Bioporto A/S

CSE:BIOPOR

Earnings Call Transcript 2023-Q2

[Anthony Pare, executive]

We welcome questions and clarification requests at the end of the call as Claus indicated.

Before we begin, let me remind you that the company remarks made during this conference call today, August 1, 2023, may include predictions, estimates and other information that may be considered forward-looking. For your information, I refer you to our public filings.

Now let's get started. In Q2 2023, we continued executing the objectives consistently communicated in our updates. Our year-to-date revenue performance of DKK 15.8 million reflects a growth of 5% compared to the same period from last year. This development is the result of an increase in revenue from NGAL tests, which I find to be a solid single of our efforts to increase sales of the test globally. It is, however, offset by -- to some degree, by a decline in antibody sales. During the second quarter, we also completed and submitted our response to the U.S. FDA's additional information letter received earlier this year. This response is connected with BioPorto's de novo application to the FDA for marketing authorization of the NGAL test. The test aids in identifying pediatric patients at risk of moderate to severe acute kidney injury, or AKI, which had received breakthrough designation status from the FDA for expedited review.

Additional information letters is a standard part of the regulatory review procedure. BioPorto executed the requested additional analytical studies and statistical analysis and submitted it to the FDA at the end of Q2 following the schedule we had previously shared. Active dialogue with the FDA has resumed, and we know they are actively reviewing our application.

We also successfully closed a preemptive rights issue last month that bolstered our cash position by DKK 41.4 million. We were very appreciative and glad to see that the offering was supported by existing and new shareholders, including our largest shareholders as well as the entire Board of Directors and members of management. The offering elevated our total cash at the end of June 2023 to DKK 85.4 million. While we eagerly await the FDA's decision, we are maintaining our revenue and EBITDA guidance for 2023. Our focus remains on extending the sales of our NGAL tests in the European markets and other regions recognized in the CE Mark.

I would like to remind those on the call why our NGAL test is important to saving kidneys and patients' lives. The kidney's primary and essential function is to filter blood, remove waste and excess fluid, producing urine. Acute kidney injury or AKI occurs when there is an interruption of healthy perfusion of the kidney even temporarily. AKI also occurs during the administration of nephrotoxic drugs like antibiotics or contrast agents. AKI is particularly challenging to identify and timely treat because of its lack of specific symptoms. General symptoms, including reduced urinary output, swelling or fatigue are not specific to AKI and can, therefore, be misinterpreted. This makes AKI difficult to detect and diagnose. Complicating matters further, AKI is a time-sensitive condition. The longer it goes undetected and untreated, the greater the damage to the kidneys and the higher the risk of severe outcomes. Potential late-stage outcomes include chronic kidney disease, necessitating dialysis, kidney failure requiring transplant and even death. Fortunately, early detection of AKI can help guide effective therapeutic interventions.

AKI is alarmingly common, affecting 1 in 4 children and 1 in 5 adults who are hospitalized. It often accompanies other recognized events, injuries and procedures, including cardiac surgery, mechanical ventilation, transplants and the many circumstances when nephrotoxic agents or drugs are used as a treatment. AKI is also a significant economic burden and is detected in a shocking 12% of critically ill patients with 21% of these unfortunately succumbing to it. It is clear that AKI is far more significant problem than most realized, from detection to treatment and ultimately prevention.

The crucial question now is, why is progressive AKI so prevalent leading to disastrous consequences and how can we detect and prevent its progression earlier. In the absence of available early AKI biomarkers like NGAL, serum creatinine and urine output -- serum creatinine in urine output are the standard method for detecting AKI. However, the time frame to intervene effectively and prevent AKI progression is both early and limited. Serum creatinine in urine output, unfortunately, fail in terms of sensitivity, specificity and timeliness of detection relative to AKI onset and progression. In fact, published studies have shown that when only these criteria used between 28% and 43% of AKI cases are missed entirely. And 2/3 of AKI cases are misclassified. With statistics like that, it should be no surprise that 70% of clinicians believe they are missing AKI. That's why NGAL can make such a big difference in both patient outcomes and health care costs. Early detection can lead to kidney-sparing intervention, reducing or halting the risk of further damage. The benefits are significant, minimized or no dialysis in patient survival, accompanied by shorter ICU stays. The shorter the ICU stay certainly benefits the patient, but also benefits the hospital through lower treatment costs.

