Clinuvel Pharmaceuticals Limited (CUV) Earnings Call Transcript & Summary

Good evening, everyone. I'm Verity from Monsoon Communications. Thank you for joining us for Clinuvel's annual results briefing for the 2022 financial year. I'll now hand over to Malcolm Bull to begin the presentation.

Thank you, Verity, and thank you for organizing the briefing for us. Welcome to everyone joining us online for the investor briefing, as Verity said, on Clinuvel's financial results for the year ended 30 June 2022. I'm Malcolm Bull, Head of Australian Operations and Investor Relations. And today, I am joined by our Managing Director, Dr. Philippe Wolgen; and Chief Financial Officer, Darren Keamy. Today's briefing will revolve around the results for the financial year 2022, the key activities of the year as well as ongoing initiatives to bring the company's objectives to positive outcomes. Throughout the meeting, we will answer questions relating to our financial results, and at the end, time permitting, some recurring questions on other topics. Now before we begin, let's observe our forward-looking statement, which highlights that we may possibly talk about future plans, and investors need to be aware of the varying risks that can arise affecting the realization of planned outcomes. Now a copy of this statement is available on the company's website. To start, I'll hand across to our CFO, Darren Keamy, for the financial highlights.

Thanks, Malcolm. Hello, everyone. It's a true pleasure to summarize the excellent financial outcomes of the group's operations for the financial year ended 30 June 2022. Investors should note that the figures we referred to are in Australian dollars. And for most of these, they are rounded for ease of reference, and changes in comparison to the prior year are provided. So to summarize, compared to the prior year, total revenues has risen 37% to $65.7 million, including interest and other income was $67 million. Total expenses rose 44% to $32.7 million. Net profit before tax rose 33% to $34.3 million, and net profit after tax fell 16% to $20.9 million. So this is the sixth consecutive annual profit since the commencement of commercial operations back in June 2016. There has been a positive overall growth across the group's activities, increasing internal investments and a year-on-year increase in head count of up to 16%. Net assets have increased by 27.2% to $125.6 million with the key change of the balance sheet being a substantial rise in the cash balances, up $38.8 million to 125 -- sorry, $121.5 million through the course of the financial year. Two other key measures of performance dimensions our return of equity, which is at 17% and our earnings per share of AUD 0.423. So to cap these results, we are now in a position to think about our shareholders even more, and we are declaring the fifth consecutive annual dividend, which is a 60% increase from $0.025 last year to $0.04 on current year earnings.

Thanks, Darren. You've got to say they are welcome figures. And you and [ Paul Lim ] and the finance team must feel pleased about the delivery this year. To go beyond the highlights, Darren, can you give us more depth to the growth of revenues and expenses and profit as well as the context of the past 6 years of commercial operations? Or in other words, on behalf of investors, how should they look at these financials in the context of markets and our sector?

Well, the start of revenues, we work towards continuing positive annual growth over 6 years of being commercial. So to put context to our growth curve since we've entered the U.S., we have achieved an increase in our total revenues of 37% in the current year, and that was on the back of a 47% increase in the prior financial year. So this path reflects increased patients treated, more physicians are prescribing, more patients are being retained. Above all, we're creating more efficiency through the work of our Clinuvel teams who are proactively supporting the distribution by collaborating with the physicians, with insurers, with training and liaising with the accredited centers and with the patients. So what we're doing is that by being closer to our value chain, the better our results are proving to be. Now that's on the revenue side. From the expenses side, our expenses can fluctuate depending on the start of certain key activities. But overall, they have increased over the past 3 financial years in a very controlled and deliberate manner. So the growth in expenses in 2020 was 49%. It was more in a controlled fashion in 2021 of a 2% growth and then a further 44% growth in the current year. And this is on the back of supporting the growth initiatives within the group. So it goes without saying that the longer-term positive trend in our growth revenues has allowed us to ramp up our expenses and that is driving us forward into new R&D, into our product development, into new markets. Now as to reporting the profitability of the company, this year, in our annual report, we've made a distinction between 3 measures: net profit before tax, net profit after tax, and we've provided a non-IFRS adjusted net profit. Since in the end, what matters is what expenses directly are affecting our cash position. And some material expense items are charged to meet accounting requirements that do not affect cash. So the profit before tax figure has risen strongly in the current year. And whilst the impact of noncash expenses as well as income taxes payable have reduced the net profit after tax, nonetheless, it's a much desired result that we've launched for a life sciences company not only in Australia but also in the U.S. and for other markets. So I'll speak later somewhat more about the NPAT and on the non-IFRS adjusted results to see how the expense items have affected our net position.

