Aptamer Group PLC (APTA) Earnings Call Transcript & Summary

So good morning, and welcome to Aptamer Group's interim results presentation for the 6 months ended 31st of December 2022. We'll start out with a quick introduction to the presenting team and now on to the results presentation. So my name is Arron Tolley, I'm Co-Founder and CEO of Aptamer Group. And I have a background in structural biology and biophysics. I've run the day-to-day activities of Aptamer Group for the past 10 years and play an active role in both the scientific and commercial aspects of the company, still sitting on the Scientific Advisory Board, alongside David.

Hello, everyone. My name is David Bunka. I'm the Chief Technical Officer and the other Co-Founder of Aptamer Group. My background is also in molecular biology. I have a PhD from the University of Leeds, where I developed automated Aptamer selection processes. So I've worked with the Aptamer selection technology now for just over 23 years.

Thanks, Dave. Rob Quinn, the CFO here. I'm delighted to have joined Aptamer Group at the beginning of March. I'm a scientist by training and have worked across the life sciences space my whole career, including at GSK, Silence Therapeutics and BenevolentAI. And I've seen the value that can be created with an innovative technology platform. I believe that Aptamer has the potential to make significant impact across the life sciences industry, akin to the broad and valuable impact that antibodies have made.

So I'd just like to do a quick reminder of Aptamer Group. So as a business, we solve intractable problems for the pharma industry and biotech, and we do this with our disruptive Optimer platform. So there are 4 key points that I would like to start off with. The first one is the market that we're targeting. We target the affinity ligand market, which has historically been dominated by antibodies. And this market is currently valued at around $145 billion and is growing at 11.3% compound annual growth. Within the affinity ligand market space, aptamers are growing at 22% due to their favorable characteristics. And this market is expected to reach around $12 billion by 2028. The second point is that the product and our offering is a product called an Optimer. And these are also affinity ligands, which we develop using our highly automated discovery platform and automating the discovery of Optimer leads to higher project success rates, faster completion of projects. Third point is that we continue to build strong traction on a global level, winning contracts with global players. We've developed a strong pipeline, which reflects the commercial team built out over the past several months. And the fourth point is a reminder of the model. Effectively, we offer a fee-for-service with licensing model. This means we get paid for the work that we do as a business, and it's a reduced risk model. There's no exposure to customers' R&D. And because we retain the intellectual property, there's potential high-value licensing-based upside when the technology is commercially exploited. So as I mentioned on the previous slide, there's a huge mature market, $156 billion (sic) [ $146 billion ] growing at around 11%. And driving the acceptance of our technology is the inherent challenges with the incumbent platform to our antibodies. So very broadly speaking, 50% of antibodies failed to perform -- or have failed to perform as required once developed. And when they are developed and the development process is time-consuming, they're expensive to develop. And once developed, they are expensive to manufacture. Our binders offer key advantages, such as broad range of targets, tunable selectivity, speed of development and then synthetic manufacture once a molecule is being produced. And the key to the platform and the demand that enables us to solve these intractable problems is the high-throughput, custom-developed solutions that Dave and myself put in place over the last several years. So I'll pass it over to Dave to talk about the platform.

