Aptamer Group PLC (APTA) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to the Aptamer Group plc investor presentation. [Operator Instructions] Before we begin, I would like to submit the following poll, and if you could give that your kind attention, I'm sure the company would be most grateful. And I'd now like to hand you over to CEO, Arron Tolley. Good afternoon, sir.

Good afternoon, and welcome to Aptamer Group's investor meeting company presentation. So we'll be introducing our team, giving some background on the technology and our current progress. I'll kick off with the introduction. So my name is Arron Tolley, I'm the Co-Founder and CEO of Aptamer Group. And I have -- I think it's worth giving a bit of background. I have quite of an unusual background. I started life out as a builder, worked in a factory. I left high school with no GCSEs and then finally got a job essentially. After doing a few different jobs and ending up doing a brief sales and business development, I decided I wanted to do scientific research. So [indiscernible] went to university in my mid-20s, working on my days off and weekends to fund the education. So I studied molecular medicine and a PhD in biophysics and structural biology at the University of Leeds and my PhD was in DNA protein interactions in viral systems, which will become important when Dave explains the nature of how aptamers function. I've run the day-to-day activities of Aptamer Group for the past 10, 11 years, and I'm still playing an active role in the scientific side of the company, taking on the Scientific Advisory Board alongside David. I've several patent applications and publications in the field. So in order to help us grow the business, we've assembled an experienced management team and Board. So to start, to give an introduction to the Chairman, Ian Gilham, who led this out of Horizon Discovery recently to PerkinElmer. We have John Richards, who has expertise in oligonucleotide therapeutics, and he was part of the founding team that sold the Medicines Company to Novartis for $9.7 billion a few years ago. Angela Hildreth is also on our Board as an experienced non-exec finance director specializing in the health care sector. The management team has been strengthened with the addition of Alister Fleming with 40 years operations experience and Derek Smith with 20 years' experience in life sciences sales management, who is currently acting as our Interim Chief Commercial Officer. So I'll pass over to Dave and Rob to introduce themselves.

Good afternoon, everyone. My name is David Bunka. I'm the Chief Technical Officer and one of the older cofounders of Aptamer Group. My background is in molecular biology. I have a PhD from the University of Leeds in which I developed processes for the automation of aptamer selection. Some of those processes form the basis of what we now operate in the business. So I've actually worked with this technology for 23 years, which is quite worrying for me. Rob?

Yes. Thanks, Dave. So good afternoon, everybody. Rob Quinn, the new CFO. I'm delighted to join Aptamer Group at the beginning of March. I'm a scientist by training as well. I've got PhD in biochemistry, I'm also a chartered accountant and I have worked across the life sciences space my whole career, including at GSK, Silence Therapeutics and Benevolent AI. And I've seen the value that can be created with an innovative technology platform. And I believe and one of the reasons I've joined Aptamer Group is that aptamers have the potential to make significant impacts across the life sciences industry, akin into the broad and valuable impact that antibodies have made.

So just to start with a brief summary of Aptamer Group. So we were founded in 2008 to plug a gap that David and myself spotted in the life sciences market. And we actually started trading in 2012 after winning a regional investment competition. We built the company on a mixture of AIMs in investment and revenues before listing on AIM in 2021. We've grown the business from a team of 2 people, myself and Dave, over the past 10 or 11 years to a team of 55 people. And we have a global business based out of York in the north of England. We have 42 partners across 12 countries in both 15 of the top 20 pharma companies as part of our customer base. And the real -- and the basis of the business is our fully automated discovery platform for aptamers and alternatives to antibodies, which are pretty much used universally in the life sciences market. So as a business, we solve intractable problems for pharma and biotech with our disruptive world-leading Aptamer platform. The 4 key points I would like you all to take home is that we're targeting the affinity ligand market, which is historically dominated by antibodies. And the value of this market is around 171 billion and is growing at approximately 10% compound annual growth. And within this affinity ligand market, aptamers are growing at a faster rate due to their favorable characteristics. So we developed affinity ligands called aptamers on our proprietary, highly automated, high throughput discovery platform. Now automating the discovery of these molecules leads to high project success rates and faster completion of projects. And because of that, we're building a strong commercial traction, building a strong pipeline at a global level, winning contracts with top pharmaceutical partners with the current pipeline size and granularity reflecting the commercial team build-out over the past several months. We have a unique model. As a final point, we operate a fee-for-service with licensing and downstream revenue models. There is no exposure in this model to customers' R&D risks because we get paid for what we do. So it's a reduced risk model in our minds. And as standard, we retain intellectual property, which leads to potential high-value licensing base upside when the technology is commercially exploited. So I'll pass over to Dave now to lead you through an introduction and some examples of the technology.