Okay. Yes. Certainly, we returned to the financials, but some participants have asked for a summary of operational objectives fulfilled throughout the financial year 2022. So I'd like to invite our Managing Director now, Philippe Wolgen, to say a few words on the past year.

Certainly, thanks, Darren and Malcolm. The results that Darren has summarized for the group are the outcome of a longer-term strategy, very much based on the integration of the business functions and the model we started years ago. And as a business, you wish to build in operating procedures at each level of the divisions while being sufficiently flexible to change course if and when required. Now for the financial year of '22, we were able to expend more on R&D initiatives, enhance our melanocortin portfolio with NEURACTHEL, an ACTH analog; and start the DNA Repair Program evaluating afamelanotide in xeroderma pigmentosum with the 3 ongoing studies and complete the first stroke study, CV801. We manufactured the first pilot batch of the OTC product lines, and we brought in more specialized talent, 16% in total, and established a CBM, communication, branding and marketing team mandated to build large audiences for the group. So we've been fortunate in managing the supply in the midst of the global economic geopolitical disruptions while overcoming the price increases from insurers as witnessed by the agreement reached with one of the most prominent EU reference countries in Germany. So if I had to summarize in 4 the key activities of financial year '22, we've been focused on the ongoing distribution of SCENESSE, the development of the melanocortin drug portfolio, the progress of the expanded clinical program and the ongoing development of the nonpharmaceutical, the consumer health products, preparing for the first product launch. Now for the longer-term shareholders, you're gradually seeing a shift from a mono-focused team inching to a -- one diversifying its activities. And my main concern in spreading our wings is still for our teams to maintain the focus required to record meaningful progress. For this to occur, we substantially increased our head count in '22. I think most relevant to today's discussion, our commercial efforts translating into financial results. We saw increased patient access in the European Union, U.S. and Israel. We reached a milestone 5-year agreement with the joint federal committee in Germany, the state and private insurers. And therefore, we continue the reimbursement in Germany. That was a hard-fought battle over 16 months. We expanded the melanocortin drug portfolio by adding an ACTH analog and introduced NEURACTHEL. We continued the development of PRÉNUMBRA Instant, which we recently announced will be the first in the clinic for the next stroke study, CUV803, and we secured the exclusive manufacturing for this. We started 3 studies in DNA repair centered around xeroderma pigmentosum, a horrific genetic disease. And CUV151 serves as a control study in nondisease populations. We started, completed and released the positive results of 801 study in arterial stroke, and we reached an accord with the FDA with a way forward to start a monotherapy in vitiligo in darker skin populations. And we also progressed the work on the OTC product line. So we're getting quite close to be launched.

Well, thank you, Philippe. What a list of activities and achievements. And I know in my role as Head of Australian Operations, interacting daily with the teams worldwide, it's clear that the group, the past year has ramped up its activities on many fronts. It's good to see -- and these broader and simultaneous activities are very, very different from the company I joined 3.5 years ago. Darren, back to you. Let's get back into the financial results, and we've received a number of questions on the difference between the net profit before tax, net profit after tax and the non-IFRS outcomes. So can you shed light on these and walk us through the differences?

