Earnings Transcript for CUV.AX - Q4 Fiscal Year 2024

Verity Wai-Smith: Good evening. I'm Verity Wai-Smith from Monsoon Communications. Thank you for joining us for Clinuvel's Full Year Results Investor Presentation. Please note that this webinar is being recorded and will be uploaded onto Clinuvel's website. I'll now hand over to Malcolm Bull to begin the presentation.

Malcolm Bull: Thank you, Verity, and it's a pleasure to be doing this webinar through Monsoon Communications again. Welcome to all 170 participants on the line from all points of the globe; Australia, New Zealand, Europe and United States. You represent existing and interested institutional shareholders, analysts, bankers and valued private investors. Whilst this webinar is intended for shareholders and analysts, we even have a potential competitor interested to hear about our results and operations. I should say that whilst we protect the interests of shareholders and do not divulge sensitive commercial and technological information, we welcome Mr. SBJ [ph]. I'd now like to introduce Clinuvel's Managing Director, Philippe Wolgen; and Chief Financial Officer, Peter Vaughan, who will discuss the results for the financial year ending June 30, 2024 and answer shareholder questions. Welcome, gentlemen.

Philippe Wolgen: Thank you.

Malcolm Bull: Good. It's pleasing also that nearly a third of participants have asked questions. But note, the focus today is on financials. So not all topics can be covered in the 40 minutes we've allocated for this webinar, and our executives have to be talking pretty fast to cover all of the ground we want to cover today. However, the AGM on October 16 provides another opportunity for questions to be asked. To round our introductions, I need to draw your attention to the forward-looking statement on the screen, and that basically highlights there's a range of risks that can materialize that can affect the plans and intentions to build the business that we're going to communicate. A copy of this statement is also available on the Clinuvel website. So let's get down to business and cover the results. Peter, you have just presided over your first set of accounts for Clinuvel, and I'm not going to say how I think of them, I'm going to ask you. Please summarize the results.

Peter Vaughan: Thanks, Malcolm. Welcome, everyone, and thank you for joining us today. We're very proud of the results achieved this financial year, and I think it's a testament to our team and their focus on delivery of our strategic initiatives. The strong performance is evident across all aspects of the business. Total revenues, up 15%; net profit before tax, up 11% to $50 million, our eighth consecutive profit; net profit after tax, up 16%; and total assets, up 19%. We also achieved a 53% EBIT margin and a 37% net profit after tax margin. Off the back of these great results, we were pleased to announce that our Board declared a seventh consecutive annual dividend, being the third consecutive fully franked dividend, which is on top of nearly $0.75 million the company has invested into the share buyback program over the past months.

Malcolm Bull: Good results. So how do you interpret them, Peter?

Peter Vaughan: The company is performing exceptionally well, Malcolm. We've achieved the largest revenue and profit figure in the company's history. We're paying a seventh consecutive dividend while simultaneously reinvesting in the expansion of the business for the future. The balance sheet is strong, and overall, the company is well positioned.

Malcolm Bull: Thanks, Peter. Now this is not a strategic update, but I do want to draw Philippe in to provide briefly a summary of our strategy to give context to the results that we've achieved and perhaps mention a few of our activities that you'd like to mention, Philippe?

Philippe Wolgen: Thank you, Malcolm. Good morning all shareholders and interested parties. First of all, I need to start by stating that the results, as posted today, are a direct sequel of the strategy that we devised many years ago. And turning this company into a differentiated pharmaceutical, we strategized that it would be better to have a profitable company replowing their resources into RD&I, while maintaining this profitability over the years as opposed to becoming a mundane pharmaceutical that needs to access cash through debt or equity continuously while waiting for future profits. So in today's context, this is the best result that the company has ever posted in its history, and it fits the strategy that we will continue. Some key operational highlights from the past year were, for instance, the progress with vitiligo, the progress with in-house research, development and innovation, data on new formulations, progress within ACTH manufacturing. We are about to file our first Canadian dossier. And so there are many sectors and domains where we booked progress like the prelaunch of CYACÊLLE. And most what shareholders can see from these set of figures, the expansion in headcount with the attraction of a new CFO, a new Company Secretary, the promotion of Lachlan Hay to the Chief Operating Officer, the return of a Director of Clinical Affairs, the depths of analytics, in-house lawyer, engineers and most importantly, the extension of the contract of the Chief Scientific Officer. So the foundation of the house is, in my view, near complete and that gives hope for the future, for sure.

