Biodexa Pharmaceuticals Plc Q2 FY2020 Earnings Call

Good afternoon from Cardiff and welcome to the Midatech Pharma 2020 Interim Results Presentation. With me is Stephen Stamp, COO and CFO of the company who will run through the presentation. At the end of the presentation, there will be a question-and-answer session. We've already received some questions, but if you would like to submit a question, please do click on the button link at the bottom of your screen at any time and those questions will be fed through to us. We'll endeavor to get through as many as we can, but apologies in advance if we do run out of time. And with that, I'll now hand over to Stephen, who will take you through the presentation.

Thank you, Tim and good afternoon, everybody in the UK and good morning to those joining from the US. I am Stephen Stamp, CEO and CFO of Midatech and if you want to put a face to a name, I am in the middle of slide two surrounded by the brains of the organization. I have a dozen or so slides today up which as Tim said would be happy to take any questions you may have submitted. Moving on to slide three, I should like to take this slide as read if I may, but I would encourage you to refer to our public findings both on the London Stock Exchange RNS in the UK and on SECs Edgar in the United States. So starting the presentation really on slide four, I would say that the first half of this year and year-to-date has been quite busy for the company and if I had to probably describe it as transitional, a somewhat overused word, but I think actually appropriate for this company at this time. We've achieved some critical milestones which I'll review when we get on to the R&D slides, but most noticeable in the first half was the initiation by the board of a strategic review. That strategic review was triggered by a couple of things; one being the collapse in the capital markets in mid-February and alongside of that, the withdrawal of a prospective licensee that we had lined up for our project MTD201. Those two things, as I said, triggered the strategic review and that review immediately resulted in a couple of actions. First of all, the termination of further in-house work on MTD201; there was no way we could see ourselves raising the $30 million or so we needed to complete that program. Alongside of that, we closed our operations in Bilbao. That actually was primarily dedicated to the manufacture of MTD201 and we made 47 of our 66 employees redundant. That's over two-thirds of the company. The cost of that program was a one-time £1.8 million in cash, but it did result in a monthly reduction in cash outflow of about £0.5 million. So a payback in less than four months. At the same time since the strategic review, we appointed a boutique investment bank called Noble to look at all the company's options including possibly a sale of assets, the sale of technologies, and even a potential sale of the whole company. We tested that with something called a formal sale process under the takeover code to see if there was anybody out there who was willing to pay a quick premium for the company and return value to shareholders. As it turned out, and I think possibly because of COVID and the inability to due diligence and the like, we didn't receive any credible offers for the company and in fact, the formal sale process ended up becoming quite a hindrance to the company because we couldn't sell assets and we couldn't raise money because under the takeover code, those were deemed to be frustrating actions. So in the absence of any formal offers, we terminated the formal sale process in July, although we are still considering expressions of interest in certain individual assets of the company. However, while all that process was going on, we managed to pretty much half the burn rate and we realigned our strategy and we landed two industry collaborations. As a result of that, we were able to raise £5.75 million in a UK placing in July and from my perspective, that was the first fund raised in some time on which the company’s been able to raise money and what I'd call on normal terms, that being a sensible discount with zero warrants and bringing in institutional investors. So overall, I think it was a good outcome of that whole process. Moving on to slide five and let's talk a bit here about our realigned strategy. The core of the realigned strategy is focused on Q-Sphera. Q-Sphera is our PLGA-based technology, which uses normal print heads to encapsulate drugs in a biocompatible and biodegradable micro state here, and the ejection of a Q-Sphera product then forms a depot inside the body, which releases the drug with predictable kinetics over an extended period. We can tune that product to perhaps release over to six months. So the strategy of the Q-Sphera comprises two complementary elements with a common goal and that common goal is to license Q-Sphera products to Pharma in return for multimillion dollar milestones and royalties in due course, that being after proof of concept. So how are we going about it? Well, we're developing a balanced portfolio of internal programs and formulation development collaborations