Addex Therapeutics Ltd (ADXN) 2011 Q2 法說會逐字稿

Good morning. Good afternoon. I'm Christina, the conference call operator for this conference. Welcome to the Addex Pharmaceuticals Half Year 2011 Financial Results Conference Call. Please note that for the duration of the presentation all participants will be in listen-only mode and the conference is being recorded.

(Operator Instructions)

At this time I would like to turn the conference over to Mr. Chris Maggos. Please go ahead, sir.

Thank you, operator. Hello and welcome to the Addex first half '11 financial results webcast and conference call. Today Andre Mueller, our executive chairman will give a brief operation status update, then Tim Dyer, CFO, will walk you through the financials. After that we will open the call for your questions. Vincent Lawton, Addex board member, also is present to answer your questions as he has led the board subcommittee with Andre and Ray Hill to oversee operations at Addex during this transition period.

Andre, the floor is yours.

Thank you, Chris. Good afternoon and good morning for those of you who call in from the US. Despite some difficult decisions we are happy with the progress we've made in the first half of 2011, and very excited about the future of Addex.

Our two most advanced pipeline products are advancing through Phase IIa testing in schizophrenia and Parkinson's disease, respectively. And we have a strong cash position.

We've made changes and are operating with a more efficient organization. I'm pleased to be able to share with you that the search for a new CEO has progressed significantly and we hope to be in a position to announce the appointment of a new CEO in the not too distant future.

While steps have been taken to ensure that the reorganization allows us to retain staff with key talent and competencies, it is expected to yield significant savings. The consultation period required under Swiss law, typically two weeks, has been completed and the affected staff members were notified this past Monday. Staff will be reduced by about 25% by September 30th.

We also have initiated pipeline prioritization and strategy review efforts which will be finalized soon. As you have seen in today's release, we have regained from Merck and Co., Inc. all the rights for mGluR5 activators called positive allosteric modulators, or PAM. The decision was taken by Merck after a pipeline prioritization. They did not want to continue to invest in the project at this time.

Merck scientists are preparing a publication that will summarize some of the work that was done at Merck. After that is published later this year we will be able to discuss in more details our goals for the mGluR5 PAM project at Addex with you. For the time being I can say that we see a way forward and are interested to explore this intriguing novel mechanism for the treatment of schizophrenia and cognitive disorders further.

Our preclinical projects, including the mGluR2 inhibitors, called negative allosteric modulators, or NAM, for Alzheimer's and GLPR1 PAM for diabetes continue to attract interest from potential partners. In addition, recent progress with the technology platform at Addex has been extraordinary. Our technology platform has made exciting advances and we're finding hits that are missed using conventional methods. And our hit confirmation rate reaches up to 90% compared to 10% for available gold standard techniques.

We already have identified exciting hits in the interleukin receptor family, the receptor tyrosine kinase super family, and the TNF receptor super family. We are examining the best ways to explore these highly exciting receptor families through a combination of internal investment and partnerships while maintaining our leaner, more creative operating structure.

Now Tim Dyer, our CFO, will take us through the financial results of the semester.

Thanks, Andr. Good afternoon and good morning. So before going through the details of our 2011 half year financial results let me give you the highlights.

So we're pleased to report cash utilization of CHF13.6 million for the first half of 2011. This is line with our guidance of CHF28 million to CHF32 million for the full year. This resulted in us finished the half year with a strong cash position of CHF50.2 million, and total income for the first half of 2011 is CHF3.2 million and our net loss has reduced by 14% to CHF14.6 million.

So moving on to the balance sheet, our strong cash position of CHF50.2 million combined with the cost savings expected from the previously announced restructuring should take us through until the end of 2013, just two and half years from now. It is important to note that our current cash runway assumes no milestones from existing partnerships or cash inflows from business development activities.

So moving on to the income statement, for the half, the first half year 2011 amounted to CHF3.2 million, compared to CHF2.7 million in the first half of 2010, and comprised mainly the CHF2.6 million Phase II start milestone received from Janssen Pharmaceuticals under the mGluR2 PAM license agreement. In addition to this there's CHF0.1 million of technology access fees from Merck & Co. under the mGluR4 PAM license agreement, and CHF200,000 of French research tax credits for 2011, and CHF200,000 recognized from the CHF900,000 grant from The Michael J. Fox Foundation to support our Phase II trial in PDLID. We have a remaining CHF630,000 of this grant which is expected to be recognized in the second half of this year.

On the expense side R&D expenses decreased by 13% to CHF14.6 million in the first half of 2011 compared to CHF16.7 million in the like period for 2010. This is primarily due to our lower headcount. We expect expenses to continue to decrease going forward by approximately CHF8 million on an annualized based starting in 2012.

So moving on to the cash flow statement, the half year cash utilization of CHF13.6 million is mainly comprised of CHF16 million used in operations, which has been compensated by a CHF2.6 million milestone received from Janssen Pharmaceuticals.

