Oxford BioMedica PLC

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Earnings Call Transcript 2022-Q4

[Frank Mathias, Chief Executive Officer]

So hello, everyone, and thank you for joining our meeting today, our Analyst Report Meeting on the Results of 2022. I'm Frank Mathias. I'm the newly appointed Chief Executive Officer of the company. And believe me, it's a great pleasure to meet you today together with our Chief Financial Officer, Stuart Paynter. I believe you are known here.

So just for those who do not know me by now, I'm French, as you can hear from my accent, I'm sure about that. I was born in Paris, and I went to school there and to the university. So I'm pharmacist by education with a PhD in immunology and more than 30 years now of experience in the biopharmaceutical environment in senior positions at different companies throughout the biopharmaceutical industry. As you might know, I come from another renowned CDMO, namely Rentschler Biopharma, where I was CEO for about 7 years. So also, I have only started 3 weeks ago to be very precise 3 weeks, 1.5 days ago. I can already say following, and this is in line with what I have expected from the beginning. So being a scientist myself, I'm really impressed by the science at Oxford Biomedica. The science behind the team behind you, Kyri, because we are happy also to have in the room today, our Chief Scientific Officer.

Our company is already recognized as a true leader in the innovative development and production of viral vectors. And this applies mainly for lentiviral vectors, as you know, but I believe that we are also making big progress in the AAV field. Our client base is constantly and Stewart will report on that expanding and now includes more than 30 partners around the world, cut partner programs to be precise around the world. I -- with a few feedbacks I got already from clients who work with us, I can guarantee you that they're extremely satisfied with us and with our service. On the other side, as a leader, I'm equally impressed by the high level of commitment, professionalism and quality of the Oxford Biomedica team. And I have met by now both teams on both sides of the ocean here in Oxford, but also in Bedford near Boston.

We have a clear vision to become a leading global innovative partner for cell and gene therapies, not to say the leader. I firmly therefore, believe that we are at the heart of the next generation of medical breakthroughs, and I'm delighted to be part of the next sector together with the team of this story. There are so many opportunities in the market. There are a great demand for our know-how and our service. And on the top as a quality and innovation-led CDMO and the denim stands for innovation and development. We will continue to combine research and development activities with market needs to deliver the highest possible quality in a timely and cost-effective manner.

I'm now going to hand over to you, Stuart, to start the presentation and talk about the year in review. But after the presentation, there will be enough time to take your questions, and then we'll be around if you want to speak more to anyone who has time to stay. We also have a live webcast running currently. And for those joining us remotely, please ask plenty of questions when we turn to you. We are also accepting written questions; that's nice. If you prepare that route and our Investor Relations team, Taylor Boyd and Sofia Bolan will come back to you in this case.

So, as I said, our Chief Scientific Officer, Kyri Mitrophanous -- is also with us today. You all know him. I'm sure you appreciate him as I do. So please go ahead.

[Kyri Mitrophanous, Chief Scientific Officer]

Thank you very much, Frank. So I'm going to take you through the presentation. I'm going to attempt to do that in about 25 minutes to leave some sufficient time for Q&A at the end, as Frank mentioned.

Actually, as we look up at the first slide, which the covering slide actually tells a bit of a story because part of the impact that Frank's had in October in the 3 weeks, 1.5 days he's been here is he's added a single word in the front page, and that's to increase our focus on quality. So for those of you with the memories, we were saying that we were an innovation-led CDMO. And now we are saying that innovation and quality will hold sort of equal rights on the sort of title page for this company. So we'll go through a bit about why that is and what that means in the presentation forward-looking statements; you all know this. So FY '22, this is just a snapshot of some of the achievements in the year, and we'll go into a bit more on the strategy in a minute.

So obviously, the single biggest achievement of the year was the transformative acquisition that we made at the beginning of 2022, which closed in March 2020 of Oxo by Medical Solutions, which I'll remind you is the carve-out of the technical capabilities of Homology Medicines, a NASDAQ-listed company into essentially a start-up CDMO. And we acquired the assets, the equipment, a nice facility, 130 individuals with really, really good experience in the AV field. The IP, which has gone on actually in the year with the published data we've put out to really prove itself and then the contract with homology for exclusive rights to produce and work on their portfolio of medicines, which is ongoing. So that was our first move into the adjacency of AAV, which will take you through the reasons why a bit later.