with Pharma. So why are we doing it in a balanced way? Well for internal programs, we're in charge of the timelines but we need to find potential licensees and create an option to generate some milestones and royalties we're looking for. With external programs, clearly we're working on the customer's API, so we had already made a licensee; it's clearly obviously bought into the program. However, he's in charge of the timelines rather than us and trying to keep a balance of risk and reward. So how are we going about this? We take our internal candidates to formulation developments and something called in vitro solutions and these are laboratory tests to estimate the rate at which the drug would release in the body. And then having established that and optimized the candidates, we'll then take the product through something called IND enabling animal toxic studies. These are just to demonstrate that the products are safe enough to be tested in humans. And we've been doing this before we could seek a licensee so that we have pretty much full proof of concept for the licensee then to take the product on into human clinical trials. Since the beginning of April, which is the start of the strategic review, and mid-July when we signed our second collaboration, we signed two collaborations in that period in only 3.5 months, and I have to tell you I was astounded and pleased by that. That is lightning speed for a biotech company. The first of our collaborations is with a very large Indian company called Dr. Reddy's, and the second is with an EU affiliate of a global pharma company whose name we can't release just yet. In both cases, we're being paid to develop Q-Sphera formulations of their proprietary compounds. The partners will then undertake the pre-IND enabling studies and will have an option to enter into licenses to access our Q-Sphera IP. A key component and frankly, a change to the strategy is that Midatech itself will no longer undertake human clinical studies, unless they are paid for in full either by the collaborator or by the client. Together with the collaborations covering the direct costs and contributing to overhead, it means our realigned strategy requires less cash and is less resource-intensive for Midatech and, in my view, more appropriate for a company of our size and reach. It also means we can work on many more things at the same time, more shots on goal, something I'll come back to. Moving on now if I may to slide six and the result of that realigned strategy is that we have a much different looking R&D portfolio, and one of my favorite expressions with multiple shots on goal as illustrated here. Six months ago, I must tell you the company was pretty much exclusively working on MTD201. Now we have nine molecules covering 11 indications in the pipeline, much more diversification and, in my opinion, a better risk allocation. So moving on to slide seven, looking at the Q-Sphera pipeline in some detail, there are seven programs in all. Notice that one of the collaborators has already exercised his option on a second molecule. So three of the seven are now partnered. One of the molecules we're working on is MTD215, which is a monoclonal antibody. We are describing this as investigational and I just want to issue a word of caution around this monoclonal antibody. Monoclonal antibodies are very large molecule proteins and many of the latest-generation medicines, all of those with a generic name ending in MAB, are monoclonal antibodies and as far as we know, there have been no approved long-acting formulations of monoclonal antibodies or large molecule proteins. The reason for that is because these molecules are extremely delicate and they're easily denatured in manufacture. Our process, the printing process is a relatively benign process in terms of shear forces, heat retention and we have some track record, particularly with MTD201, which is a peptide of developing Q-Sphera formulation of peptides and small proteins. We're now taking it to the next level with large proteins and investigating the feasibility of encapsulating a monoclonal antibody. If we are successful—and I emphasize if—this would be a world's first, but I must caution you there are significant challenges ahead. The goal is to make Q-Sphera small molecules into a self-sustaining business through collaboration and licensing, with proteins being upside, albeit a lot of upside. So lastly, a word on MTD201 on to slide eight if I may. This program remains available for licensing, although we are not investing in it anymore. In January of this year, we announced the results of our second Phase I study of MTD201 and we were able to demonstrate similar blood plasma levels of intramuscular, which is the blue line on this chart compared with subcutaneous, the green line on this chart, administration of the product. And why is that important? Well, subcutaneous administration means that at least in theory, the product could be self-administered by a patient at home rather than having to visit outpatients or the doctor's office, and that takes cost out of the system. Taking cost out of the system is very important to payers