Addex Therapeutics Ltd (ADXN) 2007 Q4 法說會逐字稿

Good morning. This is the Chorus Call conference operator. Welcome and thank you for joining the Addex Pharmaceuticals conference call. (OPERATOR INSTRUCTIONS). At this time I would like to turn the conference over to Mr. Chris Maggos, Head of IR and Communications of Addex Pharmaceuticals, accompanied by Mr. Vincent Mutel, Chief Executive Officer, Mr. Tim Dyer, Chief Financial Officer, and Mrs. Charlotte Keywood, CMO. Please go ahead.

Hello everyone, thanks for joining us. During our prepared remarks Tim Dyer, CFO, will take you through our full year 2007 financial results and provide guidance for 2008. Then Vincent Mutel will review the major events of 2007 and give a brief pipeline update before we open the call for your questions. Tim.

Thanks Chris, good morning ladies and gentlemen. Before discussing our 2007 financial results let me remind you of some basic facts about Addex.

Addex is located in Geneva, Switzerland and trades on the SWX Swiss Stock Exchange under the ticker symbol ADXN. The Company was founded in May 2002 and has grown organically to around 100 staff today. Addex is a drug discovery and development company focused on small molecule allosteric modulators. We have a pipeline of allosteric modulators discovered in-house including the lead product ADX10059 which is in phase II development for GERD and migraine. We also have one phase I program and multiple pre-clinical programs all coming from our allosteric modulator discovery platform. We have two deals with Merck which were entered into in December 2007 and January 2008 and a deal with Johnson & Johnson which was entered into at the end of 2004. All these collaborations are progressing well.

I'll now walk you through our financial results for the year 2007. So starting with the balance sheet, in 2007 our cash and cash equivalents position increased by CHF99.1m to CHF140m. This is primarily due to the net proceeds of CHF127m from the IPO and upfront fees of CHF3.5m from Merck, which have been offset by CHF27.4m of cash used in operating activities during the year.

Other current assets have increased significantly to CHF3.6m mainly to due to the pre-payment 2008 pension fund costs in December 2007 and increases in recoverable taxes associated with the increase in interest income.

Our property, plant and equipment position net of accumulated depreciation increased by 35% to CHF5m. Investments in property, plant and equipment during 2007 amounts to CHF3m. This amount was primarily related to equipment and refurbishment costs of additional research facilities at our Plan-les-Ouates site. We expect these additional chemistry and biology facilities to be operational in quarter two of this year. In January of this year we signed a lease for an additional 1,600 meter squared of office space adjoining our site in Plan-les-Ouates which is expected to be operational in quarter three of 2008.

Payables and accruals amounts to CHF5.9m at year-end 2007 compared to CHF3.9m at year-end 2006. The increase of CHF2m was primarily due to the amounts accrued under ongoing pre-clinical and clinical studies.

At December 31, 2007 CHF3.3m of upfront fees received from Merck under the mGluR4 positive allosteric modulator collaboration have been recorded as deferred income for recognition in 2008 and 2009.

Moving to the statement of income, so revenue amounted to CHF0.6m in 2007 compared to CHF4.8m in 2006. The decrease of CHF4.2m is primarily due to the reduction in revenue under the mGluR2 positive allosteric modulator collaboration with Johnson & Johnson. I'd like to remind you that this collaboration agreement was signed at the end of 2004 with an initial research phase of two years during which CHF10.8m of upfront fees and research funding were recognized in 2005 and 2006. The research phase was then extended to 2007 with a significantly reduced research effort at Addex. In 2007 the research phase was concluded and CHF0.3m of additional research funding were received and recognized in 2007. Going forward our continuing involvement in this collaboration is limited to participation in the joint development committee.

Additionally CHF157,000 of the $3m upfront fees received from Merck under the mGluR4PAM agreement were recognized in 2007. The agreement was entered into on November 30, 2007 and the upfront fee is being recognized over 24 months.