We've increased the client base within Oxford Biomedica. So 13 new client relationships in the year in both, lenti and AV, another 3 post period end, it's really good momentum. We will take you through a bit of the thinking around how we're morphing into more of a commercial entity with strong commercial capabilities, which we're continuing to invest in; the robust financial position in this environment. We know that cash is super important, and we'll take you through some of the reasons why we think we're in a really, really good spot to exercise that cash position to make the best use of any opportunities that come our way. And of course, as Frank has told you, all important that we get the right leadership in place to drive the new story.

So, we'll talk a bit about how we're bifurcating the business into this quality and innovation led CDMO in one sense, the internal products in the other and how we're going forward with that. And I am curious here potentially to answer any questions you have on that. But what remains with OxoviMedica from 20 -- beyond 2023 is going to be this quality and innovation at Citi mode, and we're very happy to welcome Frank to lead the organization.

So why do we think we can win? This is the sort of value proposition? What do clients value the value our ability to solve their problems. Biologics, especially cell and gene therapy is still a tricky business to be in high barriers to entry. And if you can provide really, really top quality products and top quality service and you can provide the right level of innovation and innovative solutions to your partners, you're going to be in a very, very nice position. We firmly believe virovectors continue are playing and will continue to play a key role in this next wave of breakthroughs in medicines. These are curative therapies. We're seeing some really nice momentum in the marketplace now more and more approvals, which, of course, is going to increase the market size, and we expect to be able to rise significantly with that tide. We've got this proven track record.

We were the first on the market with the cell therapy, the first cell therapy approved in the U.S., Kibariwith Novartis back in 2017, and we've had none broken record of market supply since -- and that cannot be said for every seller gene therapy that's been launched since that time. And we've learned an awful lot from that relationship, and we've been able to transfer that learning into the other clients' relationships and really leverage that know-how and build that know-how state. And then these capabilities, we were -- a year ago, we were a lenti company, and that's a great place to be. We were -- and we are the leading lenti company. Now we've made that leap into that sensible adjacency, bigger market, faster-growing market, and we'll tell you some of the reasons why we've done that.

So here is the market; this is the addressable market for viro vectors -- so when we talk in addressable markets, we're talking about the outsourced bioprocessing revenues available in these markets. AAV is the biggest market and it's the fastest-growing market. So the move into AV was a very sensible, very pragmatic one, and we're very excited by it. The reason it's so much bigger is the quantity of vector required for a dose is just higher. You're going systemically into the patient rather than typically the way that lenti’s have been used and what's reflected in these market sizes is ex vivo therapy, therapy that cars outside the body where you need less vector. We do see in vivo applications for Lenti viral vectors as we move forward with the future generations of lenti.

And again, we're just about to launch fourth generation Lenta Kerry can ask some questions about that if there are any. But that's super important because that enables more modalities to be tapped. And then at the bottom, not such a fast-growing market, in fact, declining as you can see there, because the growth or the size of that market is very dependent on the adeno vaccine that was the AstraZeneca COVID vaccine, not strategic for us, but we do have capabilities. And if the right client comes along with the right proposition, we're happy to work on that area for them; so more opportunistic. But of course, in the world of a CDMO, you need to be both strategic and opportunistic to make sure you build the right mix of clients in the right stage of development.

Just a quick view of the timeline of 2022 and the achievements; Cabaletta Bio signed in January, innovative CAR-T company in the U.S. March, I've taken you through the closing of Oxford Biomedica [ph] solutions. We've got this plug-and-play platform. And maybe this is the time just to go through a bit on that. I mean we are quoting titers of 1E15. Full tentative ratio is 90%-ish plus. These are market-leading sort of KPIs for these platforms. And this is published data now. So we're really excited to bring that to market. And they've done a great job so far. So as well as supporting homologyclient, they've signed multiple new clients onto the platform early stage, but they're really transforming themselves into this top level AAV CDMO.

July was extension of the contract with Juno BMS. We're hoping to be able to talk more about that very soon. And another undisclosed and a master set agreement with AstraZeneca, which although it's therefore as a safety net for AstraZeneca for us to produce whatever they need. I think it's an endorsement of our capabilities because of the 11 or 12 people that have in their supply chain for the vaccine, we are the ones with the enduring relationship with AstraZeneca, which is a good indicator of the level of service we gave AstraZeneca during the vaccine production. In August, we finished the fill/finish suite in OxBox Phase 1, vitally important because we want to be able to offer a genuine end-to-end solution for our clients. So, right from cell line development and process development all the way through to fill finish.