as you can imagine. So, these get our product improved, not only have other clinical benefit, but you have to be shown to be taking cost out of the system. Across several in vitro studies and two Phase I studies of which this is the second, MTD201 has demonstrated that Q-Sphera products offer advantages as listed on the right here for patients, physicians, and payers including, as I list, simpler reconstitution, improved injectability, minimal burst release, predictable kinetics, lower cost of goods, and now with this latest study, subcutaneous administration. So let's move on to our second clinical program, and that is MTX110 on slide nine please. MTX110 is a combination of a proven chemotherapeutic called Panobinostat and our solubilizing technology called MidaSolve. Now soluble Panobinostat is delivered direct to the tumor via a series of microcatheters as illustrated on the right here under slight pressure using a so-called convection-enhanced delivery system or CED system. So there is a port on the side of the child's head. The drug is injected and delivered to the tumor by the catheter. We're developing MTX110 initially for DIPG, Diffuse Intrinsic Pontine Glioma, which is an intractable pediatric cancer with about nine months average survival and no effective treatments available. We're expecting the ongoing Phase I safety and tolerability study at UCSF to report in a few weeks. For that study, we expect to confirm our plans for Phase II at Kinderspital, Zurich, and the expected endpoints of that study will be the survival of 12 of 19 patients at 12 months. Because this is an orphan indication and because there are no other current treatments, we will approach the regulators, assuming we get a successful signal at the end of the Phase II study, to discuss potential early approval of this product. But we'll see. As with Q-Sphera, MTX110 also offers multiple shots on goal. While DIPG is an orphan indication that offers the fastest route to a $100 million market, we’re also examining medulloblastoma, which is another form of pediatric brain cancer with a similar sized market. We have some preclinical work going on in glioblastoma multiforme or GBM, which is an adult form of brain cancer, and a much larger $3 billion to $5 billion market. Now, having said all of that, I must tell you, we are proceeding here with caution. You might recall that Secura Bio, the owner of panobinostat, the active ingredient here, has in our view wrongly terminated our license to that product. So we would either need to resolve the situation with Secura Bio or delay the launch until the relevant patents have expired, and that could be potentially two to three years. More on that when we have some resolution with Secura Bio. So moving now to slide ten in the financials, there was no material revenue booked from the latest Q-Sphera collaborations in the first half of 2020. The first half results were heavily impacted by the strategic review including a non-cash impairment charge you see here of £11.59 million as a result of the state of cessation of MTD201. Pulling out those one-off numbers on slide eleven, please. The first half included a number of one-time costs and charges including in R&D; redundancy costs resulting from the closure of Spain and a few heads in the U.K. of £0.88 million. The write down of the Spanish assets, some of which returned to the U.K., but others will be sold in auction of £0.55 million, offset by a credit because stock options lapsed of £0.35 million. In administrative costs, we had one-time items of £350,000 associated with the repayments of Spanish government loans, including penalties, some U.K. redundancy costs of £70,000, and legal and professional costs of £510,000, some of which were due to the restructuring and some which were due to an aborted financing in February of this year as a result of this market crash, which in turn triggered the strategic review. Stripping those one-time items out actually, the operating loss was not too dissimilar from the first half of last year, and in the second half will be lower again because of the closure of Spain. So moving on one more slide to twelve and looking a little bit at liquidity. At the half-year, we had net cash of £3.59 million. We hadn't at that point paid back all of the Spanish loans. So having done that, and with some cash coming in from Spain, there will be a net outflow of cash of £0.6 million in the second half. We have the proceeds from the July placing, which were net £5.28 million coming in. Then we have some warrant exercises of $1.25 million and $1.02 million and £0.83 million in August, so we had a pro forma net cash position of £9.7 million at the half-year. We've burned a little bit of that over the two months since then. But our projection is that that cash runway takes us well into the fourth quarter of 2021. So we are as well financed as we have been for quite some time. We have pretty good reasons, given the traction we're beginning to see with our Q-Sphera realigned strategy and a decent runway to look forward to the future with confidence. So with that point, I’ll hand back to Tim for questions, please.

