season. We'll see first launches with the partners in the next couple of months, in the beginning of next year, at least one partner will do the first launch, and the same is true for the Carragelose eye drops. We'll see a first launch in 2024.
We need to do some work on the allergy block on the registration for compliance with the new Medical Device Regulation, but also here, the launch is planned for 2024. We're also working on the inhalation medical device that first we have the clinical trial that is still ongoing for this product. We'll, of course, certify this product as a medical device in the European Union. What does that translate to? That just mentioned to the registration in Mexico and to, we cannot give about details on the product and the launch plans of our partner there, because they are, of course, confidential.
We can talk a little bit about the markets that are pretty interesting, and I think it's not that well known. First of all, Mexico is a big country, with a population of 127 million people. The cough, cold and the allergy market is bigger than the U.K. That's something probably people don't know out there. In U.K., we have, for example, 2 partners, Boots and Reckitt Benckiser. The market is about half of the size of Germany, which is our biggest market at the moment.
Adding such a big market to our portfolio is quite some achievement, and we are really, we're really looking forward to see the growth in this market, and that should contribute to further growth of the Carragelose business. All in all, Mexico is number 12 in the global leading consumer healthcare market. Something that might, might be astonishing, but it's a big country, and it's growing. That's, that's very interesting for the future to be there. Already mentioned before, if you look at the Carragelose, we have on the protective layer, you can create this Carragelose. You, on the left side, you have the viral respiratory diseases, where you see already the partnerships in place with different companies.
Adding new markets like allergy and eye care. The allergy market itself is enormously big, almost the size of the respiratory disease market, with $35 billion. The eye care market is also a big volume market. So expanding the portfolio here really gives an additional potential for the entire Carragelose. Then we jump to immunology. Of course, very interesting for our investors and very important there. What's the progress with Tacrosolv and what's the progress with Budesolv? Basically, for both products, we are running a structured business development process, partially with Tacrosolv, with external support, where we have an external company that supports us, and partially also for Budesolv, we have external help here.
Both, it's clear, we wanna have a near-term partnership for both products. We recently got a lot more traction for Budesolv, which is good. We're also progressing with Tacrosolv, and it's very interesting discussion, and that's why we are really confident to be able to strike a deal, at least in one, one of those two assets. Pretty difficult to tell when one, what exactly will will will be the date. It's quite, quite difficult to tell something here. Besides that, we are optimistic. We will, of course, report when it's when it's signed. At the moment, we cannot give more details.
The different-- This is different to Solv4U. We've increased our PTA activities recently. There will be continuing to do so. We have done a series of feasibility projects and now are progressing to the one or the other licensing partnership. The first time, long-term partnership we have recently announced with SPH Sine. In, in, in China, we cannot disclose the compound that we solubilized for them. Also I can tell you it's a very interesting compound, and it also will lead to the generation of new IP, which is beneficial for both parties.
At the end, first of all, we get some revenues from our activities here, and royalties, and income once this product progresses. What is typically such a partnership? First of all, SPH licenses the use of the Marinosolv Technologies, gets developed by rights for the undisclosed drug candidate, covers all the development costs, is responsible for all the marketing and sales, and also production, and compensates us for our work.
Still, they need some support from us at the moment, and we provide the technology, we maintain the IP, we support them, we get some revenues from the contract development work, which is, which is good in the meantime, and in the future, once the product is launched, we'll see some revenues from that. It shows that we've planned the strategy we had time ago, where we validate the strategy, the business model, and we hope to add a couple of partnerships here that simply increase the potential for further revenue from this tech, technology. To complete that, we continue our strategy with the focus on near-term revenues.
ter the strong first half, we'll see the second half impacted by post-pandemic effects, but the Carragelose will be driven by the U.S., by Mexico, and other countries, the launch of additional Carragelose allergy and eye products next year. We're of course, supporting our partner, Luoxin, to move to R&D. That's also progressing well, quite good, and a partnership. They did a tremendous work in China, also in establishing production. That shows that they are heavily investing into that. And of course, we are working to add additional technology partnerships for Solv4U
r focus of the team to pursue licensing deals with pharma partners for Budesolv and Tacrosolv in the near term. We are working on that. It's an ongoing business, sometimes early morning calls when you talk with Asian companies, and late evening calls when you, when you talk with transatlantic companies. Good and interesting time. Of course, in the long run, we are still on the mission to improve the lives of patients with our innovations, and we are fully committed to reach the short-term operating profitability. As Pascal mentioned, yes, we post a negative EBIT, but even one licensing upfront payment from a licensing deal can turn that very fast, and that's the ultimate goal here.
Having said that, I end here with an outlook, on when we publish the Q3 results, on November 21st. Thank everybody for being on this call, and we are open to questions.
Thank you very much, first of all, to you, Mr. Grassauer and Mr. Schmidt, for your presentation. We are now coming to the Q&A session. You can submit your questions either by audio line or by chat. If you have dialed in by a phone, please press the star combination star nine and star six to submit your question. While we are waiting for some questions, one question from our side, with regard to profitability development, is there already a concrete EBIT margin target that you would like to achieve in the medium term?
No, there's no particular one. The clear goal is to become a bit positive in the near term, which means that maybe the Q4, if we strike a deal in the Q4. Looking at full year 2024, that obviously is the goal, but turning positive is the first one, and once that's more stable, then we can talk about margin goals.
All right, thank you very much. Where do you see the free cash flow in this fiscal year? Could you give some more color on that?