Now we can do that all in-house. We were using outsourced fill-finish, which comes with its own issues. But now we are full service CDMO, which is a fantastic progress. and a new client for OxovilMerica Solutions in September as well as an undisclosed client in Oxford and another 3 clients in December. So whilst you see all these are undisclosed, let me just take you through a bit of the reasoning why -- we're seeing some undisclosed clients at the moment because, firstly, if they're early stage and they're in funding rounds, they're in stealth mode. Secondly, if they're coming from another CDMO, it's a difficult thing to manage, moving CDMO. So of course, we're very willing to respect the process of our clients. We're not in this for the short-term gain of throwing up a name in a press release, we're in this for the long term of helping these clients get their products to patients.

Just a bit on the financial performance. So double-digit growth in the underlying revenue. So you'll see that the revenues were broadly flat. We have taken off £40 million worth of -- or within those numbers is £40 million of vaccines revenue. That has now come to an end, as we know. So we're expecting next year's number to be slightly lower, but that's with double-digit growth in the underlying business. A modest EBITDA profit, of course, that's driven by some other -- some clever use of assets that we made to the sale and leaseback and was an important aspect of generating cash and a robust cash position as well as earnings. And there we have, as we said, to selling leaseback there, profit of £21.4 million.

And then, the Oxford Biomedica Solutions acquisition; we saw the expenses go up as we're supporting a nascent CDMO. So it's an investment we know we were making. We said we're going to break even on that asset by 2025. That's still the plan, but it requires some investment in that area. So we're in a position where we can support that investment through a robust cash position, which I'll take you through. So highest cash position we've ever had at the end of the £140 million supported by, like I said, the sale and leaseback, £60 million coming from the sale and leaseback of the Windrush facility with Codan's great science partner to have on the sale and leaseback. They're really active in the Oxford area and looking to increase the scope of lab space or around the Oxford area, very good.

We took a loan to complete [indiscernible] solutions deal. We repaid £35 million of that £85 million loan in September, refinanced with a competitive refinancing process. And now we've £50 million in a 4-year term loan, which is up for renewal comes to maturity in 2026. Importantly, for the external products that which we're working on, we've said that we're bifurcating those 2 parts of the business, very important for us, become apparent to us through the year that -- and in fact, in prior years, it's very difficult to support those 2 competing demands for resources in a sensible way under one roof from one set of investors. But there is some fantastic technology there we're looking to give life to. So the plan there is by the end of the year, have the no P&L movement through on the products. They're going to be out with the life of their own with external funding, which we're going to retain a long-term economic interest in.

And of course, importantly, they're going to be a potential customer or a customer of Oxford Biomedica as we start them off with process development and all the rest of the activities, which we would give any other client at arm's length. So that's a really important thing that we're going to do in 2023. And that allows us to resegment the business in 2023 at the interims and guide further. And we have gone through a rightsizing project towards the end of the year. which we've made sure that we have retained the cost infrastructure and the capability infrastructure to make sure that we're well placed to exploit the growth in the end of '23 and '24 and beyond where the real takeoff of cell and gene therapy is going to occur.

We're going to make sure we guide in that way. But post the vaccine coming to earn, we made judicious but sensible adjustments to the cost base to make sure that's reflected lack of revenue from the vaccine, but a cost base in place to make sure that we're in a good place to exploit the growth opportunities we find in front of us, a little graphical view of that.

As you can see, this is a 6-month segment. What we told people is, while we're waiting for cell and gene therapy to mature, we'll roughly be breakeven, and that's what we've achieved in this year and in prior years, you'll see that profitability spike coming from the vaccine. That taught us a very valuable lesson, which Frank already knew, which is that if you can produce at scale and you can campaign assets on a large enough scale, you're going to make some very, very meaningful efficiency gains and you're going to generate some good EBITDA. And that's where we will focus our efforts on getting a balanced customer portfolio going forward, not just early stage at some later-stage assets as well in order that we can start building those efficiencies through the capacity that we're running. And the revenue growth there's some significant vaccines revenue in there, of course, but the underlying growth is strong double digit.

And like I say, the interims will be guiding further over the medium to long term on how we see revenues going okay, for the accountants in the room. Here's a P&L. Not much to comment on this. I'm sure there'll be questions. The most interesting number on there that I think is probably the bioprocessing cost line. The bioprocessing costs line is significantly increased because -- and you can see how much bioprocessing costs you can absorb through overhead aportion when you're running 24 73 suites on the vaccine. Now that vaccine was done point in time for the good of the nation and with the efforts of AstraZeneca and Oxford University, but that's the promise of what you can achieve when there are more launched products and commercial products to go for on the higher throughput volumes. That's what we're aiming for. So the commitment to quality and focused on innovation, how are we going to make our money going forward and how we're going to serve our clients going forward and how are we going to try and pick up clients going forward.

