Addex Therapeutics Ltd (ADXN) 2010 Q4 法說會逐字稿

Good morning or good afternoon. I'm Myra, the conference call operator for this conference. Welcome to the Addex Full-Year 2010 Financial Results Conference Call. Please know that for the duration of the presentation all participants would be on 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, Myra. Thanks for joining us, everyone. Today, Tim Dyer, the CFO, will take you through the 2010 financial results and Vincent Mutel, the CEO, will discuss the pipeline update. Tim?

Thanks, Chris. Good afternoon, ladies and gentlemen. Before going through the details of our 2010 financial results, let me give you the highlights. So then starting with the cash used in operations, this came in within guidance at $32.8 million and we finished the year with $63.8 million of cash, which should see us through to the end of the first quarter of 2013.

It's important to note that this cash out date projection assumes no cash inflows and new licensing agreements or contingent milestones under existing agreements. We strengthened our balance sheet in September with $20 million of new capital, with the issue of new shares and a convertible note to the Biotechnology Value Fund, which resulted in the net cash burn for the year being $12.8 million.

The reduction in our net loss by 21% to $33.6 million and the equivalent reduction in the cash burn is primarily due to the implementation of a more focused spending strategy linked to our business development objectives. In practical terms, this means we are investing in projects that have a clear interest to our potential pharma partners and we are only doing the experiments to generate the results that they wish to see in order to make a licensing decision. As a result of this more focused approach, our head count is 20% lower at 114.6 FTs and we are expecting to have an average headcount in 2011 of around 110.

So now for the details, so I'll start with the balance sheet. In 2010, our cash and cash equivalents position decreased by $12.8 million to $63.8 million at the end of 2010. This net cash outflow was driven primarily by the cost of operations offset by the $20 million of gross proceeds from the capital increase and convertible note issuance. Other current assets have increased by 47% due mainly to 2010 French research tax credits of $0.8 million receivable in 2011.

Other current asset items relate primarily to recoverable taxes and pre-paid expenses. And pre-paid expenses relate mainly to certain Dipraglurant Phase II preparation costs. So moving on to the property plant and equipment position, net of accumulated depreciation decreased by 30% to $6.7 million due to the annual depreciation charge, which unlike prior years was not offset by further investments.

PPE investments amounted to 200,000 Swiss Francs in 2010 compared to CHF3.3 million in 2009. Other current -- sorry -- other non-current assets included lease rental guarantees and loans made to employees in connection with the implementation of a new equity incentive plan. These loans were made to finance the up-front tax and social charges consequences of this new equity incentive plan.

Payables and accruals amounted to $9 million at year-end 2010 compared to $10.2 million at the prior year end. The decrease of $1.2 million is primarily due to the reduced amount of payables or accruals under ongoing pre-clinical and clinical studies. Deferred income amounts to $0.3 million at year-end 2010 compared to $0.7 million at the year-end 2009.

The 2010 deferred income relates to a technology access fee received from Merck & Co. under the mGluR4 PAM collaboration and the first installment of the grant from the Michael J. Fox Foundation for Parkinson's research towards the cost of Dipraglurant's Phase II clinical trials. Both amounts are expected to be recognized in 2011. Other non-current liabilities relate to accrued pension costs which result from the IS-19 benefit obligation calculation. Our shareholders equity has moved in line with the reduction in the cash balance.

So moving on to the statement of income, 2010 income amounts to $4 million compared to $4.5 million in 2009 and comprised $2 million of fees and research funding received from Merck & Co. under the mGluR4 PAM license agreement and $2 million of French government research tax credits related to R&D expenditure incurred in both 2009 and 2010 at our French subsidiary.

I'd like to point out that we did not accrue the 2009 French research tax credits in 2009 as the application had not been approved when we closed the accounts at the end of 2009 and we have no history of receiving these credits. As a consequence, 2010 income tax credit is exceptionally high.

R&D expenses decreased by 22% to $31.2 million in 2010 compared to $40 million in 2009. This 22% decrease reflects our lower head count and clinical development activities resulting from our more focused spending strategy. G&A expenses decreased by 15% to $6.4 million in 2010 compared to $7.6 million in 2009, which is mainly due to our lower head count.

