Eckert & Ziegler Strahlen und Medizintechnik AG

XETRA:EUZ

Earnings Call Transcript 2022-Q3

[Andreas Eckert, executive]

Hello, everybody. Good afternoon or good morning, wherever you are. This is a small video conference here discussing the 9-month results of Eckert & Ziegler, which you see up here, let me actually do this, then I have a little laser pointer. And there is a disclaimer because we are a public company and then there is an etiquette rules here. [Operator Instructions]. This presentation, which I'm going to give will be recorded. The Q&A, answer -- question-and-answer session afterwards will not be recorded, so -- which already gives you a structure -- an idea about the structure of the coming 15, 20, 30 minutes. I'm going to say a few words to our results which you published here this morning. And afterwards, you will have a chance to pose your questions.

Okay. We are here in the empire of radioisotopes, Eckert & Ziegler, in order to keep confusion low. We keep the presentation a little boring, always the same. It's a global specialist for radioactive applications with a whole range of main products. Over the 9 months now, we booked EUR 164 million in new revenues, Q1 to Q3 2022, and EUR 23 million net income. Growth engines here are radiation sources -- somebody please mute himself.

[Foreign Language] Could you please mute your microphone? Okay, thank you. I love it. So anyway, I'm here in radioisotopes, and nothing will hinder me of going through this presentation. We are 945 employees here at the moment, 18 sites worldwide. We've eliminated here some sites because we sold our HDR business. And otherwise, we have no big changes compared to last year or last quarter.

General story here there. We have a good run here in the last years, we have increased our net income by a factor 2.4. Our dividend shares by a factor 2.5. And in general, Eckert & Ziegler here is in the middle of a developing exploding specialty mark. Despite all the problems which we have here in the world, Corona is not yet over. The 20th Congress of the Communist Party has still closed China, Ukraine war continues to happen. However, the threat to our 2022 EBIT at least has evaporated. And we had in the last quarter there, delays with the rollout of important products here from Novartis, inflation heating up. All of these items are all familiar to most of you, but I nevertheless want to pass them by.

And -- we have now here for the third quarter recorded a net income of EUR 23.3 million, which is pretty much 86% of our guidance for the full year. We said we're going to do EUR 27 million. Now the first question is who, so why don't you raise your guidance and all that, that looks here a little silly. Yes, yes, yes, but you know how things are. The end of the year for us is normally the time when we look at a few things here and see whether we have to bury some corpses. And so -- it's very likely that we will exceed the EUR 27 million net income, but it's not that likely that we will be exceeded by more by 10%, 15%. And in general terms, anything which is in the range of 10% less or more is [ huge ], and we're not going to change our guidance for such.

Just for those who are new with us here, this is our last year's 9 years of earnings, starting here with the EUR 6.8 million in 2014. Of course, we picked this so that this is the absolute nadir. And then we're going up last year, we had a strong year with EUR 34 million of net income. This year, our guidance is EUR 27 million, as I say, is a little higher there. It will be still within the range of 10%. This is a net income growth, all in million euros since 2014.

In the first 9 months 2022, the essential. Now we have a strong growth, and we have progressed materially with our pipeline. You saw it in the press release, the revenue growth on a normal base for the time period, from January to September. Total group revenues up 25%. The revenues in the isotope products segment up, 40%. Radiopharmaceuticals, which is kind of the hottest thing we have at the moment in our basket, including SPECT up 29% year-over-year. Revenues in the Medical segment, up 6%. That sounds a little meager. I will say a few words to that. But for the record here, I just have it listed. The group profits are up 18%. If you adjust for the fact that last year, why is there a comma? We had an HDR one-off sale of a business of EUR 9.4 million, of course. And I hope I haven't clicked that panel -- and that's the main main messages. Is it's in line with what we had in the half year, and it's a general trust.

The net cash adjusted for debt is constant here at EUR 60 million. We are, despite an investor's -- investment program, see that we can conserve as much as possible, given the clouds on the horizon. And we have material progress on development pipeline. The European Defence Fonds. We had a -- this quarter, we had a press release has given us EUR 17 million in cash, non-dilutive for one of our associates there. We have the first patient dose in PENTIXAFOR, Phase II trial in Denmark. We have acquired global rights for CXCR4-Technetium-99 tracer. These would be the highlights of the third quarter.