Malcolm Bull: Definitely. Just a follow-up, Philippe, and to help shareholders understand the overall expanding activities, I'd like you to explain the rationale for putting pharma and PhotoCosmetics within the house.

Philippe Wolgen: Yes, that's a question that we frequently hear. It is true that it's highly unusual to have a combined pharmaceutical and cosmetic venture in one; different markets, different teams, different products, different distribution channel. However, the company is differentiated in that it has generated over four decades of data on Melanocortins, and these data are being translated to the same peptides in PhotoCosmetics. And with that, we are the sole company on the planet able to do that. And so keeping the cosmetic venture within Clinuvel makes absolute sense. And the prerequisite for further success is building audiences around the PhotoCosmetics, but keeping the umbilical cord between the PhotoCosmetics and the pharmaceutical venture.

Malcolm Bull: Good, good, a very definite link. Well, let's get back into some discussion of financial results and, Peter, turning to you. I'd like, first, on behalf of shareholders, to understand a bit more from you about the key drivers of revenues growth in the past year.

Peter Vaughan: Sure, no problem. So, the total revenues increased by 15% during the year, driven by the growth we've seen in demand for the SCENESSE product in both the European and North American markets. This was supported through an increase in the number of specialty treatment centers, particularly in North America, which now amounts to 87 sites; and an increase in patients, leading to more administrations of implants overall. Our interest returns have earned us -- have grown from our cash reserves, which has provided us with a source of sustained cash inflows to continue to support our working capital.

Malcolm Bull: Yes. Okay. Now with reference to the chart that's on screen that participants can see, can you comment on the longer-term trend in revenues and profits, please?

Peter Vaughan: Sure. The longer term, we've experienced steady growth in revenue year-on-year, particularly since 2021 when U.S. sales came online. This year-on-year growth now has Clinuvel's 8-year revenue CAGR up to 38%. There's been a steady rise in expenditure to support the revenue increases as we move through our expansionary phase, which has combined to deliver an 18% ROE this year. Despite the company now being in an expansionary growth phase, through the control of fixed costs and careful expense management, we're firm in our belief that bringing many of the usually outsourced activities that Philippe just mentioned back in-house will be fundamental to our overall success.

Malcolm Bull: Right. Now expenses growth of 19% is a reasonably solid increase. Can you delve into what's driving that growth and indeed the components of expenses?

Peter Vaughan: Our expenses have increased in the past year, but this is well in line with our expectations as our expansion strategy ramps up. The expansion strategy has two main pillars

Malcolm Bull: Okay. Got it. Good overview. Philippe, since Peter mentioned CBM, Communications, Branding and Marketing, can you expand on their role in the business, please?

Philippe Wolgen: Yes, the CBM stands for Communications, Branding and Marketing. This was an initiative 2.5 years ago to bring that in-house, and that finds its foundation in the belief that in order to succeed on the global stage, the company will need to become more prominent and more visible. And the two choices were either to outsource this and hire recruit agencies that promote the company, both in the medical and in the consumer health market. We've tried it, it didn't work very well and at some point, we decided to bring that in-house with top professionals from the luxury goods industry. And over the years, we've experimented with a number of events and activities. One of the most ones was in the 29th of February in Los Angeles, where VIP-endorsed events yielded 3.4 million audience viewing Clinuvel. And so the communications, branding and marketing team that we've built in-house is pivotal, in my view, in the future of the company, succeeding both in the medical domain, but also in the health consumer space. So we are nearing the completion of the team where we will bolster the social media activities and then our shareholders will look forward to the next 24 months of global activities, events, editorials and tutorials where the company will feature in, I would say, branded press.

Malcolm Bull: Okay. Thank you. And as Head of IR, I can tell you, it's a pleasure to work with a team of professionals that have produced such a high-quality annual report.

