Heidelberg Pharma AG (HPHA) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Heidelberg Pharma annual press and analyst conference regarding the financial year 2019. The call will be hosted by Dr. Jan Schmidt-Brand, CEO and CFO of Heidelberg Pharma AG. My name is Rosie, and I'll be your coordinator for today's conference. [Operator Instructions] I am now handing you over to Dr. Jan Schmidt-Brand to begin today's conference. Please go ahead. Thank you.

Thank you, Rosie. Hello, ladies and gentlemen, and welcome to the Heidelberg conference call to discuss our 2019 fiscal year results and to provide the business update. My name is Jan Schmidt-Brand, and I am the CEO and CFO of the company. Joining me on the call today is my colleague, Prof. Andreas Pahl, Chief Scientific Officer; and Katja Arnold, our Investor Relations consultant. Please note that this presentation is available for download on the Heidelberg Pharma website. This conference call is being recorded, and the replay will be available on our website after the live event. Before I begin, let me remind you that we will be making forward-looking statements on this call as well as during the question-and-answer session. Please see our safe harbor statement here on Slide 2. For a more detailed discussion of the risks and uncertainties affecting our business, please see the 2019 management report published today on our website. As we have non-German speaking journalists, analysts and investors on this call, we will conduct the presentation in English. Should you wish to ask questions in German or English, please feel free to do so after the presentation. We will be pleased to answer your questions during the Q&A session. Please turn to Slide 3. On the call today, we will give you a brief corporate overview and outline key achievements over the past 12 months. We will then provide an update on our ATAC projects and partnerships as well as our legacy clinical assets. This will be followed by a review of our financials and an outlook for the year ahead. Please turn to Slide 4. This slide provides a quick overview of our company. As a reminder, we are the first company to deploy a completely new mode of action in cancer treatment, inhibition of RNA polymerase II by using the toxin Amanitin to develop anticancer therapies. Our mission is to provide new treatment options, to improve efficacy, to overcome resistance mechanisms and to kill both proliferating and dormant tumor cells. Amanitin is a natural toxin found in the death cap mushroom and has a unique biological mode of action which could serve as the basis for developing highly effective innovative drugs. It works by inhibiting RNA polymerase II, which results in programmed cell death or apoptosis. RNA polymerase inhibition is a novel principle in cancer therapy, which we believe could lead to major clinical advantages in treating cancer. We use our proprietary and innovative ATAC technology for the manufacturing of antibody targeted Amanitin conjugates, or ATACs. Before we enter the core of our presentation, I wanted to say a brief word about coronavirus and its impact on our business since that is a question for all businesses today. At this point in time, we are able to continue our work as planned, and we have not had any problems in supply chains for the materials we need to conduct our business. As of today, our employees have not been affected. We are taking precautions needed for the safety of our employees and keeping close contact with our suppliers. Please look into Slide 5. The majority of our activities are focused around the ATAC platform technology. With this proprietary technology, we are developing our own product pipeline. Our lead product candidate, HDP-101, is initially being developed for multiple myeloma. At the same time, we are working on additional proprietary ATAC candidates that will undergo preclinical testing to determine the efficacy and tolerability. The goal is to identify additional potential development candidates and take them to development stage. We have also entered into collaborations with biopharmaceutical companies to develop product candidates for them using our ATAC platform, 2 key ones being Takeda and Magenta Therapeutics. We are particularly excited about the great progress made in our collaboration with Magenta over the past year, and we'll provide you an update on this collaboration later in the presentation. We have the technology and organization in place to provide our own projects as well as our license partners with GMP quality Amanitin linker material, which is important for clinical trials. We also have 2 partner legacy clinical assets from the former Telix. These licensing deals provide us milestone payments and long-term upside revenue potential. All development costs are borne by our partners. We are not using any resources to further develop these programs. Please turn to Slide 6. In 2019, we continued to prepare for the clinical development of HDP-101. This included advancing the manufacturer of GMP grade material and completing the first part of the necessary GLP tox studies that need to be done prior to entering the clinic. We continued to put the components in place to prepare for our first-in-human clinical trial. This included signing on a CRO for the clinic -- for the trial and identifying clinical trial centers, both in Germany and U.S. The clinical team also completed the synopsis for the Phase I trial. The preparation