R&D expenses increased by 22% to CHF27.5m for 2007 compared to CHF22.6m in 2006. This is primarily due to increased pre-clinical and clinical development activities. And to a lesser extent the continued growth of our investment in R&D programs including increased packaging costs associated with the progress made in the discovery as well as increases in staff costs due to new highs in internal promotion.

G&A expenses increased significantly to CHF10.8m in 2007 compared to CHF3.1m in 2006. This is primarily due to CHF5.7m of IPO related costs. An additional amount of CHF4.5m which is directly related to the cost of issuing new shares has been charged directly to equity against share premium. If we exclude IPO related costs G&A expenses have increased in 2007 by 63% to CHF5.1m. This increase is primarily due to the additional facilities costs associated with the newly rented laboratory space, external business development and market research services and staff costs associated with new highs in internal promotion.

The operating loss for 2007 has increased by 80% compared to 2006. If we exclude IPO related costs, the corresponding loss has increased by 53%. This is primarily driven by increased clinical and late pre-clinical development activities in line with the evolution of our product pipeline. As well as 17% growth in our average headcount to 71 full-time equivalent employees in 2007 compared to an average of 61 full-time equivalent employees in 2006. On December 31, 2007 our headcount had reached 79.2 full-time equivalent employees.

So moving on to the analysis of cash flow, the purpose of this slide is to reconcile cash and cash equivalents over the period and to clearly separate cash flows related to operations from those related to the IPO in order to give you a feel for the future cash burn of the organization.

In 2007 operating cash burn, excluding IPO related cash flows, amounted to CHF27.4m. The CapEx cash burn amounted to CHF2.7m and net cash inflows from investing activities amounted to CHF2.5m. We expect operating cash burn to increase in 2008 inline with the progression of our clinical and late pre-clinical pipeline. In addition we are actively recruiting in all areas of the organization and therefore expect the headcount to grow towards 140 full-time employee equivalents by the end of the year, with corresponding staff cost increases.

Our guidance for the full year 2008 cash burn is in the range of CHF25m to CHF30m, unchanged on previous guidance. This range includes expected capital expenditure in the range of CHF5.7m related to the further expansion of our R&D and office facilities.

Now moving on to the two Merck deals I'd like to give you some color on the accounting treatment under International Financial Reporting Standards. First the mGluR4PAM Parkinson's Disease deal. This is a research collaboration and license agreement which was entered into on November 30, 2007. The initial research phase is for two years and involves a continuing research effort at Addex. Therefore the upfront fee of CHF3.5m, $3m, is recognized over the initial two year research phase. Due to the structuring of future research milestones CHF0.3m of this upfront fee is recognized in the first 12 months and CHF3.2m is recognized over the 24 months. Secondly, the mGluR5PAM Schizophrenia deal. This is a product license with no significant continuing research effort at Addex. And therefore the upfront fee of CHF24.8m has been recognized in January of this year.

And finally an update on the share information, following the IPO the issued share capital was increased from 3,987,492 shares to 5,862,492 shares, with the issue of 1,875,000 new shares. All shares have a nominal value of CHF1.00. At December 31, 2007 the Company had a conditional capital of CHF1,993,746 and a free float of 34%. The market capitalization at the close of the market yesterday was CHF247m.

And now I will hand over to Vincent who will review our product pipeline.

Thank you Tim, good morning everyone. As you may know 2007 was a hallmark year for Addex and I want to review that with you.