Now moving on to the analysis of our headcount development, you will note that we have significantly reduced our headcount since 2009 through a number of streamlining initiatives, bringing the headcount down from 144 to 112 full-time equivalents. More recently we announced the implementation of a restructuring that will reduce the headcount by around 25% and we expect to have 82 full-time equivalents by the end of September this year.

Moving on to the outlook for the rest of 2011 and beyond, so despite the restructuring we are maintaining our cash utilization guidance at CHF28 million to CHF32 million for the full year, since we are expecting the positive financial impact of the restructuring to be compensated by a number of one-off restructuring costs in 2011.

However, starting in 2012 we expect to benefit from around CFH8 million in annual savings. As a consequence our cash reach has been extended from quarter one 2013 to quarter four 2013. It is important to note that our cash utilization guidance does not include any cash inflows from existing agreements or potential cash inflows from new partnerships.

And now that's the end of my prepared remarks. We'd be happy to address your questions. Operator, please open the call for questions.

First question comes from Robin Davison from Edison Investment Research. Please go ahead.

Thank you. Hello. Good afternoon. First of all, on the mGluR5 patent, the program, I'm wondering you're not using the compound number as 63365, which you have in the past. Does that mean that that compound did not -- it just though it wasn't suitable for development. And was that in any way a decision and that led to the termination of this collaboration?

Thanks, Robin. Vincent Lawton's going to take that question.

Sorry, Robin. Could you just -- can you just clarify that question again?

Sure, yes, yes. I was wondering, you used to use the compound number ADX63365 for the mGluR5 PAM. And I'm wondering whether that was a compound that turned out not to be suitable for development and whether effectively that made that was part of the decision for Merck to discontinue the research program.

Okay. And, well no, not especially, but the details and properties of the different compounds will be published later this year. And we're -- it's rather difficult for us to answer too many questions on that at the moment, but this will be addressed later in the year when Merck publishes some results of their own studies and their own work.

And but one thing I think important to note out of the mGluR5 decision is that we have decided to take back our own intellectual property on this so that pending the results of the study from Merck we can then make our own decisions about how we start looking into this what we consider to be an exciting novel mechanism for the treatment of schizophrenia and cognitive disorders.

Okay. In fact, I was going to ask a follow-up on that. I wondered whether there is any payments due to Merck or possibly receivable from Merck in connection with this, or any further sort of ongoing obligations, like royalty interests in the program if it were to be successful.

No. There is no ongoing financial links on this program either way between Merck or and Addex.

Right. Okay, I can ask, Tim, a simple question perhaps. Is there any, or will there be any exceptional payments, the charges made in the second half accounts in relation to the former CEO or the ongoing workforce restructuring program?

Yes. We're expecting CHF1.7 million in restructuring costs which will be recognized in the second half of 2011.

Right. Okay, and just I have a couple -- I have small point on the R&D part. Can you explain what is going on with some of the other programs at this point? Particularly I'm interested in the FSHR NAM, for example, where I believe you were doing some, or at least planning to do some animal studies.

We are going to hold an R&D day later this year when at which time we will go through the various programs we have. And we also are undertaking an evaluation of all the programs at the current moment. So it's not that I'm trying to duck your question, but basically we prefer to pause at this stage and to be able to give a better and I'd say full disclosure of what we are going to do with the various programs when we have the R&D Day. This will be a hopefully either late September or beginning of October.

Okay, right. Okay, well, thank you very much then.

Right.

Next question Mrs. Philippa Gardner from Jefferies International. Please go ahead, madam.

Oh, thank you. Hi there. I have a couple of questions if I could. First of all, Tim, I was wondering if you could help me a little bit with some of your comments on the cash. I guess even if we sort of assume, as you say, savings of CHF8 million next year I guess I still sort of struggle a little bit with what's going to happen to R&D in order to extend your cash out to the end of 2013. And I was wondering if you could sort of help me understand where all the CHF8 million is actually coming from.

And then my second sort of more broader question is just related to the search for the new CEO, can you tell me what sort of things you've been looking for in potential candidates and what you're hoping the focus of the new CEO might be? Thank you.

Okay. Well, I'll take the first question. So we've decided to maintain our guidance at CHF28 million to CHF32 million because there are a number of uncertainties regarding certain costs going related to the restructuring in the second half of this year.

And our estimates by reducing by 25% not only the headcount, so the CHF8 million is not related just to R&D. It's related to all the cost savings across the organization. So what we are expecting to be doing is we've reduced the headcount, but also we will be reducing in addition to that our facilities, which is quite a large cost as well, and all the related charges.

So the estimates we've calculated give us CHF8 million on a very prudent basis going forward from starting in 2012. Now we may see some of those savings in 2011 already because as you can see we're expecting the headcount to already be down to 82 by the end of September.

Okay.

So I'll take your question regarding the kind of CEO we are looking for at Addex. And I don't want to go to into too much detail, although as was said earlier including in our release, the process has progressed quite significantly and we are hopeful to be making an announcement in a few weeks.