BioPorto's NGAL test is already marketed in Europe under CE Mark in Korea and in additional countries. Some additional practical and commercial benefits of the test include that it can be run on standard equipment, eliminating the need for additional capital expenditure. It is also brand-agnostic, compatible with Abbott, Roche and other premier clinical instruments. The test is a reagent-only product, boasting high gross margins even at current production levels with potential for further economics as we grow and expand. Helped moreover, it generally entails a simpler and shorter regulatory process.

Over 30 institutions in the U.S. are already using NGAL tests clinically after validating as a lab-developed test. As a -- after a positive 3-part clinical study, we submitted our de novo application to the FDA for commercial approval to market the test for pediatric use in the ICU. And the use in the U.S., the term pediatric means patients between the -- greater or equal to 3 months and under 22 years of age. The FDA previously granted the NGAL test breakthrough designation status, which is the -- which is when the FDA reserves for diagnostics that have -- provide more effective treatment or diagnosis of life-threatening or irreversibly debilitating diseases and conditions.

As mentioned earlier, during the last fiscal quarter, we responded to the additional information letter received in January as part of the ongoing FDA review. We have confidently provided comprehensive responses to all points of inquiry, which required some additional lab work, but no further clinical or patient testing. We continue to actively communicate with the FDA and feel well prepared to address any further inquiry or questions that may arise.

With cautious optimism about the prospective U.S. approval of the NGAL test for use in a pediatric population in the ICU, we are already actively planning this for situational, instrumental and adult population expansion, including use beyond the ICU, into the ED. Simultaneously, we plan to expand the initially -- the designated Roche instrument to include use not only in additional Roche instruments, but for which the test is fully compatible but all other manufacturer instruments as well. Ultimately, as we build momentum along this commercial strategy, we aim to pursue a full adult indication for one of several specific disease NGAL test uses, which will require some additional clinical testing. However, we anticipate this will be strongly supported by all the preceding clinical and real-world use of the NGAL test.

This diagram illustrates the additive effect of indication, instrumentation and population expansion in the U.S., as I just described. As shown, that some of these markets could increase the potential market almost tenfold from $134 million for pediatric ICU population to approximately $1.2 billion in the U.S. This is possible with the inclusion of a level instrument field application beyond the ICU, and more importantly, the addition of one or more adult testing indications. Ultimately, we estimate the global addressable market for NGAL to be approximately $3 billion.

While we continue our dialogue with the FDA and eager anticipation of a potential U.S. launch, we are working to expand the already available ex U.S. opportunity through a multipronged approach that engages all key stakeholders in these open markets outside the U.S. Those stakeholders include our distributors and sales partners who we are increasingly engaged and rationalizing whether they have the correct capabilities and are willing to make the appropriate investments.

With those distributors, we will thoroughly train and proactively support. They also include our customers who we market to directly and engage directly in coordination with the distributors and to our key opinion leaders and clinical champions, who we work with proactively to leverage their experience and appreciation for the NGAL tests and the benefits it offers. The market in Europe is large but traditionally requires extensive effort to get established, which is the reason we have focused on select countries and distributors to get started. In summary, I would like to revisit the 3 pillars of our operational strategy that we established at the beginning of the year and presented during our last update at the end of Q1. While the underlying tactics may change year-by-year, the pillars themselves expect to remain constant. As we move forward into the second half of the year, the tactics have also not changed. We are focused on getting the FDA approval, expanding our total addressable market in the U.S., pushing forward in Europe, managing our cash position through financing, promoting high-margin product sales and managing our expenses, all while making sure we have motivated and talented employees to execute.

With that, I'll turn the call over to our CFO, Neil Goldman, to summarize our recent financial performance.