of the documentation for submitting the clinical trial application has begun. We will provide more detailed update on the status of HDP-101, particularly manufacturing, in a few minutes. Beyond HDP-101, we have several preclinical ATAC candidates. For example, we have a program evaluating various PSMA-ATACs with further programs in hematological indications. In recent months, preclinical studies have been conducted to determine in vitro and in vivo efficacy, tolerability and pharmacokinetics. Earlier this month, we were able to announce that MD Anderson has been granted an important U.S. patent around the 17p deletion biomarker. This biomarker offers the potential for a faster time to market for our ATAC product candidates. We have exclusive rights to this patent, and we'll discuss this biomarker program in a bit more detail later on. Let me also mention one more important success related to our technology platform. We were able to complete the successful technology transfer of Amanitin production to an industrial scale, which was a key step to ensure the supply of material, both for our own projects and for those of our licensees. We have established the technology to provide our license partners with the necessary GP quality Amanitin linker material and have already begun manufacturing using our vendor of carbogen, several batches for our technology partners. We were also pleased to report in the fall that the EU-funded Magic Bullet project was being continued. The project, which has been running since 2015 as part of the Horizon 2020 program, is to be continued from 2019 to 2023, and to resolve funding for all project partners amounting to up to EUR 3.9 million. The research field is being expanded from small molecule drug conjugates to peptide drug conjugates. Turning to our ATAC technology partnerships. The collaboration with Magenta Therapeutics continued to make strong progress during 2019, including Magenta exercising its second of 4 possible ATAC options under the deal. In November, Magenta exercised its option on the ATAC against CD45. The exercise of this option triggered payment to us. In January 2020, Magenta announced the ATAC MGTA-117 as a clinical candidate for the conditioning of patients for stem cell transplants or gene therapies. MGTA-117 is an ATAC that consists of CD117 antibody and the compound Amanitin and was developed under our collaboration. Magenta also presented promising preclinical data from the collaboration programs at ASH 2019 in December and as well as the Transplant and Cellular Therapy annual meeting just last month. Let me also mention that our partnership with Takeda is proceeding as agreed, although Takeda has not yet publicly disclosed any information on the work. In addition to our important partnerships with biotech and pharma companies, we also announced in November our participation in a joint venture called Emergence Therapeutics AG, together with French and German venture capital investors. Heidelberg Pharma is involved in the startup phase, both as a partner and via convertible bonds, and can gradually increase its stake to around 20% during the second round. As a co-partner, we are providing our proprietary toxin linker technology for ATACs as part of a license and development agreement. We will also manufacture the experimental ATAC molecules and contribute to research activities. Emergence Therapeutics will provide antibodies to the partnership. The partners will work together to manufacture novel ATACs and select the candidate for further development with the goal of ultimately out-licensing any candidates to a biopharma company. As a shareholder, Heidelberg Pharma will also participate in any increase in value of the joint venture. Looking at our licensed legacy clinical programs. After licensing the imaging radioactive labeled antibody TLX250-CDx, formerly called REDECTANE, Heidelberg Pharma's collaboration partner, Telix Pharmaceuticals, set up a new and modernized production process for the related antibody Girentuximab. As part of this project -- process, one of the contractually defined milestones was reached, and the payment of USD 250,000 was received by us in June 2019. In August, Telix began the Phase III study called ZIRCON, with the TLX250-CDx for diagnosing renal cancer using positron emission tomography, or PET. The study is a global multicenter Phase III trial with sites in Europe, Australia and U.S., and is scheduled to enroll around 250 renal cancer patients who are to undergo kidney surgery. Turning to our licensed legacy program, MESUPRON. In January 2019, our partner, Link Health, received the go ahead from Chinese regulatory authorities to start clinical testing in China, and we received a milestone payment on that. Our partner, RedHill, did not announce any substantial progress in 2019, but gave an update some days ago on further plans with the uPA inhibitor. I come to that later. As you can see, there's a lot going on. Please turn to Slide 7 to our pipeline chart. As you can see, we have a full and varied portfolio of programs that includes our proprietary and partnered ATAC candidates as well as the programs of our ATAC technology partners. Some programs are licensed, while others we plan to bring forward ourselves. Let me now turn the call over to Andreas Pahl, our Chief Scientific Officer, who will provide a more detailed overview on a couple of these programs. Please turn to Slide 9. Andreas, please go ahead.