So as Arron mentioned, Aptamer Group operate in what's referred to as the affinity ligand market. So as Arron said, this is $146 billion market and growing rapidly. Now to put this in context, first of all, you need to understand the affinity ligand market. So affinity ligands is a pathway of saying a binder. So it's a molecule that sticks to another one. And these are used in almost every area of the life sciences. So to go to an example that everyone will be familiar with, COVID and the lateral flow test that we all had to endure. Tests like that would not be possible without our binder molecule that recognizes COVID. So without that binder, there would be no test. The same is true for most diagnostics that are on the market. The same is also true for a lot of therapeutics. If you don't have a binder, you don't have a therapeutic. So you can see the need for this binder technology is absolutely enormous. Now as Arron mentioned, that market has been dominated by antibodies. They were one of the earliest binding molecules discovered. And they've been dominated by companies like Abcam and WuXi Biologics. Now as Arron pointed out, about 50% of research antibodies fail to perform as required. And there's a number of reasons for this. But that failing was recognized, and a number of different alternative binder technologies have emerged to address that need. And you can see some of them across the middle of the slide here. So you have antibodies on the left-hand side and then you go through the synthetic binder technologies, recombinant antibodies, synthetic prep mutine and peptides, for example. Now Optimers operate within this space, but they are actually quite unique, and you can see them on the right-hand side of the slide. All of those other technologies are protein-based. So they all share some of those inherent flaws. Nucleic acid-based Optimers are totally different. So they're very unique within this space and don't have a lot of the problems that proteins have. And this, as Arron said, is what's driving this more rapid growth in the Optimer space compared to other technologies. Now as was mentioned previously, Aptamer Group address challenges and enable technologies so we help our customers achieve their goals. So what a customer usually has is a target molecule, you can see on the left-hand side of the slide. So this is something that they want to work with, and they have an end application on the right-hand side, but they have no way of making the 2 match up because they don't have a binder. And that's where we come in as a company. So those targets could be anything from small molecules, such as food additives, environmental contaminants, drugs of abuse, that sort of thing, through disease-associated proteins, all the way up to much more complicated systems like cancer cells, for example, or in the case of COVID, whole viruses. Now as I mentioned, most of these applications require a binder, so our customers come to us because they need a binder. We have 3 distinct processes that we use to generate those binders each tailored to small molecules, proteins and cells. Those processes can also be adapted to fit the customer need. We're also developing a unique platform called Optimer+, which has some of the benefits of the protein-based scaffolds that I mentioned on the previous slide, coupled with the benefits of a nucleic acid-based aptamer. So this really does give the best of both worlds and will be a unique offering from Aptamer Group. You won't be able to get this anywhere else. So it will be a strong differentiator for the company and keeps us ahead of the competition. But once those customers have got those binders, they can then apply them across the board, so they are being applied as therapeutics, specifically as delivery vehicles, for example. They're being applied as research tools and research reagents. They're being applied as processing tools and also as diagnostics. So one of the USPs for Aptamer Group is the platform that we use to generate our binders. As I mentioned previously, we have 3 distinct processes to address protein, small molecules and cells. These processes have all been largely automated so that increases the reliability because with the best will in the world, people make mistakes, robots don't. So we have a more reliable process, which leads to a higher success rate. That automation also allows us to process a lot of targets in parallel, which means that we have a lot greater bandwidth. We can look at a lot of targets in parallel or look at a few targets under a lot of condition, again, increasing our success rate. There's a lot of know-how and background understanding that's gone into this process and the automation of it, which means it's difficult for our competitors to replicate. So if you imagine the system on the right-hand side of the slide there, you have the process for developing the aptamers. You have the knowledge of the equipment that's required to do that, the integration of those processes onto an automated platform and then the scalability that goes with that. So this is very difficult for our competitors to replicate. But it also gives us an advantage that when our demand for our services gets to the point where we can no longer cope, we replicate that platform, we buy a new set of robots and increase our capacity without needing to increase the workforce and go through the retraining process. So it's much faster for us to scale our capabilities.

