Biodexa Pharmaceuticals PLC (BDRX) 2020 Q2 法說會逐字稿

Good afternoon from Cardiff, and welcome to the Midatech Pharma 2020 Interim Results Presentation. With me is Stephen Stamp, CEO and CFO of the company, who'll run through the presentation. At the end of the presentation, there will be a question-and-answer session. (Operator Instruction].

And with that, I will now hand over to Stephen, who will take you through the presentation. Stephen?

Thank you, Tim, and good afternoon, everybody, in the U.K., and good morning to those joining from the U.S. I'm Stephen Stamp, CEO and CFO of Midatech. And if you want to put a face to a name, I'm in the middle of Slide 2, surrounded by the brains of the organization. I have a dozen-or-so slides today, after which, as Tim said, I'd be happy to answer any questions you may have submitted.

Moving on to Slide 3. I should like to take this slide as read, if I may, but I would encourage you to refer to our public filings, both on the London Stock Exchange's RNS in the U.K. and on SEC's EDGAR in the United States.

So starting the presentation really on Slide 4. I would say that the first half of this year and year-to-date has been quite busy for the company, and in fact, I'd probably describe it as transitional, a somewhat overused word, but I think actually appropriate for this company at this time. We've achieved some clinical milestones, which I'll review when we get on to the R&D slides, but most notable in the first half was the initiation by the Board of a strategic review. That strategic review was triggered by a couple of things, one being the collapse in the capital markets in mid-February. And alongside of that, the withdrawal of a prospective licensee that we'd lined up for our project MTD201.

Those two things, as I say, triggered the strategic review, and that review immediately resulted in a couple of things. First of all, the termination of further in-house of MTD201. There was no way we could see ourselves raising the $30 million or so that would be needed to complete that program. Alongside of that, we closed our operations in Bilbao, that factory was pretty much dedicated to the manufacture of MTD201, and we made 47 of our 66 employees redundant. That's over 2/3 of the company.

The cost of that program was a onetime GBP 1.8 million in cash, but it did result in a monthly reduction in cash outflow of about GBP 0.5 million, so a payback in less than 4 months. At the same time as the strategic review, we appointed a boutique investment bank called Noble to look at all the company's options, including possibly a sale of assets, the sale of technologies and even a sale of the whole company. And we tested that with something called a formal sale process under the Takeover Code to see if there was anybody out there who was willing to pay a quick premium for the company and return value to shareholders.

As it turned out, and I think possibly because of COVID and the inability to due diligence and the like, we didn't receive any credible offices for the company. And in fact, the formal sale process ended up becoming quite some hindrance to the company because we couldn't sell assets and we couldn't raise money because under the Takeover Code, those were deem to be frustrating actions. So in the absence of any formal offers, we terminated the formal sale process in July, although we are still considering expressions of interest in certain individual assets of the company. However, while all that process was going on, we managed to pretty much half the burn rate, and we realigned our strategy and we landed two industry collaborations. And as a result of that, we were able to raise GBP 5.75 million in a U.K. placing in July. And from my perspective, that was the first fund raised for some time on which the company has been able to raise money in, what I would call, normal terms, that being a sensible discount with zero warrants and bringing in institutional investors. So overall, I think it was a good outcome for that whole process.

Moving on to Slide 5, and let's talk a little bit here about our realigned strategy. The core of the realigned strategy is focused on Q-Sphera. Q-Sphera is our PLGA-based technology, which prints using printheads, normal piezo printheads, encapsulated drugs in a biocompatible and biodegradable microsphere. And the injection of a Q-Sphera product then forms a depot inside the body, which release this drug with predictable kinetics over an extended period, and we can tune that product to perhaps release drug up to 6 months. So the strategy for Q-Sphera comprises two complementary elements with a common goal and that common goal is to license Q-Sphera products to pharma in return for multimillion-dollar milestones and royalties in due course, that being after proof of concept.

