Bioporto A/S
CSE:BIOPOR
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Bioporto A/S
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Yes. It's 2:00 here in Copenhagen on a hot summer day where we welcome BioPorto following the release of their second quarter report. My name is Henrik Ekman. I'm equity analyst here at HC Andersen Capital. And with me today from BioPorto is CEO, Tony Pare; and CFO, Neil Goldman. So this is a standard update on the quarterly results, but I still think there's a lot to talk about.
So with that, Tony, please take it away, what you see as you highlights in your report.
Well, thank you once again for hosting, Henrik, and a warm welcome to everyone participating on this Q2 2022 earnings release call. We are thankful that you've chosen to spend the afternoon with us and review our latest quarterly report. With me today is Neil Goldman, our EVP and CFO, who joined BioPorto the same time I did, 9 months ago.
Before we begin, let me remind you that the company's remarks made during this conference call today, August 17, 2022, may include predictions, estimates or other information that might be considered forward-looking.
Looking back at the second quarter of 2022, I am happy with the progress and achievements we have made during Neil's and in my second full quarter working with the team here at BioPorto. We have delivered strong financial performance in this quarter with a total revenue of DKK 8.5 million or USD 1.2 million, which represents a 29% increase over the same quarter from the year prior. This puts us at a total year-to-date revenue of DKK 15 million or $2.2 million, which represents a 23% increase over the same period from the prior year.
Year-to-date revenue from U.S.-based sales of the NGAL Test on a research-use-only basis totaled DKK 4.8 million, a 31% increase over the prior year period. These sales reflect an increase in the average volume purchased by hospitals acquiring RUO versions of the NGAL Test.
Furthermore, and even more important to the future of the company, we have achieved our targeted enrollment of 600 patients for the U.S. FDA application of the NGAL Test for children and young adults. This was in line with the guidance we provided in early 2022 as part of our rights offering.
In the second quarter 2022, we also announced the appointment of Dr. Prasad Devarajan as our new Senior Medical Director, widely considered a world-leading pediatric nephrologist, physician scientist and a pioneer in understanding the relationship between NGAL and acute kidney injury. Dr. Devarajan brings unique and respected clinical and scientific knowledge and expertise to BioPorto. We look forward to his leadership and greatly expanding the global health care systems' knowledge of the benefits of the NGAL Test while also actively contributing in the preparation of our submission for FDA review and approval.
While supporting BioPorto, Dr. Devarajan is also maintaining his role as the Director of Nephrology and Hypertension of the dialysis unit at Cincinnati Children's Hospital, which is widely recognized as among the top facilities in the U.S.
Lastly, in terms of COVID test development, our feasibility study confirmed that our gRAD platform could detect the COVID virus, including the Omicron SARS-CoV-2 variant, using commercially available antibodies. As a management team with the Board of Directors, we have assessed that a future COVID-19 test on this platform would likely not be sufficiently differentiated from widely available commercial products. In addition, further development would need to be followed by clinical studies and regulatory activities, which would require substantial investment time and energy. Therefore, this project has been canceled to keep the company's financial and human resources focused on its core strategy.
As a reminder of our strategy, throughout 2022 and into 2023, our intense focus is on preparing for the FDA submission and launch of the NGAL Test in the U.S., initially, for patients aged 3 months through 21 years old and subsequently for adults. Along the way, we will work to sustain our other revenue streams and continue to develop a pipeline of potential new products. As we get closer to launching in the U.S., we will invest more heavily in the U.S. commercial team, including medical affairs specialists, to educate key target accounts on the clinical value of the NGAL Test.
Our second pillar is to strengthen the company to scale and execute. We do so by investing in our production, quality and documentation systems while solidifying our supplier relationships. We have completed internal audits on our quality systems to identify gaps and to ensure the company is FDA audit-ready. We will follow this activity with a marked FDA audit to be performed by an independent consultant. This strategy also means focusing our core business operations and financing of the company. Exploring future financing pathways is and will continue to be an ongoing activity.