Thanks, Jan, and hello, everyone. Let me spend a few minutes discussing our lead proprietary candidate HDP-101. HDP-101 consists of Amanitin, proprietary linker and the BCMA antibody. As a reminder of how our ATAC works, we use a BCMA antibody to gather toxins from the tumor cells like a Trojan horse. The linker attached to the antibody and toxin releases the Amanitin in the tumor cell, the toxin then binds to the RNA polymerase II and inhibits mRNA synthesis. This induces apoptosis and kills the cancer cell. BCMA is a surface protein that is highly expressed in multiple myeloma cells and to which the antibody we chose for HDP-101 specifically binds. Our lead indication is multiple myeloma, and we realize that the BCMA approach is a crowded field. However, we considered multiple myeloma our foot in the door indication to support our ATAC approach. We also point out that despite a variety of treatment options coming along, the disease remains incurable. Other potential indications include diffuse large B cell lymphoma and chronic lymphocytic leukemia. We believe that our ATAC technology may provide unique features by using Amanitin as a new chemotherapeutic agent that will differentiate HDP-101 from the competition. So where do we stand? Unfortunately, we have had some challenges related to manufacturing that has slowed down our entry into the clinic. I will provide a bit more detail on this shortly. We currently expect to complete during the course of 2020, the so-called GLP, or good laboratory practices toxicity studies, an important step that needs to be done prior to initiating clinical testing. Assuming the successful completion of this preclinical work, we then will submit applications to the authorities for the permission to initiate human clinical testing. Please turn to Slide 10. Over the past year, we have made significant progress in manufacturing the compound Amanitin and the development candidate HDP-101. We are proud of the fact that, as far as we are aware, we are the world's first and so far only industrial source of clinically produced Amanitin. However, ATACs are complex structures and that manufacturing has posed some challenges that have taken longer to overcome than we have had hoped. Let me provide you now an update on where we stand with the manufacturing. In 2019, the first batch of HDP-101 development candidate was manufactured by our production partner, Carbogen, which is responsible for manufacturing the Amanitin linker and permutation. In addition to a synthetic variant of Amanitin, the starting materials also included the BCMA antibody already manufactured by Celonic. For use in patients, this substance requires formulation with additives with so-called galenic formulation to enhance its efficacy and achieve the best possible bioavailability. As part of this process, the tolerability of the clinical trial material must be demonstrated in a series of toxicity studies to ensure patient safety, the so-called GLP tox studies. In the first half of 2019, no studies revealed that the galenic formulation would have to be improved prior to use in patients. Our researchers work with the external manufacturers to make the necessary changes to the process. The implementation of those changes and the securing -- the required manufacturing capacity have unfortunately delayed the development schedule by approximately 1 year. We expect the preclinical data package to be completed during 2020, enabling the clinical trial application to be submitted thereafter. It is also important to separate this from our ability to supply industrial scale Amanitin. As Jan mentioned earlier, we are able to supply our partners with the necessary GMP quality Amanitin linker material for their programs and also for our internal programs. Please turn to Slide 11. Let me now spend a few minutes discussing the interesting research we have had ongoing through our academic collaboration with the University of Texas MD Anderson Cancer Center, around 17p deletion and the development of a related biomarker. The produced data shown that the Amanitin conjugate HDP-101 was especially effective and efficient at attacking tumor cells from multiple myeloma patients for 17p deletion. This is particular interesting since these patients are high-risk patients and have a particularly poor prognosis. Early data were already presented at ASH 2018, and the support of