Thank you, Dave. I'd just like to talk a little bit now about our investment for growth as a business. Since the IPO, we've invested in 3 key areas, underpinning our growth strategy. So facilities, commercial and technology. So on the facilities, we have our new headquarters in York, 18,000 square feet of state-of-the-art lab and office space to house our ever-expanding team. Capital equipment and scale up has been focused on in order to improve automation capability and remove operating bottlenecks. From a commercial point of view, we've expanded our commercial team and developed expanded service offerings, key to the development of our strategic plans. Technology-wise, we've invested in our novel nucleotide chemistry platform, as Dave mentioned earlier, to develop a differentiated and proprietary offering and have developed additional service offerings. We are currently in the early stages of developing data packs to open higher value opportunities in the therapeutic space. So we do this and all of this is serviced through 3 business units. So servicing the opportunities, a company is called Aptamer Solutions, Aptamer Diagnostics and Aptamer Therapeutics, which are aligned with 3 broad market verticals. They focus on custom development, and then when aptamers are being developed, the integration or use of aptamers in the diagnostic and therapeutic space. And these also fall into 3 broad value buckets representing low, medium and higher value opportunities, but also short-, medium- and long-term revenue potentials as a business. Aptamer Solutions, the CRO model, plays an important horizon-scanning function, generating revenues and looking for high-value future opportunities. For example, we can say that the bioprocessing solutions are a hot topic now, particularly in gene therapy purification in areas such as AAV, and in addition, the delivery of oligonucleotide therapeutics, which is siRNA and antisense oligos are also fairly hot currently with customers. With our strengthened commercial team, we've continued to build traction over the last several months, which is building a well-defined and well-qualified pipeline of opportunities. And so for brevity, I'll give 3 key examples here and then the top 3 under the operational highlights side of the slide. So a top 5 pharma company, we've signed a deal with them, developing novel solutions for binders in the immunohistochemistry space. This space is worth around $2.3 billion and is growing at 8% compound annual growth. And Optimers aim to plug huge unmet needs left by antibody technology in this space. And there are key drivers, the market is typically locked up by 3 players with exploration of patents on key reagents, which could explain the uptick in interest for patentable alternatives in the immunohistochemistry space. There's also a top 10 pharma company. We're on a follow-on contract after successful completion of bioprocessing projects. And the bioprocessing market is worth around $16 billion and growing at 15%. And [ DOT ] typically have downstream licensing opportunities. And the third example, which is a left-of-field opportunity for us, represents a true commoditized product and with a multinational consumer goods company. And this is very interesting because it was an area that we didn't think Optimers would be utilized in for the support of personal care products. So as I mentioned earlier, this is a predominantly fee-for-service model we've licensed in and royalty opportunities. The fee-for-service arm acts as a gateway to opportunities for higher-value licensing deals, which are represented by the second line on the graph. This is a reduced risk model. We get paid for what we do, and there's no exposure to the customer's R&D. And because we retain the IP, there is always this potential for the upside when the technology is commercially exploited. The model provides fast access to revenues and funds technology development, which is required to access higher value, long-term returns and opportunities. So I'll pass over to Rob for a review of the financial highlights.

As reported previously, revenue for H1 was GBP 1 million. In our last financial year, we saw a heavy weighting towards H2. And given the pipeline of opportunities that we currently have, we expect to see a significantly higher revenue for H2 with a material uplift occurring in the final quarter of our financial year as many of the current contracted development projects near completion or begin secondary phases. Gross margins for the first half were 45%, lower than the 67% margin seen for full year 2022, but this is a function of lower sales, and we expect stronger margins as sales increase in H2. Admin expenses rose to almost GBP 3 million for H1, much higher than the GBP 1 million seen at December 2021. But this reflects the investments made in people, R&D and also the cost of being a plc. We do expect admin expenses to stabilize at around this level for the full year. Net cash outflow from operations was GBP 2.9 million, and we had the additional one-off cash investment of GBP 1.8 million in our new state-of-the-art labs, which opened in October. The period-end cash balance was GBP 1.9 million, and an R&D tax credit receipt of GBP 0.5 million came in, in February. As stated in our statement this morning, we have a large and varied pipeline of opportunities, which gives us confidence in the positive momentum and longer-term potential of the business. And although timing and conversion rates for these opportunities carry some uncertainty, we believe that we can deliver H2 revenue in line with market expectations for the full year. I'll pass back to Arron to close.

Thank you, Rob. So I'd just like to finish out by reminding people that we are gaining traction in a large affinity ligand market, and we're demonstrating the need and acceptance of our technology, giving confidence in revenues. We're investing in a novel technology platform and investing in R&D and expanding our IP portfolio so we continue to protect our position. We continue to build strong traction on a global level, winning contracts with large pharmaceutical companies. And some of the customers are on to their fifth and sixth project, demonstrating repeat business. And we show exciting progress in the fee-for-service business, leading to the development of the therapeutic arm of the business and building -- the building of exemplification data packs, which will lead us to higher value licensing deals. I thank you for your time.