So how are we going about it? Well, we're developing a balanced portfolio of internal programs and formulation development collaborations with pharma. So why are we doing it in a balanced way? Well, for internal programs, we are in charge of the time lines but we need to find potential licensees and create an auction to generate some milestones and royalties we're looking for. With external programs, clearly, we're working on the customers' API, so we had already made licensee who's clearly obviously bought into the program. However, he's in charge of the time lines rather than us. Hence, we're trying to keep a balance between risk and reward.

So how are we going about this? Well, we take our internal candidates through formulation development, then something called in vitro dissolutions and these are laboratory tests to estimate the rate at which the drug releases -- would release in the body. And then having established that and optimize the candidate who we will then take the product through something called IND-enabling animal toxic studies. So these are just to demonstrate that the product's safe enough to be tested in humans. And we would do all of that before we could seek a licensee so that we have pretty much full proof of concept for the licensee then to take the product on into human clinical trials.

Between the beginning of April, which is the start of the strategic review, and mid-July, when we signed our second collaboration, we signed, as I say, two collaborations in that period in only 3.5 months. And I have to tell you, I was astounded and pleased by that, that is lightning speed for a biotech company. So the first of our collaborations is with a very large Indian company called Dr. Reddy's; and the second is with an EU affiliate of a global pharma company, whose name we can't release just yet. In both cases, we are being paid to develop Q-Sphera formulations of their proprietary compounds. The partners will then undertake the pre-IND-enabling studies and will have an option to enter into licenses to access our Q-Sphera IP.

A key component and frankly, change to the strategy is that Midatech itself will no longer undertake human-clinical studies unless they are paid for in full, either by the collaborator or by grants. Together with the collaborations covering the direct costs and contributing to overhead, it means our realigned strategy requires less cash and is less resource-intensive for Midatech, and in my view, more appropriate to a company of our size and reach. It also means we can work on many more things at the same time, more shots on goal, something I'll come back to.

Moving on now, if I may, to Slide 6. The result of that realigned strategy is that we have a much different looking R&D portfolio. And one of my favorite expressions with multiple shots on goal as illustrated here. 6 months ago, I must tell you, the company was pretty much exclusively working on MTD201. Now we have 9 molecules covering 11 indications in the pipeline, much more diversification, in my opinion, a better risk allocation.

So moving on to Slide 7, looking at the Q-Sphera pipeline in some detail. There are 7 programs in all, notice that one of the collaborators has already exercised his option on a second molecule, so that 3 of the 7 are now partnered. One of the molecules we're working on is MTD215, which is a monoclonal antibody. We are describing this as investigational. And I just want to issue a word of caution around this monoclonal antibody. Monoclonal antibodies are very large molecule proteins and many of the latest-generation medicines, all of those with a generic name ending in MAB are monoclonal antibodies. And as far as we know, there have been no approved long-acting formulations of monoclonal antibodies or large molecule proteins. And the reason for that is because these molecules are extremely delicate and very easily denatured in manufacture.

Our process, the printing process, is relatively benign process in terms of shear forces, heat and solvents. And we have somewhat of a track record, particularly with MTD201, which is a peptide, of developing Q-Sphera formulations of peptide and small proteins. We're now taking it to the next level with large proteins and investigating the feasibility of encapsulating a monoclonal antibody. If we are successful, and I emphasize if, this would be a world's first but I must caution you there are significant challenges ahead. The goal is to make Q-Sphera's small molecules into a self-sustaining business through (inaudible) and licensing. Proteins would be upside, albeit a lot of upside.

So lastly, a word on MTD201, and on to Slide 8, if I may. This program remains available for licensing, although we are not investing in it anymore. In January of this year, we announced the results of our second Phase I study of MTD201, and we were able to demonstrate similar blood plasma levels of intramuscular, which is the blue line on this chart, compared with subcutaneous, the green line on this chart, administration of the product. And why is that important? Well, subcutaneous administration means that, at least in theory, the product could be self-administered by a patient at home, rather than having to visit outpatients or the doctor's surgery, and that takes cost out of the system. And taking cost out of the system is very important to payers as you can imagine. So these days to get a product approved, not only have to have a clinical benefit but you also have to be shown to be taking cost out of the system.