Frank was making the point earlier that we need to find the clients that are right for us. the clients that value both quality and innovation and are prepared to share that economic benefit with you. And this is the way that we're going to engage with those clients. So we start at the early stage cell line and process development, where we've got those commercial development development revenues are starting. And this is lightly important they take a license to the platform, they come on to the platform. They're able to utilize our analytics. All the rest of those things that give people a bit of a leg up and a bit of a boost forward in terms of their time to IND. And then we go through pilot scale, early stage clinical, late stage and then commercial and fill finish and you can see there how we see the revenues changing. And of course, as you get closer to commercial and into commercial, the bioprocessing revenues, the revenues you produce for the materials go up and up and up.

And then, of course, well, someone has taken a license to that platform, the royalties start flowing as well. We're also looking, like I said, where we can add clients in every stage on this particular chart because if someone wants to come in and again, they're the sort of customer we value, tech transfers would be available, and that's something we're actively pursuing with our new commercial team. Just a word on the commercial team. So we've had our Chief Commercial Officer, Spatium ribo in place for since October, and that's a significant investment we're making at OxoplMedica. So we're moving from 5 or 6 people in that team to mid-teens people in that team this calendar year, and we're doing that because we see a massive opportunity in terms of brand recognition and the commercial model we're trying to roll out here with this newly bifurcated focused business to really make a big difference in terms of the pipeline and pipeline conversion into new customers.

This is just a snapshot over that 5-year period, and you can see how much progress we've made. So 5 years ago, 40 million -- just under $40 million in revenue -- this year, $140 million in revenue. You look at the clients and how we've expanded that. There's some great names there. And you'll note actually, it's an interesting -- we were asked the question only how many clients do you lose? You'll see that Orchard in Novartis remain Bioverativ were acquired by Sanofi, who deprioritized the product, the immune design got acquired. But we have a fairly unblemished record at the moment of no one's left us for other CDMOs. The quality of the customer service we bring is really strong, and we're aiming to continue that with our net promoter score, which we measure and which is very, very impressive. -- a few bits on [indiscernible] and where we are in terms of developing our own products.

Of course, now we've bifurcated this business. We're now focused quality and innovation led CDMO. And probably the biggest achievement is the facilities development in that time period, where we've gone from essentially Windrush Court for those of you who have visited us and a couple of small sort of GMP suites in various locations in single-use GMP suites in warehouses to a world-class facility in OxBox, where we've got 4 suites up and running, fully funded second half of development there for suites up to 2,000 liters. And of course, 90,000 square feet in Boston, just outside -- well, embedded just outside Boston in terms of AAV development and production. He's a little bit on what partners want and where we're innovating. So typically, why would a partner come to us, those partners that value innovation and quality.

They're looking to leverage the expertise we have, the platform technologies we have, the fact that we can be flexible, so we talk a lot about competition, and we pride ourselves on being very agile as a size of business we are. And that's very important because we're competing against some really, really big players. We can just be more agile. We can give a more personalized approach, and we can help solve problems in a more active way. And that's a really, really key part of the offering to our partners. And those technical capabilities we've talked about. We've talked about the full-empty ratios titer in the U.S. In the U.K., we've got a very, very long history, looking at Kareno, 25 years in our business as the Chief Scientific Officer. And this is -- we've been at Lenti making quality product definitely the longest. And it's now time to make sure that's leveraged in terms of how we can bring clients on and you can see that the progress we've made.

Novartis Genoa 2 of the 3 originators of the CAR-T technologies are with us. And we're always speaking to some of the big players. Where are we focusing innovation, -- we focus innovation on anything that will make the process more robust, safer, higher titers and yields, better quality, they will get people through feasibility studies much quicker and obviously, safety. And that's what the focus is around the new process, process C, which uses perfusion technology, there's an efficiency gain there and mechanical efficiency gain plus some of the add-ons that we're putting in there, the biological add-on 12, which will increase hydro yield. And then fourth generation lenti, which is encompassing quite a lot of this stuff, which is going to form the backbone of the platform for people as an offering now and should make -- should give them the best chance of success when they're developing their product with Oxford Biomedica.