Philippe Wolgen: I should add to it that Investor Relations is part of the communication, branding and marketing activities because one way or the other, we're all communicating the same message with 2 different stakeholders, but sure.

Malcolm Bull: Correct. So we're still on expenses, which would please the analysts because they do like to get into that detail. Peter, we've got a five-year expenses plan. Can you update us as to how we're tracking on a cumulative basis to that plan?

Peter Vaughan: Of course. We've just commenced the fifth year of that five-year, $175 million expenses plan. With $125 million of that plan has been extended over the first 4 years, we still have 28% or $50 million of that plan remaining to stay within the $175 million target. You'll note that our expenses plan, however, does not include the CBM expenditure, which we've just touched on, as this plan -- as this forecast was delivered prior to the establishment of that CBM team within the company.

Malcolm Bull: Got you. Philippe, a few analysts and shareholders have asked, when can we expect a new expenses plan? Would you like to shed some light on our plans there?

Philippe Wolgen: Yes. So let's complement what Peter just said. If you look at the graph, we had the courage in 2021 to project our five years expenses. That's based on the internal belief that future cash flows would follow, that would grow in the EPP market and that we would have, therefore, the team to advance our clinical pipeline. We are nearing the end of that five years plan. We have the same boldness and courage to make a three-year plan, foreseeing the growth in the EPP market both in the U.S. and Europe. What we hadn't foreseen is that we would exceed our cash reserves, which gives us optionality both to invest internally, but also to look at M&A opportunities. So the next three-year plan will be finalized in calendar year Q4 this year and most likely be reviewed in the first half of 2025. But we are ahead of our own projections, so that is pleasing and surprising.

Malcolm Bull: Thank you. Let's turn to the balance sheet. Peter, how would you describe the balance sheet?

Peter Vaughan: Well, again, Malcolm, you can see this year's strong performance has led to a strengthening of our balance sheet across all areas.

Malcolm Bull: Yes.

Peter Vaughan: Total assets are up 19% to $231 million, driven by the significant $27 million increase in the cash reserves from revenues that Philippe just touched on. Total liabilities, despite the increase in our activities, were down in comparison to the prior year. And we continue to remain debt-free, as has been the case for the past 19 years. Clinuvel's strong balance sheet and cash position not only provides us with the equivalent of up to three years of operational expenditure, but also provides us with a buffer to protect us from the external economic and market factors around us, which have proven fatal to many other life science companies. With available funds to deploy, Clinuvel continues to explore both organic and inorganic expansion activities. And finally, now, what I'd like to reemphasize here is our 18% ROE, which is certainly a standout amongst many of the life science companies in the ASX.

Malcolm Bull: Indeed, it is. Okay. I'm going to progress, and I put up our pipeline, which covers our focus on conditions of skin and brain across a range of products in the different stages of clinical studies. We've received more questions on vitiligo than any other program. So Philippe, I'm going to focus on that. Dr. Benson, one of our analysts, Mr. Neeman [ph] and other shareholders have asked about the progress of CUV105. And with the recent extension to the recruitment period to June 2025, one question is, could the delay in recruitment or the extension of recruitment have been foreseen? And two, what are the implications now for the path to market?