Our third pillar is to attract, develop and retain the best and brightest employees aligned with our values. Building the right team for the future of BioPorto, we need to recruit the very best to help drive success. As a team, we are becoming increasingly selective. It is our job and goal to constantly ensure that BioPorto be a company where employees are motivated to join, grow and stay.
Having reinforced our strategic approach, let me remind everyone why our mission is important. Acute kidney injury is pervasive and is a big problem for hospitals globally. It represents up to a $24 billion burden in the U.S. alone. It affects 1 in 5 of all hospitalized adults and 1 in 4 of all hospitalized children. It is also a disease that is normally contracted while in the hospital as a result of an event that occurred in the hospital, such as cardiac surgery or being put on a mechanical ventilator. It has a very high mortality rate and can also result in a lifetime in dialysis.
Today's practice in attempting to identify AKI is to monitor urine output and measure serum creatinine, which may rise but not until days after your kidney is injured. And it may not be detectable until 50% of your kidney function is lost. That essentially means losing the equivalent of one full kidney before the doctor becomes aware and can intervene.
Another benefit of the NGAL test is it's negative predictive value. Because serum creatinine is nonspecific, it can also lead you to unnecessary therapies. In this particular case, the NGAL signal rose very quickly as represented by point A, but then the AKI also resolved very quickly. By focusing on the continued rise of serum creatinine, the standard of care, on day 4 represented by point B, the clinician would likely have put the patient on dialysis, taking up time in the operating room, running the dialysis device and exposing the patient to potential infection, which is needless in this particular case. This is just one example of the benefits of the real-time signal of the NGAL Test versus the lagging signal of current diagnostic approaches.
Having information on the possibility of an acute kidney injury while the patient is still asymptomatic is important. Near real-time information on the risk of AKI, and just as importantly, the absence of AKI, can assist the clinician on making important decisions regarding fluid management, medications, imaging contrast agents and the need to start or stop renal replacement therapy, all can be done prior to permanent damage occurring.
Importantly, the NGAL Test has been granted Breakthrough Device Designation by the FDA for expedited review. Breakthrough Device Designation is granted by the FDA for devices that provide for more effective treatment or diagnosis of life-threatening or irreversibly debilitating human disease or conditions and where neither approved nor cleared alternatives exist. What this means is that our submission does get a place at the front of the queue for review when our submission occurs.
Earlier this year, we stated that our expectations to complete enrollment for the third part of this 3-part clinical study to support the FDA submission of the NGAL Test and identifying children at risk of AKI by the end of the first half of 2022. We accomplished this milestone. The next step, which is actively in progress now, is to finalize collecting data to determine how many acute kidney injuries actually occurred, including analyzing patient records up to 28 days following their initial admission to the intensive care unit. This analysis is performed by independent nephrologists who are kidney specialists. Of course, they do not have access to the patient's correspondent NGAL Test results.
The nephrologists complete the review of the medical records and make a judgment on whether a patient had AKI. Each patient in the study has hundreds of data elements that are analyzed by the nephrologist when making the determination of AKI. Since there is no single test on the market available today that is definitive for AKI determination, that's what makes this clinical study complex when it comes to the data analysis. Once complete, a biostatistician will compare the independent nephrologist-adjudicated AKI determinations to each of the patient's results from the NGAL Test to analyze the effectiveness of the test.
As you can imagine, this work takes time. And it is, of course, the complete focus of our regulatory medical affairs and scientific teams. That is why we have guided to an FDA submission by Q4 of this year. Concurrently, our teams are also focused on completing the other analytical testing, FDA submission documentation and in preparing the actual application itself.
At this stage, I'll turn the call over to Neil for a breakdown of the Q2 2022 financials.
Thanks, Tony, and hello, everyone.
First, as a bit of background, as you may have seen in our earnings release this morning, with this quarter, we have started sharing certain high-level figures from our financial results in U.S. dollars in addition to Danish kroner. This does not change any of our formal financial accounting and reporting, which remains in kroner, but we do consider this information to be useful to a broader audience. Please refer to the earnings release for the exchange rates used. Also, the percentage changes that Tony referenced earlier and which I will be describing remain based on Danish kroners.