[Neil Goldman, executive]

Thank you, Tony, and hello, everyone. I'm pleased to walk you through our financial performance.

Starting with revenues. Year-to-date total revenues were DKK 15.8 million or 5% ahead of the prior year period. The chart on the right side of the page breaks down revenue by quarter. In the second 23, revenue totaled DKK 7.7 million or approximately $1.1 million, a 9% decrease over the prior year period. This quarter of 2022 that is -- from a large tendered bulk shipment of antibodies. Referencing the chart on the left, we can see annual revenue by product group. Our also -- quarterly contribution. -- and the labels at the top of the bars are the annual amounts in millions of kroner. NGAL -- in the second quarter of 2023 to NOK 6 million, an increase of DKK 1.2 million or 37% over the prior year period.

Year-to-date in 2023, NGAL test revenue was up DKK 2.3 million or 33% over the -- antibody revenue in the second quarter of 2023 totaled -- a decrease of SEK 2.1 million or 43% over the prior year perioriod, again, representing the bulk shipment of -- during the second quarter of 2022. Year-to-date in 2023 -- revenue from antibodies down NOK 1.2 million or 18% over the prior year period. As we've mentioned in prior calls, NGAL test sales can show timing variability among U.S. customers as the test is currently only approved for research use in that region. Additionally, antibody sales can be influenced by the timing of bulk customer orders.

The next slide provides historical context and trend information on the sales of NGAL tests over rolling 12 -- last 12-month periods. NGAL test sales continued their positive growth trend -- increase of 27% over the last 12 months compared to the previous year. Second quarter -- profit of SEK 5 million during 2023, again, the second quarter of 2023, corresponding to 64% margins. However, gross profit during the second quarter of 2023 decreased by DKK 1.1 million over the prior year period, reflecting the combined effect of lower sales volume and a 700 basis point decrease in gross profit percentage over the previous year.

Adjusted EBITDA loss for the second quarter of 2023 was DKK 16.3 million or $2.4 million, a 5% improvement over the prior year period. That brings the year-to-date adjusted EBITDA loss of DKK 31.5 million, a 3% improvement over the prior year period. These are illustrated on the chart, which shows historical quarterly adjusted EBITDA and cash balances.

The EBIT loss for the second quarter of 2023 was DKK 20.9 million, a 4% additional loss over the prior year period. EBIT loss includes a restructuring charge that I will address now. As previously announced, during the second quarter, we implemented a restructuring, including a workforce reduction that affected 28% of our global employees. The restructuring better aligned the company's resources with its strategic priorities of gaining NGAL test regulatory approval in the U.S., growing revenues in European and other markets that accept -- and expanding the total addressable market for NGAL tests, all as Tony described. The company recorded a restructuring charge of approximately SEK 3 million during the second quarter of 2023. Naturally, this has reduced our staff and related costs in advance of the ultimate approval timing from the FDA.

Moving to the balance sheet. Cash and cash equivalents as of June 30, 2023, totaled DKK 85.4 million or $12 million. This balance includes the SEK 41.4 million net proceeds of the preemptive rights offering that we completed near the end of the second quarter. Our team has continued their effective working capital management. And as of June 30, 2023, working capital totaled DKK 80.9 million. As Tony mentioned at the start of the call, we are maintaining our 2023 outlook with projected revenues for the year of approximately DKK 30 million to DKK 33 million and an adjusted EBITDA loss of approximately DKK 60 million to DKK 65 million. We have operated with fiscal discipline, and we'll continue to take responsible measures with careful and conservative expenditures that focus on our programs' critical paths. Finally, note that BioPorto's outlook are subject to risk factors including those described on 2022 annual report as supplemented in the 2023 interim reports.

With that, I'll turn the call back to Tony for his closing remarks.

[Anthony Pare, executive]

Thank you, Neil. In closing, I'd like to express my gratitude to all of our customers, employees and shareholders, both long-standing and new from our recent financing for their continued commitment, support and effort. This dedication is crucial to our profile mission to address significant unmet need and devastating impact of AKI. Whether we are advancing our FDA submission or closing a financing, it all comes back to our shared vision, persistence and dedication. I remain confident in our team and optimistic about our execution on all fronts.