So in April ADX10059 achieved phase IIa proof of concept in GERD and migraine. In May Addex completed one of the biggest biotech IPO's in memory raising a total of CHF137m or $111m on the SWX Swiss Exchange. In October we discontinued the only in-license non-allosteric modulator in our pipeline, ADX10061, a dopamine D2 antagonist after it failed to help patients quit smoking. In December we signed a collaboration to develop allosteric drug targeting the metabotropic glutamate receptor 4 for mGluR4 with Merck in the U.S. for Parkinson's disease and other undisclosed indications. And in January 2009 -- 2008 we disclosed that ADX10059 disappointed in phase IIa acute anxiety, dental anxietytrial. As the data did not impact the potential of our lead product in GERD and migraine, we don't believe this has a significant effect to development of the drug in these other indications. Also on January 3, 2008 we signed a second deal with Merck & Co. to develop allosteric drugs targeting the mGluR5 receptor for schizophrenia and other disclosed indications.

Now before moving on to the pipeline I'd like to review the two Merck deals with you to give you an idea what is behind these deals today. The first one on the mGluR4 positive allosteric modulator for Parkinson's disease. The goal of this collaboration, which is at early stage, is to discover and develop metabotropic glutamate receptor 4 positive allosteric modulators for the treatment of Parkinson's Disease but also other indications. The deal includes mGluR4PAM which we discovered at Addex. Merck will be responsible for all the pre-clinical and clinical development. We will have a seat on the oversight committees at this stage. And we have participated into the joint research committee currently.

The second deal on Schizophrenia was to exclusively license to Merck development of ADX63365 and all the backup products. This is a mGluR5 positive allosteric modulator. Merck is responsible for the further progression of the compound into development and we will have a seat on oversight committee.

Just to give you an idea of the terms we obtained for these deals. For the Parkinson's Disease deal we got $3m upfront payment. It's an early stage project as I said. It's a partnership for our co-development at the pre-clinical stage. We will receive or we may receive $106.5m in milestones with -- for the first product in multiple-indications. And additionally we could receive $61m milestones for a second and a third product. The royalties are undisclosed and we obtained option to co-promote in certain European countries.

For the ADX63365 molecule for schizophrenia and other indications we received, as you heard from Tim, $22m upfront. We can receive up to $455m in milestones for the first product in the two indications, and additionally $225m milestone for second product in two indications. The royalty level is undisclosed but we also obtained option to co-promote in certain European countries.

Why did we decide to partner these programs at their respective stage? Essentially Addex strategy is to mitigate risk through collaborations. Schizophrenia and Parkinson's disease require a very large investment and expertise to make successful development of these drugs, in particular since we are looking at a blockbuster status for these molecules. It would have been a significant financial risk for us in both indications. Schizophrenia is a challenge for development at the early stage and Parkinson's disease is certainly a challenge for clinical development at the late stage. It would have meant also that we would have had a slower progress and certainly learning on the job.

And we recognized that Merck was the best partner having the necessary expertise and would able capital to advance both programs, very, very rapidly. The reason as well, which was very important for us, is that Merck is knowing very well these targets. They were the ones to participate, at least to pioneer, to the preclinical validation of the mGluR4 target in Parkinson's Disease. And very clearly as well they were the ones to help to demonstrate preclinical validation for mGluR5 in schizophrenia. So we had here a meeting of minds in terms of their validation of the targets, their expertise, which was the best potential fit for Addex.

Second, it has increased the visibility of Addex as you've seen probably these publications. It's very significant because the drugs we are providing are fulfilling unmet medical needs. They have been very much disputed in terms of their competitivity and we are very happy now that we are able now move these two drugs, these two allosteric modulators rapidly with them.

So in summary 2007, was a very fruitful year for the Company, for Addex. I believe it can be viewed as a period when we fortified and broadened the fundamentals of the Addex investment proposition. In addition we raised the Company profile and began building relationships with investors in the public market while continuing and intensifying our already focused effort to create shareholder value.

And I would like to give a brief pipeline update. We can reiterate our timelines for the development of the clinical products, and I would like to give some granularity about the activity we are currently considering and the potential consequence on these timelines.

As most of you know all clinical testing of ADX10059 and ADX48621 our two most advanced products clinically were performed using unformulated active pharmaceutical ingredient. The development of a more commercial formulation for both products began in 2007.