This is a super important slide, and we'll continue this. This replaces the old sliver used to name the customers and the products. We're sort of clumping them together a little bit because the important thing here is that these are these 4 development stages in which we're looking to add clients. And you can really gauge how we're progressing through the number of new client programs, projects we're working on with clients. Obviously, it's great to catch them early because they come on to our platform, and they'll be there for the long term. But it's also good to catch them as they're approaching BLA and they're looking for commercial solutions or potentially as the industry matures, even second source supply contracts. We need to be super flexible as the CDMO should be, and we need to add all the way along this list, and we need to progress from the top to the bottom as well as well as adding just share numbers -- volume numbers to this chart. So this is going to be a key performance indicator for us going forward, how we're adding here.

And the pipeline that we've got that Sebastian and his team are generating now is looking extremely healthy. And we're hoping to sign new meaningful contracts this year, which you're going to bolster these numbers. The financial outlook, and we're coming towards the end is strong double-digit growth in the underlying business. We expect the total revenues to be marginally lower than 22 in 2023 because £40 million of the vaccine revenue is coming off. That's still really, really good underlying growth. We've rightsized that cost base. We're making some interesting investments in the first half of this calendar year in terms of scalability and digitization, which is being led by our Chief Information Officer. And we're expecting an EBITDA loss as we are carrying that cost base, which is going to see us through this growth in 2024. This is a choice, and this is a strategic choice we've made.

So we're prepared to carry this cost until we see the pipeline come through and the ramp-up in '24 and beyond because this is a choice we made after a lot of discussion. We don't want to cut too deep into the cost base and then have to reput back that cost base and retrain people. This is the right cost base at the right time. And we'll go through why we think we're in the right place at the right time in a moment. CapEx level is very similar. And of course, that does encompass the first bits of building of OxBox Phase 2 and looking to diversify that pipeline, execute on that pipeline and give the commercial team all the support they need to make sure they're closing great customers, great clients who are aligned to our offerings of innovation and quality and willing to share those economic benefits with us.

So this is the last slide before we just put it on to the holding slide. opportunity for us. I just used that phrase right place, right time. We're genuinely are hearing some really encouraging noises coming out of the industry, the number of approvals coming forward, how biotechs and companies are going to engage with CDMOs going forward to give them the best benefit. We think we're in a fantastic place to do that, being a platform technology company. We've got this track record. We've got this vector agnostic multi sort of stranded offering. And we genuinely -- with our increased focus, now we are a focused quality-driven, innovation-driven CDMO.

We're in a great position to make sure we're actualizing that potential of the market. And of course, the market is going to rise. We'll rise with that market, but we also want to beat the competition and make sure we increase share, keep on increasing the number of new clients and make sure those clients are with us, got a great quality experience all the way through and give their products the best chance of winning and eventually getting to patients. And that's where we are.

So I'll leave you with the holding slide and I'm happy to open it up for Q&A. And I think we're going to start with any questions on the conference call, and then, we'll move to the room.

[Operator]

Stuart, the first question comes from Joe Pantginis from H.C. Wainwright. Can you please discuss the guidance for modestly lower revenue in 2023? Is this a function of timing of payments as well as business mix stage and profitability of that particular stage of process?

[Kyri Mitrophanous, Chief Scientific Officer]

Thanks for the question, Joe. So I think I just alluded to, marginally lower revenues in '23. When you look at the base business and you strip out the AstraZeneca vaccines business, doing the math, you're about £100 million in base revenues in '22 with £40 million in the vaccine. We're looking to be just marginally lower in 2023. So that's still pretty strong double-digit growth. And that's the underlying business. So that's business from both existing clients, moving their assets forward and some new clients that we signed last year and indeed some new clients we're signing at the moment. So it's a good example of diversifying the mix of clients, but actually living with the downturn in the vaccines revenue whilst not losing too much revenue.

[Operator]

With the next question on the line comes from Martin Diggle at Volpe [ph]. I note that Nigeria and Ghana have recently approved the Oxford Serum Institute of India vaccine for malaria. CEO of Siris on record as stating that some of the vaccine will be manufactured by XP. Do you care to comment on the progress of this development?

[Kyri Mitrophanous, Chief Scientific Officer]

Well, I mean, we certainly saw the malaria vaccine being approved, which is great news for people suffering from that horrendous disease in those areas. We have got an MSDA signed with serum, but we're not disclosing any further details about that at the moment.

[Operator]

We'll now take questions from the room.

[Kyri Mitrophanous, Chief Scientific Officer]

Perfect. So we'll now move to the room, and I think Sofia is going to run around with a microphone. Charles has got his hand halfheartedly out there.