Across several in vitro studies and 2 Phase-I studies of which this is the second, MTD201 has demonstrated that Q-Sphera products offer advantages, as listed on the right here, for patients, physicians and payers, including, as I list, simpler reconstitution, improved injectability, minimal burst release, predictable kinetics, lower cost of goods and now with this [latest] study subcutaneous administration.

So let's move on to our second clinical program, and that is MTX110 on Slide 9, please. MTX110 is a combination of a proven chemotherapeutic called panobinostat and our solubilizing technology called MidaSolve. Now soluble panobinostat is delivered direct to tumor via a series of microcatheters, as illustrated on the right here, under slight pressure using a so-called convection enhanced delivery system, or CED system. So there's a port on the side of the child's head, the drug is injected and is delivered to the tumor by the catheters.

Developing -- we're developing MTX110 initially for DIPG, diffuse intrinsic pontine glioma, which is an intractable pediatric cancer with about 9 months average survival and no effective current treatment. We're expecting the ongoing Phase-I safety and tolerability study at UCSF to report in a few weeks and for that study to confirm our dose for Phase-II. Our plans for Phase 2 at Kinderspital, Zurich are well advanced, and the expected endpoint of that study will be the survival of 12 of 19 patients at 12 months. Because this is an orphan indication and because there are no other current treatments, we will approach the regulators, assuming we get a successful signal at the end of the Phase-II study to discuss potential early approval of this product, but we'll see.

But as with Q-Sphera, MTX110 also offers multiple shots on goal. So while DIPG is an orphan indication, offers the fastest route to $100 million market, we're also examining medulloblastoma, which is another form of pediatric brain cancer, a similar size market. And we have some preclinical work going on in glioblastoma multiforme, or GBM, which is an adult form of brain cancer and a much larger $3 billion to $5 billion market.

Now having said all of that, I must tell you we are proceeding here with caution. You might recall that Secura Bio, the owner of panobinostat, the active ingredient here, has, in our view, wrongly terminated our license to that product. So we would either need to resolve the situation with Secura Bio or delay the launch until the relevant patents have expired and that could be potentially 2 to 3 years. More of that when we have some resolution to the Secura Bio issue.

So moving now on to Slide 10 and the financials. There was no material revenues booked from our latest Q-Sphera collaborations in the first half of 2020. And the first half results were heavily impacted by the strategic review, including a noncash impairment charge you see here of GBP 11.59 million as a result of, as I say, the succession of MTD201.

So pulling out those sort of one-off numbers on Slide 11, please. The first half included a number of onetime costs and charges, including in R&D, redundancy costs resulting from the closure of Spain and a few heads in the U.K. of GBP 0.88 million. The write-down of the Spanish assets, some of which returned to the U.K., but others will be sold in auction of GBP 0.55 million, offset by a credit, because stock options were lapsed, of GBP 0.35 million. And in R&D -- excuse me, in administrative costs, we had onetime items of GBP 350,000 associated with the repayment of Spanish government loans, including penalties, some U.K. redundancy costs of GBP 70,000 and legal and professional costs of GBP 510,000, some of which were due to the restructuring, some of which were due to an aborted financing in February of this year as a result of the sort of market crash, which in turn triggered the strategic view. So stripping those onetime items out, actually, the operating loss was not too dissimilar from the first half of last year and in the second half will be lower again because of the closure of Spain.

So moving on one more slide to 12 and looking a little bit at liquidity. At the half year, we had net cash of GBP 3.59 million. We hadn't, at that point, paid back all of the Spanish loans. So having done that, and there's some Spain in cash, there will be a net outflow in cash of GBP 0.6 million in the second half. We have the proceeds from the July placing, which were net GBP 5.28 million coming in. And then we had some warrant exercises of $1.25 million -- no, $1.02 million, GBP 0.83 million.

In August, so we had a pro forma net cash position of GBP 9.7 million at the half year. Of course, we burned a little bit of that 2 months of that since then. But our projection is that, that cash runway takes us well into the fourth quarter of 2021. So we are as well financed as we have been for quite some time now. So we have pretty good reasons, given the traction we're beginning to see with our Q-Sphera realigned strategy and a decent runway to look forward to the future with confidence.