Finance income was insignificant in 2010 compared to the CHF400,000 in 2009 mainly due to the combination of lower interest rates and interest income offset by financial exchange differences arising from the strength of the Swiss franc. The net loss decreases significantly to [$32.6 million] in 2010 compared to $42.7 million in 2009 mainly due to the significant decrease in operating costs. And basic and diluted loss per share also decreased accordingly to $5.69 million for 2010 compared to $7.44 million for 2009.

Moving on to the cash flow statement, we started the reporting period at $76.6 million of cash. We used $32.9 million in operations, which were compensation by $1.5 million of fees in research funding received from Merck under the mGluR4 PAM agreement. Cash used in investing activities was $1 million and included mainly $0.5 million of capital expenditure and $600,000 of loans to employees.

Finally, cash from financing activities was $19.7 million corresponding to the $20 million of gross proceeds from the capital increase and convertible notes issuance net of the issuance cost of CHF300,000, resulting in a cash position at the end of 2010 of CHF63.8 million.

And, now, to conclude my prepared remarks, the financial outlook, the cash burn guidance for 2011 is $28 million to $32 million and our cash reach guidance is end of quarter one 2013. It's worth noting again that no cash inflows from new license agreements or contingent milestones under existing agreements are included in this guidance.

Finally, at 31st of December 2010, the total number of outstanding shares was 6,464,809. This will increase to 7,835,878 on or before the 14th of March 2011 when the convertible note is converted into 1,371,069 new shares. So that concludes my discussion of the financial results, and now I will hand it over to Vincent who will review the pipeline.

Thank you, Tim. Ladies and gentlemen, so a good afternoon or good morning. The past year has been an important transition year witnessing the refocusing of our business model on the demonstrated strengths of our technology platform. At the same time, milestones for both partnered and unpartnered products demonstrated the continued maturation of our company.

Essentially, we have converted the 2009 disappointment around our former lead progress into substantial products with our other internal pipeline programs while bolstering Addex profile and strategy on the corporate front.

In 2010, our two lead products, ADX71149 and the ADX48621, which is known now -- which is named Dipraglurant, got closer to Phase II testing. ADX71149 completed the initial Phase I testing and our partner, Ortho-McNeil-Janssen Pharmaceuticals, a Johnson & Johnson subsidiary, notified us that after completing more than five Phase I trials, they would seek regulatory approval to initiate Phase II testing of ADX71149 in 2011; also our lead product, the mGluR5 NAM Dipraglurant, was recognized by the Michael J. Fox Foundation which awarded Addex a $900,000 grant to support our Phase II trial of this compound in patients suffering from Parkinson's Disease levodopa-induced dyskinesia.

After our preparations in 2010 the immediate release formulation Dipraglurant IR will enter Phase IIA clinical testing in patients with PD-LID in the coming months. Dipraglurant-IR was chosen for the study because of its pharmacokinetic profile which is similar to the one of levodopa, making it well suited to co-administer and acutely treat symptoms associated with the use of levodopa.

Development of once or twice daily extended release formulation of dipraglurant is being finalized now and phase I testing of this form will commence in the middle of 2011. Dipraglurant-ER has been developed for clinical testing for treatment of non-Parkinsonian dystonia by Addex and potentially by a licensee for other indications including fragile X syndrome, pain, anxiety, depression and gastroesophageal reflux disease - all of which have validation. A Phase IIa study of ADX48621-ER for the treatment of non-Parkinson dystonia is scheduled to start around the end of 2011 or the beginning of 2012.

We are delighted to have reported preclinical proof of concept in Alzheimer disease with our new mGluR2 negative allosteric modulator and in osteo-arthritic pain and all the other models of chronic pain with our GABA-B positive allosteric modulator. We also saw our orally available small molecule GLP1 receptor positive allosteric modulator demonstrate efficacy in type II diabetes model in 2010.

In addition, the Company continues to make progress in identifying all the available small molecule targeting the TNF receptor 1 and also related cytokine receptors. In December, the pan-European biotech lobbying group, Europa Bio, granted Addex the first ever award for the Most Innovative SME of the year in 2010.

We congratulate our talented and dedicated staff for this ground-breaking effort and thank them for their loyalty. Since 2005 OMJPI our partner, Johnson & Johnson subsidiary has been an ideal partner and we'd like acknowledge and thank them for their hard work and collaborative spirit.