Philippe Wolgen: Thank you. So first of all, it's a very relevant question, Dr. Benson and other shareholders. I'll start with the last question, could delays be foreseen? In this case, probably not. Learning from the Phase II that we conducted 10 years ago, the retention rates in vitiligo was pretty high. If I make some comments that are more understandable for laypeople that are not so versed in vitiligo, vitiligo is a depigmentation disorder; one amongst very few disorders in the world where the defects are actually visible. The people are losing their constitutive color. And in order to demonstrate efficacy, effectiveness of a drug, we inject these patients with afamelanotides that gives a phenotypic efficacy. And phenotypic efficacy means, there is an observable effect. And that means that patients are inherently unblended from the treatment and the placebo treatments that they receive, in this case, Narrowband UVB, which is highly ineffective. So you got one arm of patients that receive the combination therapy, that is Narrowband UVB, and the other half of the waiting room of patients that only receive Narrowband UVB, which is not effective. So patients know within three to four weeks whether the drug is actually effective in working because they see their color coming back. We received from the physicians and the treatment centers this year, the feedback that patients were demotivated to continue treatment and to stay 21 weeks on the placebo and seek an alternative with us, how to retain these patients. The percentage was low. But as the pool of patients grows, we forecast that we didn't want that percentage to grow. And so with the expert physicians and our center-backed advisers, we took the decision to put those patients that would receive the placebo treatment, the control treatment, which is Narrowband UVB, to put these patients longer term and offer them SCENESSE. And so that has a disadvantage and advantage. The disadvantage, of course, the time lines are extended. The advantage is that you actually generate data on both the active group, the combination of Narrowband UVB and SCENESSE, and those patients that are retained in the trial that are promised SCENESSE to motivate them to complete. So in philosophical sense, in every disadvantage, there lies a benefit, and I'm pretty pleased that the clinical team is taking that decision, because it means that we double the data that we originally would have. So the answer to Dr. Benson, this could not have been foreseen. It was a surprise to all the experts, the treatment centers and us, but it's also almost a testimony that the phenotypic efficacy, the visible efficacy is so strong that patients demand SCENESSE as part of the trials. So overall, we're in a pretty good condition.

Malcolm Bull: Okay. And likely submission of a dossier covering new studies to the FDA, we'd still see that in calendar year '26?

Philippe Wolgen: Well, we will seek discussions -- ongoing discussions with the FDA. And if and when we have news from them, we will report that to the market, but it's too soon to say whether there is a delay on the regulatory front at all.

Malcolm Bull: Okay. All right. I want to move to our multiple catalysts that we identified for 2024, 16 in all. And everyone can see on screen that there's a good array of ticks where we've accomplished and achieved. I would like you, Philippe, to cover what is to be achieved for the remainder of 2024 and if there are any outcomes that are worthy of note that actually aren't on this list?

Philippe Wolgen: Well, we will first start by stating that these are self-imposed objectives to our staff and management. What we think are key performance indicators at stretch, there are five remaining. The majority of those will be fulfilled in calendar year '24. And at the AGM, we will present our shareholders the self-imposed list of objectives for financial year '25. But overall, we're pretty pleased with the progress. And drug development is like a step procession, there's two steps forward, one step back. But in general, we're on target with everything we set ourselves to do, and we have the cash reserves to fund it. So I couldn't be happier at the moment with how the team is performing and expanding with new talent coming in.

Malcolm Bull: I'm sure, that's welcomed by participants. We've got a bit of an opportunity for some open questions in the time we have available, some open questions followed by a bit of a summary from Peter.

Malcolm Bull: First, Philippe, we've had a number of questions on the share buyback program from Mr. Fraser, Mr. Haifley [ph], feeling the company should have purchased more by now. And from others, indicating perhaps that the guidelines and process is not that well understood by other shareholders. For example, Mr. Baumann asked, why we have halted the share buyback, Philippe, for everyone. Please clarify.

Philippe Wolgen: Well, let's start with the last question, asked by our Swiss investor, why the share plan has halted. That is a misunderstanding and probably, misinformation about how our share buyback program works. There are guidance rules published by the ASX on this. For instance, guidance Rules 110 Section 37, where companies and officers are refrained from buying on market if inside information or material information resides within the company. And the blackout periods are quite well defined. Two months prior to financial results, the company should be refraining from buying back on market because it possesses financial information. So if a company is to halt a share-back program that was announced on the March 21, '24, it would surely be expected to announce that it has halted the program, but by no means do we intend to do that. And we have the capacity to purchase back 3% or 1.5 million shares of the company up to 20 million, and the directors will deem it fit to enter the market when the opportunities arise. But by no means has it been halted, but there are blackout periods that the company needs to respect.

Malcolm Bull: Indeed. And we have until March next year to complete the program, correct?

Philippe Wolgen: It's a 12-month on-market program.

Malcolm Bull: Right. A key area of interest is PhotoCosmetics and particular interest in the M lines, Philippe. What are the preparations that are needed for those lines to get to market? For example, also, if you can address, Mr. Singer [ph] asks, if we're on track to be a household name by 2026? So if you could answer those 2, what do we need to do to get to market and we will be a household name imminently?