Thanks, Arron. Yes, so as Arron mentioned, Aptamer Group operates within the affinity ligand market. So first off, I'll just take you through what an affinity ligand is, what an aptamer and an Optimer is in relation to that and the advantages of our technology. So first off, an affinity ligand is any molecule that is capable of binding to another molecule. So it's a molecule that's fixed to another. And they are used throughout the life sciences. So virtually every diagnostic, therapeutic, research reagent all relies on a molecule sticking to another. An aptamer is a synthetic piece of DNA that's been isolated to do that job, so it's a synthetic DNA binder. These are isolated what's referred to as in vitro, that basically means in a test tube or, in our case, on a 96 volt plate on a robot. Now that process gives you a lot more control over the characteristics of that affinity ligand. So much better control than you could get from an animal-based system like an antibody. Aptamers and Optimers can be generated against a whole range of, including proteins, peptides, bacteria, whole cells, whole tissues. And our process allows us to tune the binding characteristics to give optimal performance in the resulting molecule. The binders are synthetic in nature, which means they are much more cost effective to manufacture. You have much better quality control over them, so there's limited batch-to-batch variability. And the stability and solubility of our molecules allows them to be shipped and stored at room temperature. So they are a lot more cost-effective molecules. Now as Arron mentioned, we operate in the affinity ligand market. That's a market that's currently valued at approximately 170 billion, and that's growing at approximately 11%. As Arron mentioned, that market has been historically dominated by antibodies just because they were one of the first that were discovered, but there are well-known, well-characterized problems associated with that technology. Now as we can see on the middle of the slide there, the affinity ligand market covers a whole range of different technologies. You have antibodies on the left. And then you have a range of protein-based scaffolds that were introduced to try and address some of the problems associated with antibodies. So that's from companies like argenx and Molecular Partners and their respective platforms. All of those platforms are protein-based, so they do share some of the problems inherent with antibodies. Aptamers on the other side -- other hand, on the far right of that continuum, are nucleic-acid based. So they don't have these protein inherent problems. So they are unique within the affinity ligand markets. And those benefits are allowing aptamers and Optimers to grow at 20% relative to the rest of the market. So they're growing faster within that affinity ligand market. So what is an Optimer? An Optimer is essentially the minimal functional fragment of the parent aptamer. So you can see that in the cartoon here. We identified the Optimer on the right-hand side of that cartoon using the proprietary automated screening approach to identify the minimum functional fragment of the parent Optimer. So by trimming away the unnecessary sequence, that's the bits that are shown in pale in the cartoon on the left, we end up with a smaller molecule that is more cost effective to manufacture, gives higher yields and in general has a better performance profile. So they bind better to their target. They have better tissue penetration, for example. So on the whole, they are a better molecule. Now as Arron said, we use our platform to solve problems for our partners and customers. So generally, customers come to us with a target on the left-hand side of the slide and an application that they want on the right-hand side of the slide, would often have no way of making the 2 pair up. So they need an affinity ligand, which is where we come in. So to give you an example of the sort of targets that we get sent, we have small molecules such as food additives, environmental contaminants and so on. We have proteins, for example, research reagents, disease-associated proteins and so on. And then we have much more complicated systems like whole cells, for example, cancerous tissues or viruses like COVID. We can put those targets into one of 3 distinct processes that we've developed in-house, each tailored to address those different target types. And each one of them specifically tailorable to the end application. So this allows us to help the customer develop a binder that's fit for their own goal, not just develop them a binder in general. Those binders can then be integrated into the customers' platforms, be that in bioprocessing as a purification reagent, as a new tool to go in a diagnostic or a QC reagent or even as a potential therapeutic or therapeutic delivery vehicle. One of the USPs of the processes that we use here at Aptamer Group is the high-throughput automation. And you can see one of the robot clusters in the photograph on the right-hand side of the slide. Using automated processes allows us to remove some of the human error inherent in any sort of working practice. But it also gives us a much greater capacity than a team of scientists on their own can achieve. Because the robots can work 24 hours a day, this brings our delivery time down compared to a wholly manual process, but it also allows us to process a lot of different targets in parallel. So that gives us much greater capacity. Now those platforms, as you can imagine, have got a lot of know-how built into them over the years. So we've developed new aptamer selection processes, new processes to develop the Optimers and then all the capabilities around automation of that. So this gives us something that's very difficult for competitors to replicate, there's a lot of know-how that goes into that, but it also is very scalable. So when we have increased demand for our binders, which I'll come back to later on, we can replicate that platform and increase our capacity without all the necessary training that goes on when you get new employees. So some of the examples of where we've been using that are demonstrated on the slide here. So I mentioned in the previous slide, one of the requirements is for a lot of targets being processed in parallel, and that's particularly important in things like proteomics. So proteomics is the study of all of the proteins, not just 1 or 2 biomarkers, but all of the proteins in a biological sample. For example, let's say, a blood sample. Now by studying all of the proteins in that sample, you get a much better snapshot of what is going on. So this is really coming to the forefront in the field of personalized medicine where my biomarker profile might be slightly different to another person's, and that might change when each of us have a disease. So it's really important to be able to detect all of these different molecules. But in order to detect all of these different molecules, you need different binders against all of them. So thousands of targets need thousands of binders. And our high throughput capabilities allow us to address that. That need was actually helped through the IPO funding that we received. So we've scaled our processes to meet that future demand. Another area of particular interest is in immunohistochemistry. So this is a term that many people may not be familiar with. But if you think about every pathology lab in every hospital across the world, if you go and have a biopsy taken, you will have a tissue section will be scored and then the doctor will examine that sample to look for signs of, let's say, cancer, for example. Now that in itself is quite difficult for antibodies to do because they often don't recognize those markers in the context of a tissue section. Because we can develop our binders, our Optimers in vitro, so on a robot, we can actually use whole tissue sections. So that means that our binders are much more likely to be successful in these platforms. And to come back to the synthetic and chemical nature of an Optimer, because we can synthesize these readily, we can put the correct functional groups onto the end of these to make them fit into IHC platforms that are used across the world. And in relation to that, we launched our new Optimer XE platform earlier this week. So I'll hand back now to Arron to talk about the business model and the revenue streams.