Thank you very much, Stephen. We have received a number of questions from people who are participating in addition to the ones that I mentioned we received ahead of the event. But if anybody does have any further questions, please do feel free to use the Submit question button, and those will be fed through to us. I will do my best to work through these. They're obviously, by definition, not in any particular order. But we will look to try and answer everything that has been submitted. There are a couple of common themes, Stephen, coming through. One of them is regarding timetables and do you have any expected or aspirational timelines to see either the existing collaborations come up, convert to formal development partnerships, and any idea that you can give listeners as to when they might conclude their initial evaluation stages and moving on further?

Right, thank you, Tim. So, as I don't repeat myself, but one of the downsides, maybe the only downside actually, of a collaborative deal as opposed to the internal program is that the partner is more or less in charge of the timetable. It is the partner that will be doing the pre-IND enabling studies. And really, until you've done those and know that you have a product that is going to perform in the body as you would hope it to, according to target product profile, and there are no toxicology issues, which you wouldn't expect but you have to prove it, you haven't really achieved proof of concept. Until you achieve proof of concept, you're unlikely to get a multimillion dollar license fee out of a partner. So having said all of that, our target is to land our first licence fee in the first quarter of next year.

Okay, thank you. You've mentioned obviously the relationship and the situation with Secura Bio. Obviously, there's very limited that we can say at this stage. But we have had a couple of questions. Is there any further update that you can give? Is there a formal process in train with them? Or is it just a wait and see?

So one of the options available to the company is to go to court and seek a declaratory judgment and have the license reinstated, if we win. We're advised that will take two possibly three years and cost $2 million, possibly $4 million. It seems like a heavy price to win something that already belongs to you. So we’re not persuaded that is the best use of the company's funds. So we would prefer a negotiated settlement if possible. We have invited Secura Bio to reconsider; they have chosen not to do that. So our options are becoming more limited to be honest. Having said all of that, the license agreement attaching to MTX110 by the panobinostat license is not particularly favorable to the company. We could make an argument that actually the product is economically more valuable without the license, but it would mean delaying launch until the patents have expired. So those are the sorts of options that we’re weighing up now. In the meantime, we're able to proceed with the program because we were using panobinostat for research purposes.

Thank you. Another theme that's come through in a number of questions is regarding the future of MTD201. Really, you've mentioned that partnerships are very much something that's being looked at. But is it an asset that the company will consider selling if the right offer was available?

Absolutely. So, MTD201 while we have yet to get a licensee for it, hasn't been a complete failure, because it has served a very useful purpose for demonstrating the characteristics and opportunities the Q-Sphera technology offers in humans, and that frankly is invaluable. Without those data, I don't believe we'd have a cat's chance in hell of getting a licensee for any of these other molecules that we're working on because it very much is a proof-of-concept, proof-of-principle. So the short answer is yes, we would be very interested if somebody came forward with MTD201. But at this time, I don't think it's a good use of the company's energy and resources to focus on that; we're better focusing on the newer opportunities, particularly the APIs that have come to us asking us to work on their programs.

Thank you. We've also had a couple of questions on strategy and what you've outlined in the presentation earlier. One viewer commented that it might take a history of changing direction. Can you now confirm that this is the long-term strategy for the company? And if that is the case, why didn't you pursue this sort of collaboration early partnering type strategy before now?

Yes, so I personally wasn't part of some of those earlier forays that the company made, so I can't talk exactly what the thinking behind that was. I think potentially, the company was looking to products that were closest to market, which is an understandable aspiration. They put all its efforts and energies and resources behind those products. The problem is that the closer you are to market in terms of Phase II, Phase III, the bigger the costs, and while these programs were going through the clinic, the value of the company was declining and it became more and more difficult to raise the quantum of funds that you would need to get the product over the line. Then the pulling out of the licensee of MTD201, frankly, was the final straw. So in my view, given this current size of the company and the access to resources that it has, this is probably the only feasible strategy. By that I mean, not doing clinical trials and partnering early is the strategy that the company could pursue at this time. That being said, if we're successful enough, when we get enough of these things over the line, and we get enough licenses and we receive enough milestones, we could afford to start reaching further down the clinical path again and capturing more of the value. But as of today, this is the strategy and this is for the long-term, yes.

