Earnings Transcript for CUV.AX - Q2 Fiscal Year 2022

Verity Wai-Smith: Good evening. I'm Verity Wai-Smith from Monsoon Communications. Thank you for joining us for CLINUVEL'S Half Year Report Investor Presentation. I'll now hand over to Malcolm Bull to begin.

Malcolm Bull: Thank you, Verity, and greetings to all who have taken time to join us today. It's my pleasure to discuss the financial results for the half year to 31 December 2021 and more generally, the growth and expansion of the CLINUVEL Group, and I'm discussing that with Darren Keamy and Lachlan Hay. Before progressing further, participants should please note that we will be talking about our plans and making forward-looking statements. So I'll briefly highlight our legal notice, which outlines that there are many risks that can impact the achievement of plans. And a copy of this notice is on our website and accompanies every company announcement. So many of you will be familiar with it. Also, unless otherwise stated, any references we make today to dollars refer to Australian dollars, which is our reporting currency. With all that said, I'll hand across to Darren to give an overview of the results.

Darren Keamy: Thank you, Malcolm. Good evening, everyone. So earlier today, we announced a record December half year profit and the 12th consecutive half year profit for the company since the commencement of commercial operations back in June 2016. So for the 6 months to December 2021, we achieved total revenues of AUD 24.63 million, that's up 56% from the same period of 2020. Total expenses were AUD 16.2 million, 67% up from the same period of 2020. Net profit before tax of $8.72 million, that's 50% increase on the same period of 2020. And an after-tax profit of $5.87 million, that's 10% down on the same period of 2020. So as you can see, the graph shown highlights the performance of the company in its revenues, expenses and net profit for the 12 consecutive half years since June 2016. On the balance sheet side of things, cash reserves at 31 December was just under AUD 99 million, and that is sufficient to withstand any financial adverse events that might occur and also gives us that platform to finance our planned growth and expansion. Finally, our liquidity is high with the current ratio of 15.3x and we continue to carry no debt.

Malcolm Bull: Well, they are excellent results, Darren. Record revenues, record operating profit for a December half year, rising cash and a strong position overall. If anyone watching is yet to review the detailed results, you can access the 4D report on our website. I'd now like to pivot the discussion to the operations underlying the results and give more context on what we've seen across the business during the period and then we'll cover questions. Firstly, to you, Lachlan.

Lachlan Hay: Thanks, Malcolm. First comment is that revenues are currently generated from sales of SCENESSE, that's afamelanotide 16 milligram implant. And it's the strong ongoing demand for the product that we see from patients with erythropoietic protoporphyria, or EPP, in both the U.S. and Europe that's driven really the growth. Maybe from that perspective, I'd pause and hand across to Darren to talk through revenues, and then we can come back and take a step back looking at the business. Darren?

Darren Keamy: Revenues had grown in all the jurisdictions that we have a presence in, and it's Europe, the U.S., Israel and also there in Switzerland. We are treating more patients. And what we're seeing is that the demand is consistent all year round, where we can facilitate that demand. If I may mention of the U.S., our -- led by Dr. Linda Teng, our Operations Head there, been quite successful in growing the number of specialty centers and bringing on board the national and local insurers to reimburse the treatment in the U.S., and that's -- we're very pleased with that progress that we've made there and that we are ahead of our regional plan.

Lachlan Hay: Yes. And I think we've talked pretty extensively about the efforts that have gone into both building and maintaining the commercial infrastructure, and those who are interested can see those in the news communiques. In particular, we talked recently about the German negotiations and interactions. And this is 19 months of discussions, preparation over more than 100-plus hours in order to be able to arrive at an agreement in Germany. And it's one such example. But ultimately, it is kind of work that contributes to the financial success of the company. As Darren has rightly pointed out, Linda and her team are really focused on facilitating treatment there with the CPT codes and the J-codes, which have helped expedite patient treatment in the U.S.