As you can see, this slide has 2 charts. On the left, it shows total revenue by quarter for 2021 and 2022. For the second quarter ending June 30, 2022, revenue was DKK 8.5 million, corresponding to $1.2 million, which is a 29% growth compared to the prior year period. The chart on the right shows year-to-date revenue by product group. Each bar also shows the contribution by quarter, and the labels at the top of the bars are the year-to-date amounts in millions of kroner. Our Q2 2022 revenue benefited in particular from a bulk order of antibodies, which is reflected in the size of the Q2 2022 antibodies darker green bar. In addition, sales of the NGAL Test during the second quarter of 2022 totaled DKK 3.3 million or $0.5 million compared to DKK 3.7 million or $0.6 million in the prior year period.
As it is presently a research-use-only product in the U.S., sales of the NGAL Test may have timing variability among customers. This is consistent with our prepared remarks last quarter when I described sales of the NGAL Test, reflecting the timing of customer orders to a certain degree. So the year-to-date column totals for the first half of 2022 illustrate sales of the NGAL Test totaling DKK 7.1 million globally or $1.1 million.
Those sales of DKK 7.1 million, representing 19% increase in global sales of the NGAL Test over the prior year period. Focusing on the U.S., the NGAL Test totaled -- sales totaled DKK 4.8 million or $0.8 million, a 31% increase over the prior year period. As Tony described earlier, the NGAL Test is sold in the U.S. on a research-use-only or RUO basis. The 31% increase in U.S. sales for the first half of 2021 over the prior year period reflects an increase in the average volume purchased by our hospital customers.
Turning to operating results for Q2 2022. The EBIT loss for the period was DKK 20.1 million or $2.9 million, a 39% increase over the prior year period. Adjusted EBITDA loss of DKK 17.1 million or $2.5 million for Q2 2022 represented an 18% increase over the prior year period. The difference in the change in EBIT versus adjusted EBITDA reflects how in the second quarter of 2021 we had a DKK 1.7 million noncash equity compensation recovery from forfeited warrants that is treated as income in that period, combined with higher noncash equity compensation costs of DKK 1.2 million in the second quarter of 2022.
Looking at our use of cash, we reduced the year-to-date cash used in operations from DKK 35.5 million in the first half of 2021 to DKK 28.4 million in the first half of 2022. This DKK 7.1 million or 20% improvement was principally related to our management of working capital. It also reflects an expansion in the working capital improvement we achieved during the first quarter of 2022 over the first quarter of 2021.
Moving to the balance sheet. On June 30, 2022, BioPorto's cash position was DKK 107.9 million or $15.1 million. This balance includes the net proceeds from the rights offering we closed earlier in the year. In terms of financial guidance for 2022, we recognize that the company has a small base of customers that provide dependable repeat business. Large onetime orders, such as those we experienced in the first and second quarters of 2022, could be forecast but are not yet of a reasonable level of probability. Also, the second half of 2022 is expected to reflect continuing costs of clinical trials and incremental costs from the impact of new hires and service contracts, including those that are intended to support the commercialization of the NGAL Test.
During the first half of 2022, BioPorto experienced solid sales performance driven by both the NGAL Test and the notable bulk order of antibodies. Based on this, BioPorto increases the upper end of its revenue guidance for the 2022 fiscal year with a new range of DKK 24 million to DKK 27 million. The previous range was DKK 24 million to DKK 26 million. BioPorto maintains its 2022 financial guidance for operating or EBIT loss of approximately DKK 95 million to DKK 100 million and adjusted EBIT loss of approximately DKK 76 million to DKK 81 million.
BioPorto's guidance continues to reflect the key assumptions most recently described in its annual report of 2021. As we described when issuing the 2022 guidance earlier this year, the 2022 adjusted EBITDA loss for this year is expected to be higher than in 2021 because we have increased spending on sales and marketing to prepare for commercializing the NGAL Test in the U.S.