After completing our discovery collaboration in late 2007 and completing the initial Phase I study in 2010, ADX71149 is scheduled to start Phase IIa testing in schizophrenia and potentially other indications in 2011. This is an exciting progress together with the fact that Addex is elegible to receive a low double digit royalty on this potential blockbuster. And it has already begun to change the value proposition that many investors see in Addex.

I think they will have to consider as well this asset as an extremely valuable for the future of our company. Merck & Co. has been an equally diligent partner in developing earlier stage drugs for both schizophrenia and Parkinson's disease; in particular we are very excited by the progress made in our recently completed discovery collaboration to identify and mGluR4 positive allosteric modulator drug candidates for Parkinson's disease after achieving two pre-clinical milestones with our orally available mGluR4 PAM.

We are looking forward to hearing that Merck has selected lead molecule to enter late pre-clinical and clinical drug development. At the core of Addex value is the ability to leverage our unique platform which combines an allostery-biased library of over 70,000 compounds with newly patented bioligical screening techniques to discover and optimize allosteric drug candidates. Given our growing portfolio of innovative discovery assay and expanding pipeline of products, patent protection plays an important role in maintaining our competitive edge.

Throughout the year, we aggressively announced our patent portfolio not only around our most valuable novel chemical entity but also around our innovative discovery technique including Addelite, Phoenyx and ProxyLite, while continuing to add to our unique allosteric library. A table of the submitted patent covering our assays was published on page 16 of our annual report which is now available on our website.

These tools together with our multi-disciplinary development approach continue to make Addex the leader in discovery and development of allosteric modulators. As Tim told you, 2010 also saw additional capital invested to the company by Biotechnology Value Fund. The significance of this CHF20 million or $20 million transaction announced in September goes well beyond the capital issued by the Company.

Having a single large shareholder who shares our vision provides security at that time when our market capitalization might otherwise leave us vulnerable to hostile acquisition at a sub-optimal valuation. A strong balance sheet also is essential in setting the proper dynamic with potential partners and ultimately securing optimal economic structures for our out-licensing efforts.

This goes beyond simply providing confidence at the negotiating table. We are now in a position to choose our most desirable partner at the right time which is to say when each product reaches maturity. As a result, our business model can remain focused on out-licensing products based on the confirmed quality of our work, the appetite of the potential partner, the development risk/reward and cost/complexity calculation for each individual product.

For example, we would seek to out-license schizophrenia products early and diabetes products later. As we head into 2011 and beyond, Addex is well-positioned to capitalize on our leading position in the allosteric modulation space. Instead of expanding resources to understand novel targets, the Addex target selection process continues to be focused on validated target.

As you know, we choose targets against which allosteric chemistry can offer an advantage over a competing approach and for which is there is an important medical need and clear commercial potential - as well as confirmed interest on the part of potential partners. We believe these selection criteria should improve our success rate since we minimize target related risk and take primarily development related risk.

So on behalf of the management team and the board of director, we'd like to welcome new shareholders and especially thanks our longstanding shareholders for their continued support. The overhead year ahead has many exciting possibilities coming from our drug discovery platform, the already partnered programs, the product development, new out-licensing efforts, and other corporate opportunities.

Addex is a company at the forefront of next generation drug development. And all of us involved with daily operations remain steadfast in the belief that we are converting our privileged position in life sciences to bringing life-changing medicines to patients. And on this note, I will thank you for listening today. We will take your question now.

We will now begin the question and answer session.

(Operator Instructions)

The first question is from Robin Davison from Edison Investment Research. Please go ahead.

Oh, hello there. Good afternoon. I've just been taking a look at the R&D pipeline, I'm looking at the sort of details. I noticed that 68692 appears to have advanced up the sort of priority order. And I wonder if that was a sort of deliberate, you know, sort of a decision that's been taken.

And also I noticed in the annual report you disclosed that there are some pre-clinical studies going on with that. And I wondered of you might talk around on that compound and whether you actually may take that into sort of Phase I studies yourself in order to get a potential partnership.

Yes, thanks, Robin. Essentially, the decision of moving 68692 into the preclinical model of endometriosis has been taken together with the people we are discussing with for the out-licensing of the program. So essentially, as we said before, we are talking about maturity of project. The maturity of this program has been decided to be this animal testing, which is agreed to be enough for triggering potential out-licensing of the program.