How do you interpret now the nominal results in the Medical segment? We have things which mildly inflate our growth and that is a foreign exchange rate effect. In the previous years, we had a much more favorable or less favorable exchange rate because the dollar was weaker. Now we're benefiting from the fact that we sell a lot into the United States, and that the U.S. currency has appreciated. So that makes us a little even more beautiful in the [ arts ]. The countervailing tendencies are a number of factors which reduced the growth. And one of them is, as I said, the EUR 9.4 million net income one-off. Last year, if you take them off, then you have the 18% growth in the profits. We also have here EUR 1.4 million still missing revenues associated with the HDR business.

In this year, previous year, we booked some of that. And we have start-up costs in China and Boston, which accumulate up to EUR 2.5 million for the whole year there, which we didn't have in previous year. It's not really a big swing, but worth mentioning. On a material basis, why is -- in the Medical segment, why aren't we even better than we are? Because we kind of have less revenues and contract development services. It's a category we have in our Radiopharmaceuticals where we develop, for other companies, their compounds. And last year, we had a very strong year in that. We had a lot of bookings of that, EUR 2.5 million I'm missing. And that's the only product category really in the pharmaceutical space where we have a decline compared to last year.

In the Isotope segments, where we have industrial products, of course we have a big tailwind through foreign exchange rates, effects and also base effect because last year, we did not have Tecnonuclear in the fold. This would be the comments of what is unusual and remarkable and there is all kinds of tidbits and small stuff, but -- these are the big things.

Radiopharmaceuticals, just to give you an idea how it worked here again, the Radiopharmaceutical product categories, it's bulk radioisotopes, with generators, contract development service, contract manufacturing services and equipment. And you see here, you have our trajectory over the years. This year is the extrapolation we've taken the 9 months here divided by 3 and multiplied it by 4 to have a standard to this 1 full year things. And you see we're going to see here actually quite a jump on the Radiopharmaceuticals.

The group balance sheet is -- we still think it's solid. Net liquidity here, EUR 83 million we have in cash and stocks -- not much stock. So I think it's more cash. And here, we have 23 million now in loan liabilities. So that makes a net liquidity of EUR 60 million. Equity ratio is still a comfortable 52%.

And a view on the cash flow situation, of course, we hear we have full year or we have end of year date. Here we have the Q3, so that is somewhat comparing apples and pears. But nevertheless, you see -- we're going up here, the green is our cash from [ EUR 80 million ]. It sits down somewhat here EUR 15 million. And of course, the loans here increased, also about, I would say, EUR 15 million, giving us a net liquidity of [ IR ] EUR 30 million less.

Okay. This is a growing business which we got there. Selected topic. Our clinical pipeline is worth from a few words here. Here you have the [ easy get ] version of that. What are we doing here? The plan is really for us to get cash flow with Radiopharmaceuticals, with proprietary radiopharmaceuticals going with a quick Phase III diagnostics. This is a product we're trying to register called PENTIXAFOR. Initially, we sold about 600 patients. We thought the study should cost us less than EUR 50 million and should be feasible to -- actually, which we announced like 0.5 year ago, maybe even 2024, while we were a little over optimistic. You see here, we have to push it out into 2024. Study costs are still the same. The indication, which we've learned now from some interaction will most likely be less of a basket and more focused on myelomas. The cost therefore will be likely less -- somewhat less, not really significantly less because we probably don't need 600 patients.

An EMA-decision, which will give the details to when can we start with the Phase III is expected still within this year. The compound itself, PENTIXAPHARM, already making headlines. Some of you have maybe seen that already. There's a Journal of Nuclear Medicine. That's where all these nuclear medicine practitioners die for being published. They took the PENTIXA. Here, the CXCR4 motive chemokine receptor in Pentixafor-PET made it to the cover, that is enough to make people switch. We're quite happy. There's a lot of activities going on. We're very happy with the compound just passed this year as a surveyed indicator.

We have started in Denmark now a Phase II supportive trial, which will eventually cover more than 6 sites. And what's the story there? We have here the normal for myeloma patients, patients are admitted, case [ would ] relapse. And then because it's a very aggressive tumor, you just go week 1, chemo, week 2, chemo, week 3 chemo [ ta ta ta bup bup bup ]. You have to act quickly because it's an aggressive tumor. But that is also a problem because you don't have much time to see whether it actually works. What we are doing in this medical supportive Phase II trial in Denmark is we're going to have an arm where after a week, we're going to have a response checking with CXCR4. And that should really tell you whether this works. And if it doesn't work, then you can change regimen. And if it does work, then you would double.