Similarly, research and development and administrative costs have each increased as planned in 2022 due to the full year effect of hiring, investments in quality systems and the timing of costs related to preparing and submitting the de novo application of the NGAL Test in the U.S. to the FDA.
Now handing it back to you, Tony, for closing remarks.
Thank you, Neil.
I am very happy with the progress we have made this year. The financial results that Neil just reviewed reflect investments in the future of BioPorto that I believe will prepare the company to execute on our strong potential after we obtain clearance from the FDA to sell the NGAL Test in the U.S. We have introduced focus to the organization, drove the enrollment in our clinical study. We continue to show strong revenue growth in both our legacy products and with the NGAL Test, especially in the U.S. We also hired a world-renowned clinician in the field of pediatric nephrology to promote the compelling clinical and economic value of implementing NGAL Test in programs.
On a final note, I want to express my gratitude to all of our employees for their hard work and dedication during my 9 months at BioPorto. We have accomplished a lot in the short time, and our focus continues to be on delivering results. The theme I shared during our annual report and our last interim report has not changed. It is focus on executing our strategy and achieving our financial targets. And importantly, I remain personally focused on keeping you and the market informed of our progress within the framework of what's prudent to disclose considering both Nasdaq roles and the competitive environment.
With that, I'll hand the call over to you, Henrik, as we are happy to take questions.
Thank you very much, Tony, and thank you very much, Neil. Very interesting, as always. Yes, there's already questions from the audience. So let's kick it off.
The -- you have the official announcement that during Q4 '22, you will submit the application. But can you be more specific in terms of the dates?
Not at this point in time, Henrik. As I explained earlier, there is a lot to do in terms of analyzing the data and making sure that we have a clean data set to submit to the FDA. Be rest assured, we will not submit unless we basically have a data set that we believe will be approved by the FDA. So at this point in time, I'm not ready to change the guidance on our submission.
You put great emphasis on the hiring of Dr. Prasad, and you also mentioned that he should assist in this process. How will he do that?
So a big part of our NGAL Test, it is the clinical story, the risk versus benefit of actually performing the NGAL Test to identify the risk of AKI. So Dr. Prasad Devarajan is assisting us with preparing this clinical story for the FDA to review.
Okay. Yes, there is somebody in the audience that say, they cannot hear some of what we are saying. But let's hope we -- it will be -- it would be taped and recorded. So if there's a problem with the sound, you will be able to hear it afterwards. Fortunately, I'm able to hear you and you're able to hear me in the questions. So let's hope it's just a minor detail.
Going back to -- so you're pretty -- you sound pretty confident in terms of the ongoing analysis and the expected submission. There's a question sent to me, how much certainty or how sure are you that you will actually get the approval?
That we'll actually get it approved? Well, it's a great question. We won't submit unless we basically have an application that is approvable. And the beauty of having our meetings with the FDA, as a reminder, we actually had 3 pre-submission meetings with the FDA, where we shared with them the protocol of the clinical trial that we are executing. And they agreed that it was a well-designed trial. And should the data be promising, then they would -- they could support an approval.
But the FDA is the FDA, right? And they could come back with questions, they could come back and ask for additional data. I just feel that it -- at this point in time, we have full alignment with the FDA in terms of what they require.
Okay. And does the breakthrough designation in any way affect the expected time that FDA will use on evaluating your submission?
What the breakthrough designation does is actually get us to the front of the line to start the review process. Because this is a de novo application and there's not an equivalent diagnostic that is out there today, it may require a longer period or the same amount of time. It doesn't necessarily shorten the period of review. It just puts you at the front of the line to start the review process.
Okay. Then there are questions relating to the sales, the research use of NGAL -- the current sales of the NGAL Test. Is this new customers? Or is it just the same customers recurring sales to them? Or what can you say about that?
It's a combination of both. However, this is basically word-of-mouth sales, right? We're not allowed to market the product in the U.S., right? And so as folks utilize the test, they see the value of the test. They'll not only increase use within their own hospitals, but they'll get the word out to their friends in nephrology across the U.S. as well. And so that's how these sales occur.