So with that point, I'll hand back to Tim for questions, please.

We have received a number of questions from people who are participating in addition to the ones that I mentioned we received ahead of the event. (Operator Instructions) I will do my best to work through these. They're obviously, by definition, not in any particular order, but we will look to try and answer everything that has been submitted. There are a couple of common themes, Stephen, coming through. One of them is regard to timetables. Do you have any expected or aspirational time lines to see either of the existing collaborations convert to formal development partnerships? And any idea that you can give listeners as to when they might be concluded their initial evaluation stages and moving on further?

Right. Thank you, Tim. So as -- I don't want to repeat myself, but one of the downsides, maybe the only downside, actually, of a collaborative deal as opposed to the internal program is that the partner is more or less in charge of the timetable. It is the partner that will be doing the pre-IND-enabling studies. And really, until you've done those and know that you have a product that is going to perform in the body, as you would hope it will according to the target product profile and there are no toxicology issues, which you wouldn't expect, but you have to prove it, you haven't really achieved proof of concept. And until you achieve proof of concept, you're unlikely to get a multimillion-dollar license fee out of a partner. So having said all of that, our target is to land our first license fee in the first quarter of next year.

Okay. You've mentioned, obviously, the relationship and the situation with Secura Bio, obviously, there's very limited that we can say at this stage, but we have had a couple of questions. Is there any further update that you can give? Is there a formal process in train with them? Or is it just a wait-and-see?

So one of the options available to the company is to go to court and seek a declaratory judgment and have the license reinstated if we win. We're advised that will take 2, possibly 3 years and cost $2 million, possibly $4 million, which seems like a heavy price to win something that already belongs to you. So we are not persuaded that is the best use of the company's funds, so we will prefer a negotiated settlement, if possible. We have invited Secura Bio to reconsider, they have chosen not to do that. So our options are becoming more limited, to be honest. Having said all of that, the license agreement attaching to MTX110 via the panobinostat license is not particularly favorable to the company. And we can make an argument that actually the product is economically more valuable without the license. But it would mean delaying launch until the patents had expired. So those are the sort of options that we're weighing up now. In the meantime, we're able to proceed with the program because we're using panobinostat for research purposes.

Thank you. Another theme that's come through in a number of questions is regarding the future of MTD201 and really, you've mentioned that partnerships are very much something that's being looked at. But is it an asset that the company would consider selling if the right offer was available?

Absolutely. So MTD201, whilst we felt to get a licensee for it, as of yet anyway, it hasn't been a complete failure because it has served a very useful purpose for demonstrating the characteristics and opportunities the Q-Sphera technology offers in humans, and that frankly is invaluable. And without those data, I don't believe we'd have a cat in hell's chance of getting a licensee for any of these other molecules we're working on because it very much is a proof of concept, proof of principle. So the short answer is yes, we would be very interested if somebody came forward with MTD201. But at this time, I don't think it's good use of the company's energy and resources to focus on that. We're better focusing on the newer opportunities, particularly the APIs that have come to us asking us to work on their programs.

We've also had a couple of questions on strategy and what you've outlined in the presentation earlier. One viewer has made the comment that Midatech has got a history of changing direction. Can you now confirm that this is the long-term strategy for the company? And if that is the case, why didn't Midatech pursue this sort of collaboration on the early partnering-type strategy before now?

Yes. So I -- personally, I wasn't part of some of those earlier forays that the company made, so I can't talk exactly what the thinking behind that was. I think, potentially, the company was looking to products that were closest to market, which is an understandable aspiration and put all its efforts and energies and resources behind those products. The problem is that the closer you are to market in terms of Phase II, Phase III, the bigger the cost. And while these programs were going through the clinic, so the value of the company was declining, and it became more and more difficult to raise the quantum of funds that you would need to get the product over the line.

And then the pulling out of the licensee of MTD201, frankly, was the final straw. So in my view, given the current size of the company and the access, the resources that it has, this is probably the only feasible strategy. By that, I mean, not going -- not doing clinical trials and partnering early that the company could pursue at this time. Having said that, if we're successful enough and we get enough of these things over the line and we get enough licenses and we get enough milestones, we could afford to start reaching further down the clinical path again and capturing more of the value. But as of today, this is the strategy, and this is for the long term, yes.