Darren Keamy: Yes, that's helped made access a lot easier there in the U.S.

Lachlan Hay: So if we step back then and really I want to talk about future growth and how we see this operationally. With CLINUVEL, we are seeing a specialty pharmaceutical company that's gradually diversified. So the strategy is being able to stand on our own 2 feet financially and then using the team's expertise to be able to create new opportunities. Now this draws, first and foremost, on our experience developing a novel drug for an unmet need and that's EPP, as well as our understanding of melanocortins. These are the family of hormones, peptides and their analogs that includes afamelanotide. And beyond that, then talking and expertise in delivery methods and also in polymers. So broadly speaking, the future growth of the business and that ongoing building really comes around this idea of a house of melanocortins, whereby we have pharmaceutical products that meet unmet patient needs and health care products or health care solutions for broader targeted audiences all within an integrated business. Now we're not aware of any other pharmaceutical company that's really focusing on the development of the melanocortin portfolio for both patients and also the general population with unmet needs. How are we doing this? We've shown this slide before, but the intention is to build into this divisional structure and this really reinforces our approach, whereby you have a core pharmaceuticals division, you have health care solutions division, the newer communications branding and marketing division that we certainly have been building over the last 12 months and the manufacturing division as well. All of this underpinned by the research, development and innovation center at VALLAURIX in Singapore. So maybe let's move back now and hand back to Darren, where he can talk through really how these investments in growth are reflected in the expenses that we reported.

Darren Keamy: Yes. Thanks, Lachlan. As what I've highlighted earlier on the expenses front, we've had a 67% rise in the reporting period. That's, obviously, a significant rise. That follows a rise of only 2% for the F1 2021 financial year compared to the prior financial year. But what I can say is that certainly in the largest expense categories that we reported in the 6 months was in the materials and related expenses and also in the personnel categories. So the material and related expenses is really the cost of our raw materials, supplies and the conversion costs and the preparation costs that goes into our finished good inventory that is required to meet our near-term and longer-term commercial demand, but also to support our expected demand in our clinical programs that are currently underway and certainly about to make pretty significant progress. And that accounted for about 50% of the overall expense increase. 30% of the overall increase also related to noncash charges in the share-based payments line. And that is -- was particularly influenced by recent issues to staff as part of our remuneration strategy to retain and to incentivize our workforce.

Malcolm Bull: Right. So as to say, Darren, that's a noncash item, but personnel certainly is, and that's our biggest expense line. Do you want to comment more on that?

Darren Keamy: Yes. That's very important for us to certainly grow and what one would expect from a group that wants to diversify and establish these new divisional structures, you expect the global head count to grow, and that certainly happened. And if we compare the previous -- the 6 months that we are reporting against the same period of 2020, we're certainly seeing head count increase, particularly in the communications, branding and marketing areas. I think one point I want to highlight about the personnel expenses is that -- where we might differ from our peers is that we do a lot of our functions in-house, whereas many companies may outsource a lot of their work. And if I use an example, R&D is probably a good example where many companies would use an external supplier such as a contract research organization to conduct their R&D. We, on the other hand, employ our own staff and do our R&D directly. And that gets reflected in our personnel line, which you may not see in the accounts of our peer companies.

Lachlan Hay: Yes. And we see that from a commercial perspective, too, where generally, a company would outsource functions like quality assurance, pharmacovigilance, product reimbursement, whereas many of those functions we still take on in-house, and that's been very much part of the business model. I think maybe the other comment that I'd make there is really, we're 2 years into a fairly challenging pandemic. And I don't think any organization has come through this without making some fundamental shifts. But the team has done exceptionally well under these circumstances. And I think that's reflected in the results today, too.

Malcolm Bull: Absolutely. We have received some questions on the general trend in expenses, Darren. So I'll give you another opportunity to comment on our approach in terms of general expenses to support the business.