Philippe Wolgen: I will end up with Mr. Singer's question. There are pragmatic activities that one needs to fulfill to bring a new cosmetic -- PhotoCosmetics market. There's completion of testing, completion of the human testing, regulatory activities, securing the labor claims, the completion of a disruptive or new retail concept that our engineers are working on, differentiating your lines, your offerings to a specialized retail audience. Then there is a budget that we set aside for the PhotoCosmetics and CBM projects, setting up the organization, which we're near complete ending up in editorials and tutorials so that the products obtain prominence prior to coming to market, as you have seen in the events in February, as I alluded to and then entering the targeted distribution channel, so people will understand that these products will be available in very select distribution channels at high-end audiences. And the conglomerate of activities will need to result into a brand, branding the company, first and foremost and then its products and we've set ourselves a two-year time line. So Mr. Singer, are we on track? We're on track in ascending the escalator step by step that the audiences are growing. And I'm pretty sure that in 12 months' time, you will see the Clinuvel name in many of the magazines and newspapers on its business and its rollout of PhotoCosmetics.

Malcolm Bull: Yes, very exciting. A question on the clinical front. We're asked by Mr. Hess, how can we improve or how are we improving our management of the drug pipeline? Philippe?

Philippe Wolgen: Yes. Well, Mr. Hess is well known to us. He's been almost 20 years in the company, so a very long-term shareholder from North America who recently increased. So we're very pleased with his presence. His questions of whether the depths of the pipeline is sufficient or not, we started off as a very focused company. And as we grew in confidence that the novel molecule could come to market and would be reimbursable, we diversified gradually. That's a very different business model and most of our peers would diversify early and then perhaps drop some of the programs or abandon programs to focus on one or two. So the depths of the pipeline is robust enough to build a company three- or four-fold out of what it currently is, which you need to increase the pipeline probably not with the number of staff we have. And I'm a firm believer that defocusing increases the risk of execution in the company and also the financial risk. So I dare to say that splitting the company between the skin and brain with the 6 indications recently announced after years of preparation is sufficiently deep to progress the company as a reputable pharma.

Malcolm Bull: Very good. I'll turn back to you, Peter, and remind people that you've been five months in the company now. So from that perspective, what can you say lies ahead for Clinuvel?

Peter Vaughan: Look, I've only just got my feet under the desk, Malcolm. But now that I have, I've had time to review the business its strategy and the foundations of the melanocortin house Clinuvel is building. As highlighted with previous analogies in other announcements the current revenues and activities are only just the tip of the iceberg. And there's much more to the Clinuvel iceberg that lies just below the waterline, which is under further development and that will be obviously announced in due course. Whilst we don't provide guidance, it's evident from our strong balance sheet and cash reserves provide us with options and the ability to explore and harness those opportunities as they present themselves. These opportunities may appear in the form of either organic or inorganic growth opportunities that we see will fit our strategic objectives. And I guess, finally, Clinuvel has been led by Darren Keamy over the past 19 years. And now as he passes the CFO baton to me it's my privilege to lead the company through its next expansionary growth phase as I continue to ensure it's done with sustainable financial oversight as we build on what has been the best results for the company today.

Malcolm Bull: Indeed, good summary. What remains for me is to conclude with some thanks. Thank you to the analysts on the line. Your independent review of the company is immeasurably valuable as you communicate to wider audiences. Thank you to all attendees on the webinar. 170 attendees is good and we hope for more when we next have a communication on our results. And to those who submitted questions, we really do appreciate your engagement. I want to thank Philippe and Peter for your analysis contributions. Very much appreciated, gentlemen.

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Peter Vaughan: Thank you, Malcolm.

Philippe Wolgen: You're welcome. Thank you, Malcolm. Thank you all to shareholders and the analysts and welcome to Peter and Claire, who's the new Company Secretary. Pleasure working with you.

Malcolm Bull: Indeed. And a recording of the webinar will be made available on our website as soon as we can process that. The next Investor Relations event, as we've already mentioned will be the Annual General Meeting to be held on October 16 in Melbourne. So good evening or good morning to all of you have a productive day and enjoy monitoring the ongoing progress of this great company, Clinuvel. Thank you.