And a related question. Obviously, with the closure of Bilbao, how does the company plan to manufacture Q-Sphera products going forward?

That's an extremely good question. So the listeners will understand that Q-Sphera is a unique manufacturing process, which is what makes it so valuable and so differentiated from the traditional methods of PLGA manufacture. So you can't go along to a CMO and say, print these tablet or make these tablets for me, all the technology and the know-how is inside Midatech. So we are in the process of lining up some partnership agreements with -- well, it will be one in the end, but we are talking to several CMOs, whereby we can take the smaller-scale equipment that we salvaged from Bilbao. We need to add one or two pieces to it and install that inside a CMO, which will have GMP capability such that we can manufacture at least clinical trial scale and then it will be the partner that will take on the scale-up to commercial manufacturing.

Okay. One about the listings. Does the company intend to keep both the AIM and NASDAQ listings?

Yes, we do.

That's very clear. And we've had a few other questions coming that are not really -- don't fall under the previous sort of headings, but I'll just read them out in order. Emergex appears to be well funded, and they're making progress with their T-cell vaccine development program. What are the implications for the MidaCore platform of this?

So Emergex is a private company. And as a private company, they don't have to disclose exactly what they're up to and what they're doing. I understand that they are making good progress and they have a license to some of our gold nanoparticle patents. There are very smart people in Emergex, some of whom were inventors in that whole gold nanoparticle technology. So in some senses, they are the best people to take that technology forward. The license agreement that we have with them is in traditional structure, involves development milestones at certain stages and then back-end royalties. So we are hopeful that they will be successful in what they're doing.

Absolutely. One thing that has been mentioned in recent announcements is the situation with the EU regarding SME status. Is there any update you can provide on that?

So the last submission we made to the EU was on the first of July, and we haven't heard back for them despite a number of prompts on our side. It is -- I have to tell you, it is quite frustrating, Tim, that Midatech isn't an SME by European definition. So I think the SME rules were put in place to prevent giant companies, say, Pfizer, setting up a (inaudible) subsidiary calling itself an SME and getting a grant. And that's understandable.

On a particular date in 2019, CMS, as a result of the license agreement that was put in place in February 2019, owned more than 50% -- 51%, in fact, of Midatech. And because of that, the European Union -- by the way, they're now down to 17%. But because of that, the EU is choosing to regard CMS as a linked enterprise and therefore, Midatech as part of the CMS group, and therefore, they're looking at the whole of CMS which has got 2,000 employees and billions of dollars of revenue as part of the Midatech group, which is frankly ridiculous. And that's our frustration. So we are trying to persuade them to look through the black and white of the rules and see the substance over the form here, but we're still waiting.

One listener has commented that Midatech is a complex vehicle to analyze. And they were just wondering if any of the company's advisers or any independent third party had put together an assessment of the value of the group post the strategic review? And if not, are you anticipating anything may be published in the coming months?

Yes. I'm not sure I'd agree with the complex. Well, so we're certainly a bit simpler than we were. As it happens, there have been 2 broker notes today, one from each of our joint brokers. One of them, Turner Pope, has put together an actually quite interesting valuation model, and they valued the company in 3 parts. One part is the Q-Sphera platform, where they've sort of taken a shot at what a pro forma Q-Sphera product and its revenues might look like. And then they've assumed, I think there are going to be 5 of those over 5 years. And they've applied percentages of success to those various programs. And then they've separately valued MTX110 and then they've also knocked off the sort of present value of the overhead and the SG&A cost and come up with a valuation of about GBP 65 million. So I would commend your readers to take a look at that because that sort of breaks the company up into a nice, manageable chunks and is a pretty transparent sum of the parts valuation.

Very helpful. Well, that concludes the questions that I've received to date. If anybody does have a final question, you've got a few more seconds to submit it. But thank you very much, Stephen, for that very insightful look into the current situation of Midatech.

Thanks, Tim, and thanks, everybody, for joining.

Thank you.