Thank you. So as I've mentioned previously, this is predominantly a fee-for-service model. We've got front payments, licensing, milestones and royalty based opportunities. The fee-for-service arm, developing research tools acts a gateway to opportunities with potential high-value downstream payments when the molecule is commercially exploited. So this is essentially the engine from the focus of the business. And acts as the gateway to large pharmaceutical companies in biotech giving us access to funds and also bigger deals. So to reiterate, this is a reduced risk model as we get paid for the work that we do, because there's no exposure to the customer's R&D. The model provides access to revenues and helps us fund technology development which is required to improve our systems, to access high-value long-term returns and opportunities. The licensing revenues are planned to come in 3 main areas -- or 2 main areas. In fact, you have research tools such as critical reagents as quality control reagents and bioprocessing binders when commercially exploited can carry yearly licensing revenues and success fees. And drug delivery is the newest area, which can lead to non-dilutive upfront payments and high-value milestones and royalties. So to be clear, the development of therapeutics is not to focus for us as a business, but the development of tools for drug delivery is, which enables us to have multiple shots on goal to achieve our objectives whilst generating revenues and minimizing cash burn. So in terms of our investment growth in the use of the IPO proceeds, and we invested in 3 key areas to underpin this growth. So facilities, commercial and technology. So our new headquarters has 18,000 feet of state-of-the-art lab and office space to house our ever-expanding team. We've invested in capital equipment and scale up to improve automation capability and enable and remove operational bottlenecks so to give us the ability to undertake these proteomics-type projects that Dave was just talking about. Commercially, we've expanded our team and developed and expanded service offerings which are key to the delivery of our strategic plans. And we're investing in our novel nucleotide chemistry platform to develop differentiated and proprietary offerings. And we're also in the initial stages of the development of data that opens high-value opportunities in therapeutics. And as Dave mentioned, we've also managed to develop new tools for immunohistochemistry, which was launched and released earlier this week. So I'll pass over to Rob now for a quick summary of the financials.