Darren Keamy: Well, we will spend as necessary to support the growth and the expansion of the company in rolling out a multipronged strategy, but we will also do it with the deliberate nature and the varying expenses that we have applied to our business over the years. Look, it's important to note that we'll be spending more in the nearer term. But in terms of the timing of the expenditures, it does depend on the progress of our clinical and development programs and as we progress those programs through their respective parts. And obviously, it's clear that we will be managing our expenses moving forward where we will strive to ensure that profitability is certainly maintained.

A - Malcolm Bull: Right. Let's stick with this Q&A approach. I think it's working well for us, and it reflects a lot of questions we have received. So on revenues, some have asked for details on the geographic split between the EU and the U.S. markets. Now I know, Darren, we don't release such information, but could you explain why?

Darren Keamy: Well, as like a one-drug company selling in one indication, we do view the company as a single operating segment. So we report accordingly. But we are understanding and appreciative of the interest that our stakeholders want to know. So we are happy to provide further color where we can on the progress in certain geographic regions.

Malcolm Bull: Right. I mean as we've already done in this webinar.

Darren Keamy: Yes, yes.

Malcolm Bull: Now we have received questions, as you would expect, on our clinical trials, the expanded program across a number of areas. Lachlan, for you, please give us an update.

Lachlan Hay: So as a quick recap, Malcolm. First, you have the DNA repair program, and we have the ongoing study, CUV156, which is focusing on the use of afamelanotide in xeroderma pigmentosum C, or XP-C, patients. In parallel, we recently announced the commencement of the CUV151 study. This is a mechanistic study in disease-free volunteers, running very much a parallel protocol. So both of these studies, we expect, will conclude this year and we should see data from them. In terms of that broader program, we're also intending to start a study in xeroderma pigmentosum variant, XP-V, a little bit later this year. Moving on to arterial ischemic stroke and the CUV801 study. So we finished enrollment in that study as we've announced recently. I think the key news from that was really around the safety profile of the product. But if you're moving into a new indication, you really do want to make sure that you can monitor your safety closely. And so to announce that we haven't identified any safety concerns at this point in time is encouraging. Again, expecting results from that program and that study a little bit later this year. Then late in '21, we announced an agreement with the U.S. Food and Drug Administration to commence the vitiligo -- next vitiligo study, so CUV104. Again, I would expect to see some data from this program a little bit later this year. Now what I would say whenever we're talking about clinical trials, whenever we're talking about time lines, there's always a risk. And I think we have to be honest that this has been exacerbated by the pandemic in terms of being able to meet those time lines. But certainly, Dr. Pilar Bilbao and her team are making progress. The other comment that I would make is that there are other advances in our program. I haven't touched upon here, but I think we should be able to share more on these a little bit later this year.

Malcolm Bull: Right. I mean the progress is evident. An analyst and some other stakeholders have asked about our OTC products and launch time line. So for you, Lachlan, an update on that initiative?

Lachlan Hay: Yes, absolutely. So I'm pretty excited to be able to share the first OTC product line, so over-the-counter product line. But I also know that there are risks involved with launching new product, and we've certainly been through that experience as a company with a pharmaceutical product. And so for us, the intention is to minimize those risks. So right now, we're actively building know-how in-house. We're actively building digital teams to be able to target audiences and ultimately the end users of those products. So we've identified 3 categories of highest risk users, and these are the individuals who are at the highest risk of -- or health risk from exposure to ultraviolet light and high energy visible light. These are categories of individuals who are really underserved by the dermatocosmetic industry. Nobody is really meeting their needs at this point in time. The first one, put it up on the screen, is extreme outdoors. These are people who by profession or by passion expose themselves to a lot more ambient ultraviolent and HEV than is normal in society. Then you have individuals who have a personal or familial history of skin cancer. There is a genetic risk in skin cancer, and obviously, you see that in certain families. And then individuals who are immunosuppressed. And we've run a clinical program in organ transplant patients before. So there's a -- there's certainly some background information that's available there. But in terms of these patients, because of that immunosuppression, often lifelong immunosuppression, they are much higher risk of some damage and ultimately skin cancer than the general population.