Thank you. And a related question, obviously, with the closure of Bilbao, how does the company plan to manufacture Q-Sphera products going forward?

That's an extremely good question. So the listeners will understand that Q-Sphera is a unique manufacturing process, which is what makes it so valuable and so differentiated from the traditional methods of PLGA manufacturing. You can't go along to a CMO and say, print these tablets or make these tablets for me; all the technology, the know-how is inside Midatech. We’re in the process of lining up some partnership agreements with CMOs; that would be one in the end but we’re talking to several CMOs, whereby we can take the smallest scale equipment that we salvaged from Bilbao, we need to add one or two pieces to it, and install that inside a CMO, which will have GMP capability such that we can manufacture at least clinical trial scale. Then it will be the partner that will take on the scale up to commercial manufacturing.

Okay, thank you. One about the listings. Does the company intend to keep both the AIM and Nasdaq listings?

Yes, we do.

Okay, thank you. It’s very clear. We've had a few other questions coming that do not really fall under the previous sort of headings, but I'll just read them out in order. Emergex appears to be well funded and they're making progress with the T-cell vaccine development program. What are the implications for the MidaCore platform of this?

So Emergex is a private company, and as a private company, they don't have to disclose exactly what they're up to and what they're doing. I understand that they’re making good progress and they have a license to some of our gold-nanoparticle patents. There are very smart people in Emergex, some of whom were inventors of that whole gold-nanoparticle technology. So in some senses, they are the best people to take that technology forward. The license agreement that we have with them is a sort of traditional structure involving development milestones at certain stages and then back-end royalties. So we're hopeful that they will be successful in what they do.

Absolutely. Thank you. One thing that has been mentioned in recent announcements is the situation with the EU regarding SME status; is there any update you can provide on that?

So the last submission we made to the EU was on the 1 of July, and we haven't heard back from them despite a number of prompts on our side. It is, I have to tell you, quite frustrating, Tim, that Midatech isn't an SME by European definition. I think the SME rules were put in place to prevent giant companies—say Pfizer—setting up a subsidiary calling itself an SME to receive a grant. That's understandable. On a particular date in 2019, CMS, as a result of a license agreement that was put in place in February 2019, owned more than 50%, 51% in fact, of Midatech. Because of that, the European Union, by the way they're now down to 17%, regarded CMS as a linked enterprise. Therefore, they consider Midatech part of the ex-CMS group and looking at the whole of CMS, which has got 2,000 employees and billions of dollars of revenue, as part of the Midatech Group, which is frankly ridiculous. That's our frustration. We’re trying to persuade them to look through the black and white of the rules and see the substance over the form here, but we're still waiting.

Thank you. One listener has commented that Midatech is a complex vehicle to analyze. Maybe just wondering if any of the company's advisors or any independent third-party had put together an assessment of the value of the group post the strategic review and, if not, are you anticipating anything maybe published in the coming months?

Yes, I'm not sure I would agree with the notion that we are complex. Well, we're certainly simpler than we were. As it happens, there have been two brokers today, one from each of our joint brokers. One of them has put together an interesting valuation model. And they valued the company in three parts: one part is the Q-Sphera platform, where they've sort of taken a shot at what a pro forma Q-Sphera product and its revenues might look like. Then they've assumed, I think, there will be five of those over five years and they've applied percentages of success to those various programs. Then they separately valued MTX110, and they also knocked off the present value of the overhead and SG&A costs, coming out with a valuation of about £65 million. I would commend your readers to take a look at that because that sort of breaks the company up into nice manageable chunks and is pretty transparent in terms of the valuation.

Thank you, very helpful. Well, that concludes the questions that I've received to date. If anybody does have a final question, you've got a few more seconds to submit it. And thank you very much, Stephen, for that very insightful look into the current situation of Midatech.

Thanks, Tim and thanks everybody for joining.