Yes. And the antibody sales also showed a huge increase. What is that -- because it's always been difficult to sort of understand where does it come from? Sometimes it just pops up. Or what can you say about that, the nature of the antibody sales?
Yes. So we sell antibodies directly to distributors of antibodies, right? So they're servicing life science researchers with various different projects. And the timing of those projects, we don't necessarily have insight to.
And like I said, we're adding to inventory that some of these distributors have. And when they run low on stock, that's when -- we try to get forecast out of them. But this is very, very difficult to plan for in terms of antibody sales. The beauty is we do have some unique antibodies, and basically, the world comes to us for those antibodies.
Okay. And then there are questions -- of course, you raised capital earlier this year, and the questions relating to the cash burn and when and if we should expect for you to go to the market to raise capital again. Any comments on that?
Yes. Sure. I'll be happy to take that, Henrik, and thanks for the question. So can you hear me okay?
Yes.
Okay. Great. So we haven't provided any specific guidance for timing of ongoing capital activities. But as Tony said earlier in the prepared remarks, focusing on our capital structure is an important part of our strategy. It's part of one of our 3 pillars. The reason we put this guidance slide back on the screen to support answering the question is to provide some context for it.
We ended the quarter with about DKK 108 million in cash. We feel good about that balance. The reason we added the adjusted EBITDA loss figure to the guidance figures is because that is, in many respects, a proxy or a substitute for cash used. It's not exactly but it is a proxy for it. So when you look at that figure and you look at our year-to-date adjusted EBITDA, which was a DKK 32.4 million loss -- again, I'm not suggesting specific math, give specific answers, but to illustrate a way of thinking about this as you look forward to how the company anticipates its cash burn through the end of the year. We'll continue to be focused on the right way to manage our capital structure in due course. Thank you.
Okay. It's just -- in the report, you used a phrase that you -- the money -- the current proceeds will -- would make you able to prepare for commercial launch. But what does prepare mean? Does that, for instance, means building the sales force? Or is that the next step?
Well, it's a combination of things. One is it's getting that clinical education out there, right? So that's a combination of hosting webinars, hiring medical affairs or medical science liaisons to attend conferences, getting KOLs on the stage as well as building a sales team that we can basically mobilize in the future.
Okay. Then there is a question relating to one of your earlier remarks regarding the gRAD-based COVID test. Does that mean that the gRAD technology platform is more limited to -- as to which sort of tests it can do? Or is it still -- does it still have the broad-based huge potential as you see it?
The gRAD test is an excellent development tool for future assays, right? And -- however, that being said, is it one that can scale to large volumes, large quantities? Probably not as effective as some of the other tests that are out there today.
We continue to use gRAD. Don't get me wrong. We continue to use gRAD in our development process. We continue to use gRAD when there's small volume requirements. But when it comes to the COVID test, which today are delivered on these lateral flow platforms that are manufactured in the millions, this is not where gRAD is effective or is a good solution.
So for instance, the sepsis indication, you still consider that an option and...
Yes. Yes, absolutely.
Okay. Time is running. But I was just thinking, whenever you hear companies present reports currently, they all talk about the rising inflation and the effect on their company. But is there any on BioPorto? Or where do you see it if you see it?
Sorry, the audio dropped out. The effect of?
The effect of the rising inflation. Is that anything that you as R&D biotech companies see in any way or -- because a lot of companies are hugely affected by this, but what about BioPorto?
Yes. So you're right. Inflation is something we continue to pay attention to, no different than the continued fluctuation in currency rates, which many companies are affected, especially ones like ours that have business globally and do transactions in U.S. dollar, in euros, in kroner and others.
The -- presently, most of our spend is on the operating expense side rather than in our product costs because we have meaningful sales, but they are not the level of sales that any of us aspire to in this business, which are obviously very different. And that's why we're here. Certainly, working with our suppliers and our -- to manage and control that is something that our operations team is focused on and represents an area that we've been focusing on in terms of expanding the capability of our team to do just that.