With that, I'd like to turn things back over to Claus for questions.

[Claus Thestrup]

Thank you, gentlemen, for a thorough presentation. And with that said, I would like to open up from the audience. You are more than welcome to post your questions, and you already did.

So if we dwell a little, Tony, on the FDA approval. I think it's no surprise that there's some questions about that. You had a slide where you showed what you did and what we are waiting for. Could you elaborate a little on the time frame? And how is the dialogue? Are you still in dialogue with them? Or are you just sitting there waiting for them to respond?

[Anthony Pare, executive]

Sure. We waited for a couple of weeks. We waited for a few weeks before we received any response from the FDA. But as of last week, we are in very active dialogue with the FDA. Apparently, not everyone is on vacation at this point in time, and they've started their active review of our our test and have come back with some additional questions. We -- we're already responding to those, and we have a conference call set up and so forth. So I would say the status with the FDA right now is very active. With that said, as before, I will continue to say, I have no expectations on timing of approval, when that will occur.

[Neil Goldman, executive]

And one thing, Claus, the questions are more of the interactive type as we had back at the beginning of the -- rather than a formal additional information letter. So they send something, we respond in a few days. There's that give and take back and forth.

[Claus Thestrup]

Yes. And this is the normal procedure, as you mentioned before, yes?

[Anthony Pare, executive]

Yes.

[Neil Goldman, executive]

Yes.

[Claus Thestrup]

Good. So with that said, for investors, at least, it's just to sit calm in the boat and wait for the response. We know that both Tony and Neil and the whole organization is doing their best. And hopefully, we get a good result from FDA.

Let's turn focus then to Europe. There's a couple of questions about NGAL sales. And we see improvements. You showed that on your chart as well, Neil. Could you elaborate, sorry, a little on which markets you're focusing on? And there's also a question about Korea and Israel, whether you're doing sales there, how it's going?

[Anthony Pare, executive]

Yes. So the increase in sales that you're seeing in NGAL outside the U.S. actually come from both Europe as well as Korea. They come from distributors, right? And so distributors sell to customers. We do know that customers are, at least in the Korea market, are increasing their use of NGAL in that market. And so at this point in time, we have good sales in Korea. We don't necessarily distribute in Israel today. We don't have the ability to do that. Our focus right now is Europe and Korea and the markets that we already have registrations in.

[Claus Thestrup]

Good, Tony. Thanks a lot. And the way the clients react, are they buying bulk for inventory? Or how do you -- how do the different markets react?

[Anthony Pare, executive]

Yes. So interesting enough, our product actually has a very long shelf life associated with it. So distributors can stock and customers can stock as well. So it's not a test where they have to actually restock every single week. And so these orders will usually come in once a quarter, once a month, twice a year type of thing. So some of the recent orders that we received are big stocking orders from distributors so that they could sell to their customers.

[Neil Goldman, executive]

And as you can imagine, that long shelf life is a feature from the customer standpoint. That's a competitive benefit.

[Claus Thestrup]

Good. Yes. Thanks a lot, Neil. Yes, and then now we only like a quarter, maybe 4 months in your change focus because you mentioned it the first time in connection with the full year report. So we should see it come like small lumps down the road while you increase the [indiscernible] effort.

[Anthony Pare, executive]

That's our expectation. And as a reminder, our efforts in Europe are -- have multiple modalities associated with it. One is increased marketing in the Europe market, increase of our medical science liaison staff in Europe working directly with distributors and directly with customers to make sure that there is a solid education on AKI and the benefits of the NGAL test. And then lastly, finding the right distributors to train and support in their efforts to get the product sales. And so we're in the process of still rationalizing distributors for certain markets.

[Claus Thestrup]

Good. Thanks a lot. Neil, then there's a question here about the burn rate. You probably see the question there a month away at around DKK 6.5 million. Could you elaborate a little about that bit?