It doesn't mean that we are not having discussion and negotiation for sure, but it is -- it is understood by our potential partners that this could be seen as a milestone of importance to trigger a potential deal around this molecule. I would like to stress the fact that we have -- we have a unique product here and not only 68692 but the technology which is around the FSH receptor and the family of the receptor which are as you know comprising two of the receptor, the LH and the TSH, there is a substantial interest around this molecule and the program which is behind.

And for sure we have not taken the decision to move forward in Phase I. I think the decision as we said before is to give to the maturity term point the potential to trigger our deal.

All right, okay. Also I noticed the, I think, the Orexin program appears to have been terminated. Is that correct?

Yes. We took the decision to put this on hold for the time being because we don't have the resource to move it forward. You realize that we have reduced our head count. We wanted to do a streamlining according to the interest of the potential client potential pharma partners. Orexin is a program which is of interest as you can believe for different reasons.

I mean, we are create here a new IP. We have allosteric modulators so there is a potential behind. But for our internal deployment we believe we have done enough work around that because the value was really in creating the new IP, which we have done.

Okay. I just -- finally, looking at the three partner programs and in the annual report the amounts that have been received to date, it would suggest that you have received certainly EUR4.2 million from Ortho-McNeil-Janssen and EUR1.75 million from Merck & Co. well since the last update I guess at the half year possibly. I'm assuming that those revenues must have been received in the 2011 year, am I correct there?

We've received -- well, we received 1.5 of cash and because of the income recognition and the fact that you're amortizing the amounts received over different periods based on income recognition criterias. The amount that's been received in 2010 is $2 million and you've got a very small amount remaining in deferred income $200,000 on the Merck mGluR4 deal which will be recognized in 2011.

All right. I see. And I'm just assuming that both of them have reached sort of milestones, obviously there's the Phase II start for 71149.

Which is planned for 71149 this quarter.

I see. So, that sort of affects the --

There's no income which is recorded related to that start.

Right. Okay. Thanks very much then.

The next question is from Mr. Peter Welford from Jefferies. Please go ahead, sir.

Yes. Hi. Thanks for taking the question. Let me start with a couple of financial ones. First, Tim, just so I can understand the cash burn outlook here. So, I know you said this multiple times so I apologize for dwelling on this. But you said it doesn't include any contingent payments still. Are we right in assuming that for the either Johnson & Johnson doesn't pay a milestone when that product enters Phase IIa, or alternatively if that enters Phase IIa as you seem to be suggesting in the very near future, the milestone you get from J & J is not included in your outlook.

Okay. And, yes, so we have not been allowed to disclose anything to do with the receipts of milestones under that collaboration except for the total number which is the EUR112 million.

Right.

Now, what I said is that in the guidance, we don't include any milestones which are contingent, which means anything which is not certain.

Okay.

I'm afraid I can't -- I'm not --

Okay.

In the position for any further details.

I debated how certain that is. Okay. The next, and then we go a little bit different is what other income is assumed in 2011 in terms of -- I mean, are you assuming there is another French tax credit? I mean, obviously, the Michael J. Fox Foundation granted -- it included. I guess the simple way, is there anything else that's included in the revenue line at this time in terms of French R&D or anything else of that sort?

Yes. There's the -- there is some R&D credits which have been included in there in the revenue line.

Okay.

Yes.

Okay. And then the last financial view on CapEx, should we assume CapEx remains at a very low level or is CapEx going to be a bit higher in 2011?

You should assume it stays at low levels.

Okay. And then just on the pipeline, particularly on the dipraglurant, I just wondered on that that you seem very committed to pursuing the ER formulation and pursuing that into Phase IIa. I guess, are discussions, -- I mean, discussions are always ongoing with partners. But are you working on the basis that you're going to develop the ER formulation and conduct both the Phase II indications before the likely deal? Or, you know, is -- cause you sort of seem very committed to -- on the spending only on trials that are required for partnering. And clearly, therefore presumably development of this other formulation and trial is seen as something that is pivotal to potentially trigger the type of deal you're looking for.

Peter, it's a difficult question. As usual, we are very committed to the formulation for the PD-LID because through our discussion and also through our discussion with investigator, there's a clear feeling that this form could really be of interest for this indication.

There are many reason for that. You can say why to expose patient which have not a need for it for 24 hours where, in fact, they take -- the take L-dopa only three times daily which for the duration of action of four hours maximum.