What we're looking for is someone with the appropriate skill and experience for this stage of the Company's life. And this is a very general statement, but the board is very experienced, comprises very experienced people with good skills in analyzing the profile of candidates, first of defining the needed the profile and also analyzing the profile of candidates. And therefore we're confident that the person we will choose will bring the skills that this Company needs.

Okay, that's great. Thank you.

We're also going to -- I don't want to go into more details at this stage. I don't want to speculate, but just to repeat that we're on a good track.

That's great. Thank you.

Right.

Your next question, Mrs. Victoria English from MedNous. Please go ahead, madam.

Yes. Robin has asked a couple of questions that I had in mind. Let me just turn to the new CEO for a minute since that's on the table here. If the new CEO were to arrive tomorrow what would you say to him is his top priority? Would it be for example to find a partner for Dipraglurant, or what would be the top priority? That's the first question.

And the second question getting back to the Merck licensing agreement that's been discontinued, I know you've said that you can't discuss the properties of the molecule that much, but I'm wondering whether you can still give us a little bit of insight as to how this differs substantially from the product which is being developed for the same indication by Johnson & Johnson. They're both PAMs, and I'm wondering whether you can give us some idea of how they differ.

I'll take the question of the priorities for the new CEO if he was to arrive tomorrow. The first thing is advance on a number of discussions that we're having regarding partnering projects. And the 621 is not necessarily the one that is the most prioritized in terms of the discussions because we're in the middle, or we have start, initiated the Phase IIa trial on this, and therefore we think there is at the same time expectations, but also a lot of value attached to this. And probably it's better to wait until these results are in before this compound is licensed. Still it has some time to have discussions with probably the terms that we can get on this will depend on results.

Okay.

So it's rather other projects and at the same time we haven't been without a CEO during since the departure of Vincent Mutel. And the board has created a subcommittee with Vincent Lawton, myself, Ray Hill and others. And we've spent a lot of energy and time in focusing on projects, selecting. This is not completed, but a lot has been done, and we would want the new CEO to help us complete this work and therefore have a streamlined list of projects, and the resulting organization or so adapted to that list of projects.

Thank you.

So, Victoria, it's Chris here. Just on your second question I'm not really the right person. We don't have our neuroscientists in the room, but just to point you in the right direction, the mGluR2 is a clinically validated target. There's been Phase II studies by another pharma company showing that it produces statistically significant efficacy in schizophrenia and also in anxiety.

It is a target, a receptor for glutamate just like the mGluR5 is, but they are involved in different neurocircuitry. And the five PAM is a mechanism where there has been very promising preclinical validation, but no clinical validation yet.

Okay. Thanks very much.

Next question Ms. [Susan Owl] from [Alagandorg]. Please go ahead, madam.

Hi. I have a couple of questions. Earlier in your call you mentioned that your and that you're going to undergo a pipeline reprioritization. And I was just wondering what we should expect in terms of are you looking on your discovery candidates, your preclinical and when we should expect to --?

It just was quite difficult to hear. Maybe you go closer to your microphone or whatever. We hardly got your question.

Oh, okay. I will try to speak a little bit louder. Is this okay?

Yes.

That's clear.

So far, yes.

Okay, great. Earlier in your call you mentioned you're pursuing a pipeline reprioritization soon. So I was just wondering if you give us a little bit more detail in terms of what we should expect and when.

I think, Susan, that we'll be focusing on fewer products in high priority projects, in high priority opportunity areas. I can't give the details of those at the moment, but in due course those will be made available over the next short period of a couple of months where the focus will be quite clear, but our whole strategy on reorganization, restructuring and so forth is -- has been done also to maintain our core competence in allosteric modulation, which is essentially where our main focus is going to be because we have an outstanding record in that area, and I think it's the best for us to capitalize on it, but focus and greater cost efficiency in everything we do, and also addressing the needs of both existing partner organizations and potential partner organizations is really, are really the criteria which we will be employing.

Okay, great. And also I understand that Merck is going to continue the future development of mGluR4 PAM. I wanted to know more about what we should expect ongoing or in terms of visibility and what's going on with the program.

Well, this really is going to be in the -- we have a joint research committee between ourselves and Merck. Merck essentially are going to be continuing with the development of this and we'll be making any announcements in due course as they progress with this research, but I can't really speak for Merck at this stage, but undoubtedly they will continue with vigor this project.

And just one last housekeeping question. Can you refresh my memory in terms of how many shares you have outstanding?

Yes. 7.8 million shares are outstanding.

Thank you.

(Operator Instructions). Gentlemen, there are no more questions at this time.

Okay. Well, thank you very much for joining us today and please feel free to call us. And we look forward to speaking with you soon. Have a good day. Goodbye.

Ladies and gentlemen, the conference is now over. Thank you for choosing the chorus call facility and thank you for participating in the conference. You may now disconnect your lines. Goodbye.