Yes. Because one could argue or one could be concerned that as you primarily have cost and not that much revenue yet to pass on the increased costs you were actually getting squeezed right now for that. But that's not how you see it?
Yes. Most of our costs, if you look at it, the 2 big pieces are people and presently, what we're spending on the clinical studies. Beyond that, it's rent and utilities and the like that are relatively fixed in a business like ours.
In the report, you had some -- also some meaningful increase in the administrative costs, and there were some incentive programs relating explanation for that as far as I understand. But where should we see -- actually, it's higher -- total administrative cost is higher than the R&D cost. Where should we see that going forward?
Sure. Well, we haven't guided in terms of the breakdown of our expenses other than as it relates to EBITDA and the EBIT loss. So that can give you a direction in terms of an overall standpoint. Do consider in looking into that, that we do have, as Tony described, ongoing costs for the clinical studies with the biostatistics and other work going on presently. And that will continue through this until the submission when that ultimately happens.
Beyond that, we talked about the noncash impact to our administrative costs this year over last year. And just to make sure that's clear, in the second quarter of last year, as I explained in the prepared remarks, because of some turnover that anyone familiar with the BioPorto story is aware of, when people leave and they have equity compensation, that essentially becomes income because it was an expense the company had in the past. So it comes back as income into the business. But then in the current year, when we do have the expense, it becomes -- they offset -- they don't offset each other. They compound each other when you look at the change in the expense period-over-period. So that's what caused it. But again, it's also noncash. So while an expense and very relevant and certainly, equity compensation is important for incentivizing our employees, among others, as we and all companies do, it's not the only driver of what's driving the change. And hopefully, that's helpful for context.
Okay. And one last question regarding -- if we flip back to the -- there was this illustration of the -- here, we have -- how AKI correlates with higher mortality, the adult -- it looks as if the improvement of the -- using NGAL Test for adults is less than pediatrics. Is that a fair way to understand this illustration? Or how should we...
Well, there are more kids affected than adults as a percentage going into the ICU, right? So -- however, that being said, the bulk of the ICU population is adults and will be a focus for us as our net submission to the FDA. But kids are more vulnerable. Hospitals are more willing to spend more to take care of kids. And it's kind of a right first target for us as we go into the market. And to be frank, it's the area that the FDA was really pushing for us and the reason why they gave us a breakthrough designation if we started with pediatrics.
When I ask is, of course, because, I guess, a lot of investors or potential investors look at the sort of the leverage that you can have from the pediatric submission and following approval to get into the adult. So there should be some sort of leverage effect that, yes, in the pediatrics, that speaks for a highly likelihood that the adult indication will always -- also be approved. Is that a fair way to see it?
Absolutely. Absolutely. That is a fair way to look at it. And for our next submission with adults, now you have something that has been approved, right? And you have something that we can demonstrate equivalence on as opposed to a de novo submission, which is starting from scratch because there is no equivalent diagnostic to diagnose AKI.
And the other thing to note around that, Henrik, is that the -- while we've been using the word pediatrics, and that's the FDA's term for it, the age range is 3 months up through age 21. My 21-year-old is in the other room over here, getting ready to go to work for the day. And if God forbid, he had to go to the intensive care unit, I don't think he would be in a PICU.
So post approval by the FDA, our teams would be able to sell for that indication, absolutely, of course, just for that indication up through age 21. But what those clinicians then choose to do in their own practice, that is certainly something they can choose and may choose to do, not something that we'll focus on in our marketing or sales because that's not appropriate or how we'd operate, but people can think about that as well.
Okay. Okay. And with that, I think we have run out of questions. And there is a comment here that I can I agree on that said thank you for a good presentation from one of the audience. So Tony Pare and Neil Goldman from BioPorto, thank you so much for participating in this event. Thank you.
Thank you, Henrik, for hosting this event for us. Thank you.
Thank you. Have a great day.