earlier studies conducted as part of our collaboration with MD Anderson with colorectal cancer cells showing that amanitin has the potential to attack particularly well on aggressive tumors for the 17p deletion. This data was published in Nature a few years ago. We are quite proud of our exclusive license to the reasonably granted patent by the U.S. patent office. By way of background, 17p refers to a section of the chromosome with DNA containing tumor suppressor gene, TP53 as well as the RNA polymerase II chain. Remember that Amanitin works by inhibiting RNA polymerase II. Tumors frequently suppress TP53 to weaken the cells' natural defenses. These tumors are more expressive and less responsive to standard of care. Since the 17p deletion also reduces the amount of RNA polymerase II, such tumor cells are particularly sensitive to Amanitin. Biomarker related to this holds the opportunity to -- for us to potentially accelerate development of some of our ATACs. Please turn to Slide 12. The case study of this opportunity with the 17p deletion biomarker is our lead candidate HDP-101 for multiple myeloma patients. The possibility to identify this patient population using this biomarker could enable a highly targeted initial development program for HDP-101. And this has the potential to speed up the approval process, so the clinical data show HDP-101 to be safe and effective and, of course, subjective -- subject to regulatory feedback. We are working on the development of a companion diagnostic to detect and quantify TP53/RNA polymerase II deletion in patients. Such a test would enable us to determine those patients most likely to benefit from our key treatment with ATACs and offers the potential to accelerate the development of these compounds, including HDP-101. We hope this might support a fast track with the FDA. We have completed initial feasibility studies and are currently evaluating potential collaboration partners for the companion diagnostic. We plan to use the biomarker test in the second part after the clinical trial after dose escalation. Please turn to Slide 14. Let me finish our operational and scientific review with a few words about progress in our collaboration with Magenta Therapeutics. As a reminder, we have a highly fruitful multi-targeted research equipment with Magenta, which was signed just 2 years ago and which Magenta gave access to our Amanitin total linker platform technology. Magenta may apply Heidelberg Pharma's propriety ATAC technology to up to 4 exclusive targets from its antibody portfolio to produce novel ATACs. Magenta exercise its first option for the CD117 target in October 2018 and in November of last year, they exercised the option for the exclusive worldwide development and marketing rights for ATACs for a second target, CD45. We received an undisclosed milestone payment on the exercise of these options. The ATACs are being developed for the conditioning of patients to receive stem cell transplant or gene therapy treatment. As shown on this slide, patients undergoing stem cell transplant or gene therapy are conditioned. This means that disease cells and stem cells must be removed. This is done traditionally with chemotherapy alone or in combination with total body irradiation. This conditioning process as of today is associated with significant toxicity, including development of secondary cancers, infertility, organ toxicities or even death. As a result, many patients today are not eligible for these treatments. Magenta is developing targeted disease-modifying ADC that make it possible to quickly and accurately remove the disease-causing cells in the body and safely reset the immune and blood system without chemotherapy or radiation. Please turn to Slide 15. At the American Society of Hematology, ASH, annual meeting in December 2019, Magenta reported data showing the first-ever successful transplant of gene-modified cells in nonhuman primates using CD117 targeted single-agent ADC without the use of any chemotherapy or radiation. These landmark results validate and advance Magenta's conditioning platform. At the Transplant and Cellular Therapy, TCT, Annual Meeting in February 2020, Magenta presented new data demonstrating that MGTA-117, with its optimized link Amanitin, potently depleted stem cell and progenitor cells with an improved therapeutic index of a prior molecules with the therapeutic index of 30 