Well, we in, in the bridge, you've seen that we have a burn rate, which is in the area of EUR 1 million-EUR 1.5 million a quarter. That's the current situation with the EUR 5 million that we had at the end of first half. That takes us easily into next year. As also mentioned on that slide, we clearly target the deal, which is necessary to support this going forward. With that, we aim to turn that positive, but for the full year, it will likely end up in something like a EUR 6 million burn rate.
All right. Thank you very much. Another question regarding your bond program. How much more are you able to draw from convertible bond program?
The, the overall program was EUR 5.4 million. We drew down half of that, so EUR 2.7 million, which in, in turn means that EUR 2.7 million are still available. We'll use that very carefully. We know that the public markets don't like that very much, and we also have to look at the liquidity not to put too much pressure on the shares. We, we use that, we use that cautiously.
Thank you very much. At this stage, a kind reminder, if there are still topics you would like to discuss, feel free to submit your questions. Could you also please give the investors an update on the repayment needs in 2024 and 2025? Are you planning a refinancing deal with EIB?
Indeed, it's an obvious task to management to discuss with EIB the repayment. The schedule, the original schedule is that the first tranche is to be repaid in October 2024, and the second tranche in December 2025. The third tranche is half yearly in payments, but stretched over the entire period. There's a little bit of that ongoing already. Overall, as said, would be October, the near term, next prepayment, which we will discuss depending obviously also on the outcome of licensing deals.
Mm-hmm. Thank you very much. We received further questions from Hans Christoph Rees. Please go ahead with your questions.
We saw the question in the chat. The question is.
Do, do you understand me?
Yes, we can hear you, Mr. Rees.
Okay. Good morning to, to Vienna. Mr. Grassauer, could you tell us about the progress you make with Procter & Gamble in the approval process?
Okay. actually, this is a work that we're doing with the regulatory and department of Procter. We are progressing here, and it took a little bit longer than we hoped for at the Procter side. Now we have a clear strategy that we are pursuing, to. Actually, Procter is pursuing, and also with the support of additional external consultants. We are still working on the assumption that the season 2024, 2025 is a target, is, is the, is the target. And we hope to be able to report news here as well as this process progresses. But at the moment, we cannot give more detail.
The, the exception is that it's a very fruitful and very, very, interesting discussion with, with Procter. They are fully committed to launch this product in the US.
The problem, with the, with the product, it is now clear it is a medicine product or it is a, it's a, it's a drug?
Actually, the strategy for the US is a medical device strategy, and the route for registration in the US is called so-called 510(k) registration, which once you have applied for that, you should relatively fast know whether or not your strategy will work. That doesn't mean that you get the approval, but you should relatively fast know whether or not the FDA considers that way as correct. We don't, we don't see that product as a drug in the US, and also Procter doesn't see it like that.
Basically, we are working on a registration like in more or less all other countries in the world where a medical device registration has been pursued.
Thank you.
Thank you for your questions, Mr. Rees. We received another question in the meantime regarding your deals made in China, if you are afraid of potential IP theft regarding your technology?
It's a very, a very, a very good question. First of all, that's the thing as a, as in high tech and, and R&D company, you always are afraid, and it's part, part of our business. That's the part of the work, the painful work during the development of a patent to ensure that a third party really needs your patent. The interesting development with China in the last couple of years, and if you allow me a minute or more to answer, is that there has been an enormous upswing in patent application in People's Republic of China. There has also been enormous upswing in litigations and patent litigations in China.
In China, altogether, you have more patent application than in the European Union and then the US combined at the moment. It's clearly, you see a transformation of this economy into also a IP-driven economy. Although we know that not all of these patents are probably that high value, but it's an enormous amount. Interestingly, the litigations in China start to become more than 80% of the patent litigations in China is a Chinese company against a Chinese company. They are trying to get their legal rights ensured, and they are also working on IP. It has gradually evolved, and processes are won, damages are paid.
It's, in that respect, China is becoming a more or less normal economy, although we know we have a lot of risks involved. That's not only true for China. You have that, if you work with any party in the world, you have always be, have to be sure that you, you make sure that your IP is protected.
All right. Thank you very much for elaborating on that, Mr. Grassauer. So far, we have one more question left in the chat. Again, a reminder, if you have still topics to be discussed. The question: Could you also give some more color on where you will launch the new Allergy dry eye product, mainly in the DACH countries? Could you give us some color on your potential market size, please?
The first launches we'll see indeed in the DACH region. For historical reasons, Austria has always been a headliner here. and then we hope a lot of countries will follow suit.
All right. Some hints on the potential market size, could you also give us some details there?
The entire allergy market is, is, is, is pretty big. It remains to be seen how much of that type of market the Carragelose blocking product could give. What we, what we see is that in the long run, it should help to maintain a strong growth path for the entire Carragelose business for, for a longer period. As we often mentioned in this course, a double-digit growth for the Carragelose business is a, is, is a target. That business could help to maintain that growth for, for a longer time period.
All right. Thank you very much. As we did not receive any further questions in the meantime, it appears that everything is answered for the moment. If there are any upcoming questions afterwards, kindly be advised to get in touch with the IR department of Marinomed. We are also very looking forward to welcoming Marinomed to the Hamburg Investor Days next week, where Mr. Grassauer will also be at your disposal for further information during the presentations. It just is left to say thank you very much for your interest and of course, for your time and your answering the questions, Mr. Schmidt and Mr. Grassauer. Have a great rest of the week to all of you. A great day ahead.
Thank you much, everybody, for joining this call. Thank you. Goodbye.
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