If we start with ADX10059 the galenic formulation work for ADX10059 is progressing very well. Currently two formulations are in feasibility testing. In April we will start testing both formulations in a single dose crossover comparison study with the previous administration form we used in phase IIa. On the back of the PK and trial tolerability results coming from the first part of the study, we will select the most promising formulation. And as a second part of this phase I study we will perform a multiple dose comparison for six days. And again we will assess PK and tolerability. But in addition we also will monitor the effect of the formulation on a heavy meal induced reflux in healthy volunteers, which is very useful for us to refine the dose selection that we are going to do in phase IIb studies. Finally with the best formulation we will perform an interaction study with one PPI as one can expect that changing the PH through the PPI activity may affect the dissolution platform of our mobile formulation then we need for this reason to monitor the effect of the PPI on the PK of 59.

In addition we are seriously considering testing the effect of the formulation in a phase I study in migraine patients to again assess PK and tolerability as, as you know, migraine patients have PI disturbance which may affect exposure. If we decide to do that it will certainly affect the timeline for the entry in phase IIb migraine. But we will continue to inform you about our decision process.

So as you have seen we have a heavy program in phase I for ADX10059 with a lot of very important outcomes, but which might affect our timeline for the entry into phase IIb. As soon as we will know better about the strategy we'll inform the market accordingly.

Similarly regarding the formulation work for ADX48621, it's progressing very well. And as we have previously said our goal is to complete the phase I program this year. We will perform as well single dose and multiple dose comparison study with the new formulation. In addition, and like for ADX10059, we will assess the effects of ADX48621 on induced reflux in healthy volunteers during this phase I to get an idea of the potential efficacy of 48621 in GERD as well.

Regarding ADX63365, it has been partnered with Merck so I must defer questions on its status to Merck. However, the deal included preclinical milestones and we will update you as they are achieved. And we certainly will see the development of this drug and look at it with a lot of interest in the hands of our partners.

Regarding the Parkinson's or the mGluR4PAM collaboration, many of you may have seen we have announced yesterday that we achieve our first preclinical milestone in the development of this program. The milestone payment is, let's say, of $250,000 is relatively immaterial to our 2008 cash flow, but reaching this milestone further validates our strategy. And the speed with which it was reached within three months of signing the agreement is demonstrating both the joint commitment of the two companions and the excellence of the Addex and Merck team collaborating on this project. I think it's a very good sign for the potential move of this program further and its success.

Our third collaboration with Johnson & Johnson is progressing as well. But I'm contractually obligated not to provide specific information about it, although we are very confident that they are putting the appropriate resource behind this project and that it will be generating material news in the future.

Our other preclinical projects are progressing well. And we will be happy to update you on their progress during our R&D day which will take place in the coming months. In the interim, I will be very happy to answer any questions you might have on any of our programs.

Thanks Vincent. Operator, please open the call for questions.

Excuse me this is the Chorus Call conference operator. We will now begin the question and answer session. (OPERATOR INSTRUCTIONS). The first question is from Peter Welford from Lehman Brothers. Please go ahead.

Hi, thanks very much guys for the update. Just two questions on the pipeline actually, not the financials. But first question is on 48621, I think that's right. Basically I was just wondering, you're talking in the press release about the fact it's a follow-on to 10059 in GERD and migraine and also talking about obviously it's different properties. I guess what I was wondering was do you think this could be partnered or this could be developed yourselves into phase IIa? Is the plan to partner this with 10059 perhaps after the phase IIb as a follow-on? Or do you think it's better to commercialize this as, if you like, a separate drug in its own right?

Thanks Peter. I think we are considering all potential alternatives to it. I think, as you understand, we want to profile the compound as well in GERD. I think it's an interesting exercise to do in phase I. And we believe that monitoring the reflux, induced reflux in volunteers is a very good impact sign of activities, which can be very relevant in terms of the indication. So you might see 48621 as potential follow-up of 59 or a backed up for it in what would be considered the whole package in terms of the partnership with 59.