Thanks, Arron. As reported previously, revenue for the first half of the year 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 projects near completion or begin secondary phases. Gross margins for H1 were 45%, lower than the 67% margin seen for full year '22. But this is a function of lower sales, and we expect stronger margins and sales increase in the second half. Admin expenses rose to almost GBP 3 million for the first half, 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 whereas the previous period was pre-IPO. We expect admin expenses to stabilize at around this level for the full year. On the cash flow side, 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 receipts of GBP 0.5 million came in, in February. Turning now to the commercial updates. We're seeing commercial momentum building, and I wanted to point out some markers of this. Firstly, we're seeing an increase in repeat business, especially with big pharma customers, as illustrated by these 2 deals in H1, shown on the top left side. Two of our big pharma customers shown on the top right, shown as company A and company B, are approaching significant revenue milestones. For example, company B has requested 10 projects so far worth almost GBP 800,000 in revenue. And we're in discussions on a further 3 projects with company be potentially worth over GBP 1.6 million. I also wanted to highlight the breadth of the opportunity for Optimers. It's not just life sciences customers. In particular, I was struck by the novelty and ingenuity of the project we've announced with a multinational consumer goods company. But unfortunately, we can't say more on that at this time. As we look forward, there is a robust pipeline of opportunities for our fee-for-service offering with a pipeline valued at GBP 11.7 million at the end of February, and that's made up of 60 discrete projects. In addition to the fee-for-service work, we have multiple licensing discussions underway which could make a meaningful contribution to revenue. Finally, I wanted to highlight the increased proportion of opportunities coming from the therapeutics business unit with a proportion rising from 9% 12 months ago to 18% today. As Arron has pointed out, therapeutic projects are higher potential value and could deliver significant upfront milestones and royalty payments if successful. Turning now to an outlook for the second half. As we stated in our H1 results, we have 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 essentially, the foundations are there. We're building momentum. We're gaining traction in a large untapped affinity ligand market worth 171 billion. We have repeat business and an expanding pipeline of opportunities, which demonstrates the need and acceptance of the technology, giving us confidence in these revenues. A high throughput platform puts us ahead of the competition as globally recognized leader in the field. We continue to maintain this position by investing in and refining our novel technology platforms and building out our IP portfolio. We continue to build strong traction on a global level, winning contracts with top pharma players. And some of these customers are on their fifth, sixth, seventh project, again demonstrating repeat business and successful delivery. We make an exciting progress in our fee-for-service business opportunities, particularly in the therapeutic space with a doubling of interest over the last 12 to 18 months from 9% as Rob said to 18%. We're currently focused on building these exemplification data packs to lead to high-value licensing deals and to enable us to operate much more fluidly in the therapeutics delivery space alongside exploiting opportunities in the IHC arena. So I appreciate the opportunity to bring Aptamer to a larger audience and communicate the message. And so I appreciate everyone's time for listening and welcome any questions.

Arron, that's great, and Rob's and David as well. Thank you very much for your presentation this afternoon. If I may, I will just bring back up your cameras there. [Operator Instructions] Just while the team take a few moments to review questions that were submitted already, I would like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A, can be accessed via your investor dashboard. Arron, Rob, David, we did receive a number of questions throughout today's presentation, as you can see there on the Q&A tab. So perhaps if we may just get straight into it. The first question that we have here is from Sam. Sam, thank you very much for your question. Sam asked, what is the process of qualifying the opportunities in your pipeline? And what is the typical time frame from initial discussions to revenue?