[Neil Goldman, executive]

Yes. Sure, I'd be happy to. To begin with, our burn rate has improved -- management we've delivered over the last year, and you can particularly see that if you take a look at the days sales outstanding, which have gone from somewhere in the 100 days range down into a normal 30- to 45-day range depending on customers and payment terms mix at any point in time in terms of when those shipped during the quarter. So that's been a very significant benefit on the working capital side. The other piece most recently in this quarter that -- and you can see this on our cash flow statement, has been the payout of a meaningful part of that restructuring charge. It was about DKK 1.85 million. So we wouldn't have implemented that if there wasn't a cash savings benefit of that, but we need to work through that certainly as we move forward.

[Claus Thestrup]

Good. Thanks a lot. And then there's a question coming in here from [Christian], a question about sepsis. Is there anything new? Should we expect any news on sepsis, Neil or Tony?

[Anthony Pare, executive]

No. I will tell you, this is one of the projects that we we put on hold as we focused on NGAL and acute kidney injury. So there is nothing new on that front. In fact, the study that was associated with this has been halted for the time being.

[Claus Thestrup]

Good. There's a question here from one of the stockholders. He's been with you for 24 years, and I know you've not been in the company for that long. About potential triggers. It's always difficult for management, I have to say, to discuss the share price, but we have one major trigger coming. We just don't know whether it's this month, in a quarter's time or when it's coming, the FDA approval of NGAL in U.S. But is there anything else we should be aware of Neil or Tony?

[Anthony Pare, executive]

Sure. So I mean, obviously, the FDA clearance is the big catalyst that we're waiting for. But beyond that, it's additional -- adding additional indications, both in terms of instruments that our product can be used on in the U.S. under an approved status. Also, in the future will be adult indications will be -- provide additional market opportunity for us to market in the U.S. It's not a limitation in Europe and the rest of the world at this point in time. But those are the various catalysts. And then obviously, market adoption of the test and increased revenues associated with the test.

[Claus Thestrup]

Thanks a lot. Recently, you secured finance with the latest rights issue. And I think you mentioned in this latest report that how you will finance the next 12 months. What could change your view on that, Neil? Maybe you could give a words or 2 on that.

[Neil Goldman, executive]

What could change the period of time, is what you're asking?

[Claus Thestrup]

Yes. Yes, your cash -- first of all, you brought down your cash burn and you're well financed within the next 12 months. If we get, hopefully, an approval for NGAL in U.S., will you carry out a new issue. And let's say, the worst happens that, well, you get some flags or whatever on NGAL in U.S., what is going to happen then?

[Neil Goldman, executive]

I think there's 2 important things to consider there, Claus. The first is the action [indiscernible] to lower our burn and give us the flexibility, the optionality to be able to capitalize on opportunities as and when they come along. Certainly, as we see and get closer to approval and hopefully beyond that. So that's the first piece.

The second piece is absolutely the long-term capital formation plans for this company. As Tony and I talked about when we started here at BioPorto 1.5 years ago, there is a long-term plan to deliver a U.S. list of business with the U.S. being, by far, the leader in IBD in vitro devices in the world. We -- but we're continuing to look at that -- now we're focused on the pillars that we've to here, and we've got to get the FDA line and be prepared to expand the addressable market beyond that.

[Claus Thestrup]

Good. Thanks a lot, Neil. That's a good answer to that question. Thanks a lot. If there's any more questions coming from the audience, please post them, and I will forward them to Neil and Tony. Doesn't seem like we have more questions coming in, Tony and Neil. So with that said, I will, as always, thank you for a really good presentation, Tony and Neil. And hopefully, we get a good answer soon. And I know we will see you soon online as well, at least during the Q3 report.

And you will participate in our life science seminar later on in August. It's actually the end of August as well. So people are able to ask you questions there. And then hopefully, we never know, you have some really good news to bring to the investors.

[Anthony Pare, executive]

We -- you never know. I'm looking forward to it.

[Claus Thestrup]

Thanks a lot, guys. And with that said, I would like to finish the presentation for today, and I hope you all will have a really good day.