On the other hand there are other alternatives of development for this, which I cannot go to the details now. I think we will do an inform about this later on. There are views on the GERD. I mean GERD indication is a large one. There are multiple things like, for example, neo-natal GERD which is of interest, and we are currently exploring this and this is why we have differentiated ways to move forward with this product.

Okay, thanks. And the other one then is on, you speak in the slides about the FSH negative allosteric modulator. I think you also some time ago, this is a slide now a couple of months ago, there was also a positive allosteric modulator of that receptor I think. Is that development basically on, is that just behind essentially the negative modulator, or have you decided to prioritize the negative allosteric modulator of that receptor?

Yes. That's an interesting question. Yes we have decided to prioritize the negative allosteric modulator. But there have been a lot of business discussions, or business development discussions about the FSH path. I cannot say very much more about it. The fact is for us it was difficult to follow both programs at the same time particularly because they were not in the focus of the organization. The FSH arm being, as we said, in contraception and osteoporosis with very clearly a focus on osteoporosis. And we didn't have the time to put, and the effort and the resource to put into the FSH path as much as we have liked to have. But there is still a possibility to out-license this.

Okay, that's great. Thank you very much.

(OPERATOR INSTRUCTIONS). We have a next question from Mr. Michael Aitkenhead from Piper Jaffray. Please go ahead.

Yes, good morning. I just wanted to get a bit more clarity on the phase I development for ADX10059. Specifically I just want to understand exactly how many phase I trials need to be completed prior to starting the phase IIb trials in both indications?

And secondly I just wanted to know what sort of delay we might expect if you had to do additional development work for the migraine indication?

Yes. So essentially we have two phase I. We have two parts in the first one. So it's a single dose comparison for the part I because we have to select one formulation to move to the multiple dose comparison. So this is one phase I but with single dose and multiple dose. The maximum time for the multiple dose is six days, so the single dose is an acute stepping as you know. So essentially we are talking in terms of the timeline, or the time taken for the phase I, to a maximum of one week dosing in volunteers.

The second part is about the PPI study, but this is still going to be done in parallel with the multiple dose because we are not committed anymore, because we will know which formulation to select. So the critical part is on the single dose testing where we will still have the two formulations. After that we will select one and we will do in parallel for multiple dose and the PPI interaction.

Now regarding the testing in migraine, it is being discussed currently with the investigator. There is a recommendation to do it because as you know migraine have a different exposure, they have this gastric stasis problem in the stomach, we don't know what could be the consequence on exposure. And to make sure that we are not going to have this issue with the new formulation in migraine, we would prefer -- it's strongly recommended by the Board to do it. It is not yet decided, but if we do it, it will affect the timeline for the entry into migraine for sure by two to three months.

Excellent. Many thanks.

(OPERATOR INSTRUCTIONS). We have a follow-up question from Mr. Peter Welford from Lehman Brothers. Please go ahead.

Sorry, it's just a follow-on actually from the last question. Just out of interest just for my understanding, why is it not possible at the same time as doing the drug-drug interaction PPI study, why can you not at the same time as that do the migraine tolerability study, to keep the two indications, I guess, running in parallel? Is there some reason why the migraine trial would take longer than the second GERD phase I trial?

We would like to get the result of the phase I multiple dosing to go to a multiple dosing in migraine. The point is it will be very difficult to go in migraine without knowing what is the outcome of six day testing in volunteers.

That's great. That was the last question. Thank you very much.

Gentlemen, there are no more questions registered at the moment.

Okay. Well, thank you very much for joining us today. And we look forward to talking to you again soon. Have a good day.

Thank you.

Thank you.

Ladies and gentlemen the conference call is now over and you may disconnect your telephones. Thank you very much for joining us and have a pleasant day. Goodbye.