Okay. So I'll take that question. So we have a very robust process for qualification, a pretty standard 3- or 4-stage qualification where we established the need from the customer get technical buy-in, established budget and so on and so forth and move through the process. And at each stage, the opportunity becomes more likely to proceed until we have effectively a probability adjusted value. And then we move on to understanding the customers' buying profile and then move to a closed deal. Typically, that can take anywhere between 2 and 6 months on average for a deal.

Thank you very much for that. The next question that we have here reads as follows: Which of your business divisions offers the most upside?

Do you want me to take that one again? So the therapeutics division obviously offers the most upside, but it also has the most risk in terms of the development of the technology because there's more steps associated with the development and delivery of a therapeutic molecule. How we've got around that as a business is we've decided to partner with other companies that effectively bear the risks themselves and we provide a tool for the delivery of those drug molecules. That's not to say that the fee-for-service side of the business is not -- is without value. The fee-for-service side of the business acts as a Horizon scanning platform and enables us to get a good idea of what's popular in the market space at the moment. For example, I can tell you that there's a lot of interest in the gene therapy and purification vertical within the life sciences market due to the number of interactions we've had with customers asking to solve problems.

Arron, thank you very much for that. That's great. The next question that we have here reads as follows: What capacity does the new premises bring to the group?

Dave, do you want to take that one?

I would say that the premises essentially have given us about 3x the footprint that we had previously. So when capacity requires it, we could almost treble the robotics that we had in the previous lab. Obviously, as I mentioned before, we wouldn't need to treble the amount of staff to run that. So we could go from 72 targets running in any one batch to a couple of hundred over the course of the year. So it gives us a massive capacity in terms of future growth.

David, thank you very much for that. And the next question that we have here as follows: Why do you think that you've seen so much momentum in the therapeutic sector? Arron, I know you've just briefly touched on that, but perhaps if there's anything further to add, that would be great.

Yes. It's kind of 2 of us can talk about that statement actually myself and Rob. But my point that I would make there is if you look at things like antisense oligonucleotides and siRNAs, these are systemically delivered drugs which have seen quite a lot of interest over recent years in treating liver disease and liver ailments through what's called the GalNAc conjugate. And now because of that kind of side of the market is saturated, a lot of these companies are looking for alternative ways to target those molecules to different parts of the body. I don't know if, Rob, you've got a few words on that.

Yes, just to add, I mean, the value in that precision delivery of a medicine is multifold. And I guess you've got -- you can think about delivering at lower doses because it's all reaching exactly where you want it to go and not going elsewhere in the body. And that's good from a COGS perspective, it's also good from a safety perspective because you're not overdosing. And furthermore, the -- enabling a company to reach a cell or a tissue protein that it wouldn't otherwise be able to do opens doors in terms of diseases that a big pharma company can potentially go after. So these kind of technologies that enable precise drug delivery to novel locations in the body are going to be very valuable for those developments.

Yes. I mean it can literally make the difference between whether the drug molecule is successful or not.

Perfect. That's great. And then that actually is all the questions that have come through so far. So thank you very much indeed for being so generous of your time in addressing all of those questions that have come in. And of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended. Just for you to review and then add any additional responses, of course, where it's appropriate to do so and we'll publish all those responses out on the Investor Meet Company platform. But Arron, just really before redirecting those on the call to provide you their feedback, which I know is particularly important to yourself and the company, if I could please just ask you for a few closing comments to wrap up with, that would be great.

Yes. Again, I'd just like to say I appreciate the opportunity to bring Aptamer and what we're doing to a larger audience and understand that it's important to keep potential investors, encouraging investors updated as to our progress. So I'd just like to thank everyone who's on the line. I'm not sure how many of you are, but I'd like to thank whoever turned up for listening. And yes.

Arron, that's great. And Rob and David as well, thank you once again for updating investors this afternoon. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can better understand your views and expectations. It's going to take a few moments to complete, but I'm sure it will be greatly valued by the company. On behalf of the management team of Aptamer Group plc, we would like to thank you for attending today's presentation, and good afternoon to you all.