So, it's not clear. You know, for us that indeed this form is not going to be a successful form for the future. Now, this said, I think they tried very much to look at that possibility. We are very close to the animal situation in this regard. And I think -- don't forget as well that this trial is primarily a safety and tolerability one. We are having here a patient population which is particularly fragile. And we are -- we are extremely cautious in the moving forward.

Now, this said, the reality is the half life of the molecule is short, that's reality, that's the way it is. And now there's a number of other indication which, by the way, are construed by some of our competitors which need a long-term exposure. And so it was making perfect sense to look at the potential development of a longer acting formulation.

And in the case of this molecule, it was particularly good because it has no problem of soluability or permeability. But it's, in fact, the opposite of our challenge which was to reduce the rate of absorption. And we have now that data showing that indeed we can reduce easily the absorption of this molecule so the extended release principle is working in preclinical testing.

Now, regarding your question for the partnership, I would just state that this field is extremely competitive. There's a number of key players now. The molecule from the Novartis, AFQ056, is moving. You know that mGluR5 is a clinically validated target and I think there's now -- it's now the time where people realize that they have to be in the race or it will be too late for them.

Okay. That's great. And just a final question if I may. With regards to the metabolic -- I guess metabolic is probably the right word for also the pipeline, the GLP-1, the TNF, et cetera. Are those programs, obviously they are relatively low cost at this moment, but are those still moving forward still at the same pace or are you scaling back to some extent investment in that part of the pipeline at this time in order to preserve resources?

Yes. Well, at least it's a - likely the opposite. In fact, there's a number of project for which now the investment is no longer necessary like the mGluR2. Like as I said before, those 68692 because the form of concept has been done. I mean, mGluR2 for Alzheimer, we have obtained these results with the beta amyloid induced cognitive impairment, which are considered by the industry as rather encouraging and interesting.

So, there's no need for us to move forward alone. I mean, it's a nice opportunity that you give me to insist on our business model and our strategy for the future. We're talking about maturity of product together, defined together with pharmas, saying this will be a point of results where the decision-making is going to be a consensus between several of these companies and for sure ourselves.

So today, Addex is not willing to enter into late stages of development of molecules. So, to a certain extent, designing clinical candidate is not going to be our first priority. What we want now is, let's say, six months before the end of the lead optimization process leading to the clinical candidate or development candidate, we are seeking a partner to help us to move forward, you see the last mile and to be able together with them to define the best possible molecule.

This is clearly the illustration of the refocusing on our platform value because we don't need to move forward mGluR2. When I see the traction around this program, we don't think it's necessary to move it forward, making clinical candidate which might not be at the end the best possible one for our potential partner.

This is true for the mGluR7 as well. So, in fact, the reality is that we are investing much more on the early stage, so the GLP-1 and TNF to make sure that we can reach this inflection point as fast as possible.

Okay. That's great. Okay, thank you very much.

(Operator Instructions)

The next question is from Ms. Victoria English from MedNous.

Please go ahead, Madame.

Yes. That's how -- I noticed you're emphasizing the -- in your press release -- not initiating clinical testing until you get an out-licensing deal for a number of products. Have you found in your discussions with the big pharmaceutical companies that they're wishing to do options deals as opposed to full licensing deals? And if that's the case, are you open to that kind of an agreement?

Well, I'm very glad as well that you asked this question. Addex, essentially, we are very much aware of the value created here. And I mentioned before, due to the fact that we have been having discussion upfront with several of this potential partner, it is no point for us to consider that the value is not recognized on both sides.

And with this in mind, it is very difficult and will be very difficult for us to accept option deals because essentially here the risk has been understood and the move has been done in the -- in the direction which was corresponding to a common understanding.

I think it's true that the market too is very difficult, but I believe that for breakthrough programs where the value potential is obvious for everyone, we should not have to do this kind of consideration.

Thank you.

(Operator Instructions)

There are no more questions at this time.

Yes. So, if there's no more question, maybe we can give some one minute more and [it's fine]. Okay.

So, thanks -- thank you very much for your question and having listened to our presentation. And I will say, leave to conclude on this.

Thanks, Vincent. Yes, just a practical note. The transcripts, webcast and the slides will be available on our websites later today. The transcript I think will take until tomorrow afternoon. Thanks very much for listening. Have a good day.

Goodbye.

Bye-bye.

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