Malcolm Bull: Okay. So 3 distinct groups that we're targeting. So how are we working right now to reach these groups?

Lachlan Hay: I mean, first, you have to identify who these type of groups are. And I think we've gone through that process now. And then it's about methodically building audiences, making sure that you're able to engage with these groups and individuals where they are and where they interact. The experience with rare diseases is healthier. So certainly, the process that we went through with developing erythropoietic protoporphyria and subsequently in xeroderma pigmentosum, we've learned a lot from that, that we can apply in the approach here. And generally speaking, though, I think the company is coming from a different direction, which is to be able to leverage the technology that we have, to be able to leverage the know-how that we have, but also really to position ourselves as a global authority in the impact of ultraviolet and HEV light on health. Now the intention is really around direct long-term engagement. And part of what we're building at the moment is a global digital ambassador program to be able to engage with these audiences longer term. This is different from the sort of fast fashion approach, if you will, that's taken by cosmetic houses. So firstly, shareholders are going to see online activity as we start to aggregate these audiences and we test the first product line in those target audiences. Thereafter, we will be officially and publicly launching the first polychromatic photoprotective agent and then rolling out that product. Now the comment that I'd make is that a good product with poor visibility will fail. And a mediocre product with good visibility will do okay. Now our intention is to be able to succeed on both fronts, having a good quality product and, at the same time, being able to engage with those audiences and build that visibility. So that's the approach there. Now I know that part of this question has come from one of your analysts, Malcolm. And I think that really they recognize that success in nonmedical products is driven by marketing and distribution. So that's very much the focus of mine. I think it's also recognized that CLINUVEL is very much a leader in photoprotection. And so what we are doing here is really about -- what we need to do here is really about gaining visibility with those highest risk audiences, which is exactly where we are in that process at the moment. So we've talked a lot about the targeted technology translation. That's really what I've tried to convey here, making sure that we are able to reach much larger audiences with our technology.

Malcolm Bull: Okay. I mean the strategy is one of logic, I think, and certainly thorough. So I know stakeholders want us to be thorough. And just the time line for the first product launch, what's your current read on that?

Lachlan Hay: Yes. So the audience engagement work is already underway. The official and public product launch will follow the pilot launch and also the incorporation of feedback from that pilot launch.

Malcolm Bull: Okay. On to the next question, and there's a focus on new product development within the ACTH area, new product, NEURACTHEL, as well as PRÉNUMBRA, the liquid formulation of afamelanotide. We've received the full gamut of questions on who, what, when, where, why and how, as you might expect. But Darren, where would you like to start to address that?

Darren Keamy: It's a good set, there's a lot of interest in that part of our program. But look, I think we'll address those questions at a later point with the fullness of time. So for now, I do encourage everybody to -- who might have the interest in our ACTH programs and in our other formulations by going to our recent releases and to our website and to our communiques. But look, we are certainly making progress in both ACTH and in PRÉNUMBRA. But we're acutely aware of wanting -- wishing to maintain a competitive advantage with these products right now.

Malcolm Bull: Exactly. So I would say there is so much to our business, and we've covered a lot of ground today and further ground will be covered as we provide updates in the coming months. So at this point, I want to say thank you, Darren and Lachlan, for walking us through the results and certainly adding to our knowledge on the strategy and progress of operations.

Lachlan Hay: Thank you, Malcolm.

Darren Keamy: Thank you, Malcolm.

Malcolm Bull: Thank you also to Monsoon Communications, Verity and Rudi, as who posted before and hosted today, and thanks to all of you on the line, all of our various stakeholders who have taken the time to dial in and hear about our excellent results. Finally, the recording of the webinar will be posted to the CLINUVEL website quite shortly. So for now, goodbye, and thank you.