This is kind of not -- doesn't sound here like a real, real, real big progress, but it's enormous progress for hematological oncologists because they would be able to direct their patients in a much more rational way and react quicker. If something doesn't work, find out. So that's the therapeutic, the diagnostic we are developing. Of course, there's also then at later stage therapeutic to that, but that is not as soon on the horizon as all these diagnostics are.

The core of our clinical program here is focused around the therapeutic -- diagnostic Ga-68, Phase I, Phase II. This is what we're going for. And we have an Yttrium-based therapeutics. There we will not be able to jump right away in a Phase III. We have to go through all of the kind of things. It will take a little longer. This is the core of our clinical pipeline. We are preparing an additional SPECT branch, and I'm happy to announce that for the CXCR4, we have gotten the global rights for Technetium-99. We're looking at other things as well. And the rationale to that is our recent acquisition, Tecnonuclear, which happens to be, as the name says, a technetium generator producer is very well-versed to support that, not just with the product, but also with the expertise up there. And on the therapeutic side, we are reviewing here additional Alpha Therapeutics.

Our hope is in the end to get a sustainable pipeline with an economic appeal, which includes -- for our small world, the most as many options and as many opportunities as possible, which together, we hope to add another EUR 100 million in additional EBIT by 2027. I'll -- there are many ways of how to look at this little scheme. One scheme would be by financial independence, all of the diagnostics area, Phase I, Phase II, Phase III, that is something which we can be doing with nondilutive funding. These are given that you have diagnostics and you see very early in the phase whether it works, you just need 2 or 3 patients. We're talking here EUR 10 million, EUR 15 million per [ charge ]. That is something which is doable for Eckert & Ziegler and in the therapeutic side, where the patient requirements are much larger.

We are able to start Phase I dose finding and initial things, but there we will most likely will look for partners in the future. Now here on the diagnostics side, we are in many instances here, for example, already aiming at the Phase III. We think that here for the Technetium, we should also be very quickly get in Phase III here, it will take longer.

If you look -- don't look by financial independence, but by time to market, all of this should go quick. Now quick and pharmaceuticals, of course, I know is an oxymoron, but relatively quick there. We're hoping to have first product sales in 2025. And you can also look at it in a risk management thing. You see we're using 4 radioisotopes, we're using Technetium, we're using gallium, Yttrium and Actinium, all of which we manufacture, or intend to manufacture, we having the CXCR4 compound as a motive which we're developing as a therapeutic and as a diagnostic in various things and -- we're reviewing other ones, which we've put nicely in here. But should still be within our budget so that we have, let's say, an interesting and attractive sustainable risk management, self-financing pipeline.

Many eggs, many baskets, which sits then nicely together with our existing world market position as a supplier of Radiopharmaceuticals. Just here, this is a chart from somebody very knowledgeable about the things saying that what counts really in radioisotopes is it can be understood like that. You have research applications. You have commercial applications. And here you see 10,000 clinical doses annually, that's where the wheat is separate from the chaff. That's -- here you do research and here you're a real guy. And then short half-time and long half-time, and there's all kind of things.

But if you look at it, the main radioisotopes is Gallium, now we are pretty strong world market-wise on that. F 18, we're no longer there. We sold our entire cyclotron chain. So we have a good idea really on what is there. Technetium, we are there with Tecnonuclear. You see lutetium. We're working on our drug master file, and I'm optimistic that it will come, come, come. Yttrium, we are definitely number 1 or 2 in the world market. And Actinium here, that's an ongoing project we have with the Prague Academy of Science. We reported about that already in previous sessions, and maybe I will revisit that topic later, when there's something to report.

So coming soon here, e-mail feedback on a stock of Phase III PENTIXAFOR, likely before the end of 2022. We're expecting additional production capacity in Boston for our Yttrium-90, franchise regulatory approvals are pending. Lutetium-177 branch [ like ], also their regulatory approvals. And anything which happens on our Alpha front, we will report when progress happens.

Thank you for your attention, financial calendar. And this would end the recording session of the -- our little presentation, and I would now switch into the question-and-answer mode.