Yes, I can. So first, you can see the differences on the graph between the net profit before tax and the net profit after tax results over the 6 years of commercial operations, and the divergence between the 2 profit measures that have widened in recent years. So broadly speaking, the company was able to benefit from setting off the tax losses that have accumulated in those years prior to commercializing SCENESSE against the first 5 years of profits being recorded. So this has resulted in some negligible past tax obligations, but it had afforded us to recognize income tax benefits in the income statement, which occurred upon recognizing a tax asset on the balance sheet. So in the past years, we saw the before-tax result and the after-tax result to be quite similar. And even in some reporting periods, it's a high NPAT result relative to the before-tax result due to recognizing an income tax benefit. During the course of the year, those usable tax losses were consumed, and the company's deferred tax assets were reduced as a result. So this has contributed to a deferred tax expense for the year of $6.2 million. In addition to this adjustment, current tax for the year and payable in the next year was reported at AUD 7.4 million. Also relevant for the group and also for myself as CFO is to understand the impact of certain expenses, particularly those of material in nature and whether they impact the group's cash position. So one of these charges is the expensing of performance rights being prospective equity instruments that -- issued for staff who earn over a vesting period of up to 4 years. These instruments are valued in accordance with accounting standards, but they don't impact cash. Hence, by removing certain material noncash items from the statutory reported after-tax result, we arrive at a non-IFRS adjusted profitability measure of approximately $27 million. Compared to that same measure to the prior year, we are nearly equal. So going forward, we do intend to continue highlighting certain expenses charge and the effect that these material noncash items may impact on profit because sometimes this impact can be confusing for shareholders.

Okay. Thanks, Darren. I think that clarifies and does answer some important questions. And as you mentioned, Darren, expenses have been -- have increased significantly over the past 3 years. So can you comment on where the expenses are being incurred?

The increase in our overall expenses is very deliberate, very controlled. We're clear on that in our communications, and it is to support the growth of the company. And as Philippe has already provided an overview of the diversity of the group's activities to which these expenses are applied to. So to give an overview of the increases in the current year, our largest expense category is personnel, and that did increase 14.1% in the current year. As we did indicate in the annual report, the year-on-year increase in the number of employees of the group was 16% from start to end and an average head count of 13% increase. So that broadly reflects the increase in the personnel costs. We also experienced a hike of 48% in materials-related expenses, and some of these do reflect markup activities within the inflationary environment that we find ourselves in. Thirdly, noncash items disclosed in the income statement and aggregated together, such as depreciation, share-based payments and unrealized movements in foreign currency balances. Combined, they rose 42% in the current year. And combined, it does equate to our second largest expense category for the year. And lastly, other expenses once again combined being administration, legal and marketing functions, they also increased 23% year-on-year.

Okay. And a useful graph on screen -- or was on screen to track those categories. Perhaps I can go back to you, Philippe. We had projected a positive trend in expenses over the 5 years to June -- 30 June 2025 to support the growth and expansion of the group. So can you comment on these, please?

Yes. So you're likely alluding here to the projected expenses and the expenses recorded during the financial year '22 and whether these fit the overall targeted results -- as we started as stated in '21 to achieve a number of value-added objectives for 5 years, both the Board and Management laid out a plan costing our cumulative expenses of $175 million over the 5 years ending 30th of June 25. At the end of this trajectory that's important to note, a number of key objectives would need to be fulfilled. In essence, the regulatory approval of SCENESSE and additional indication, the launch of NEURACTHEL, several consumer health products and other R&D projects and generating further value. So if one adds the total expenses over the last 2 years, one arrives at a total of $55.5 million, and that leaves $190 million to be expended over the next 3 financial years. So we are nigh on course adhering to our 5-year plan.

Right. Look, just for an investor, can you clarify that these expenditures are operational in nature and do not include CapEx?

Yes, that's correct. Yes.

Okay. So Darren, let's look into the balance sheet and an obvious observation is that our assets have increased over the last 6 years and in absolute terms, tower over our liabilities, for you to comment.