fold. The typical range for approved ADCs at this stage is only 2 to 6 fold. Both the antibody and the linker payload are advancing to GMP manufacturing. MGTA-117, Magenta's CD117 targeted antibody drug conjugate candidate is being developed for patients undergoing immune reset through either autologous or allogeneic stem cell transplant. MGTA-117 precisely depletes hematopoietic stem and progenitor cells. Magenta has indicated that they are scaling up the manufacturing of MGTA-117 and plans to complete IND-enabling studies in 2020. Magenta intends then to move this product candidate into the clinic with an initial clinical data expected in 2021. In November 2019, Magenta presented the first data on the use of targeted ADC to reset the immune system and halt progression of autoimmune diseases. Results showed that the single dose of the CD45 ADC removed disease-causing cells, enabled successful immune reset and rebuild of the immune system and was well tolerated models of multiple sclerosis, systemic erosion and inflammatory arthritis. Further, a single dose of CD45 ADC significantly delayed this onset in the model of multiple sclerosis that has successfully provided preclinical proof-of-concept for clinically validated standard of care therapies. Last, further development of these successful approaches could open the doors of innovative applications of our ATAC technology beyond oncology for diseases of the immune system. Magenta has identified the lead antibody and has progressed with program to IND-enabling studies, which Magenta has indicated they plan to further advance in 2020. As I mentioned earlier, in November 2019, Magenta announced that it had exercised its options with us for exclusive worldwide development and marketing rights for ADC, using an Amanitin payload and targeting CD45. Please turn to Slide 16. Let me end my part of the talk with a short update on the nice progress our partner, Telix, has made in advancing the programs they licensed from us, Jan mentioned at the beginning of the presentation. TLX250-CDx, formerly called REDECTANE, is being developed as the diagnostic agent to detect clear renal cell carcinoma, the most common and aggressive form of kidney cancer. TLX250-CDx is a radiolabeled form of the antibody Girentuximab, which binds to the tumor-specific antigen CAIX on this type of cancer. Telix has set up a new and modernized production process for Girentuximab, which triggered a milestone payment of USD 250,000 to us in 2019. In August 2019, Telix initiated a Phase III study called ZIRCON for diagnosing renal cell cancer using positron emission tomography. The study is a global multicenter pivotal trial being conducted at sites in Australia, Europe and the US of 250 patients undergoing kidney surgery. Completion of patient recruitment is expected in Q2 of this year. Under the agreement, Telix also secured rights to TLX250, a therapeutic radioimmunoconjugate. Telix plans to evaluate lutetium-177-labeled antibody Girentuximab for disease-stabilizing effects in patients with advanced metastatic renal cancer and is planning to submit IND to the U.S. FDA in the first half of this year for 2 trials in combination with an immunotherapy. With that update, let me now turn the call back to Jan, who will discuss the 2019 financial results.

Thank you, Andreas. I will now like to come to the financials on Slide 18, please. As a reminder, our fiscal year ends on November 30. This slide provides you an overview of our actual results compared to guidance. You will recall that we adjusted our guidance in October, raising the forecast for sales revenue due to additional sales resulting additional income from research collaborations, milestone payments and from the supply of Amanitin material partners. Operating expenses are slightly higher as guided due to provisions for ongoing R&D expenses. In parallel, our funding requirements decreased and operating expenses were reduced within the previously published range. Based on current planning and the financial commitment of up to EUR 50 million by our main shareholder, dievini, we expect to have sufficient funds to conduct our activities until mid-2021. I will go into more details on the numbers in the next few slides. Please look into Slide 19. Looking at our profit and loss statement for the fiscal year 2019, Heidelberg Pharma reported total income of EUR 8 million compared to EUR 4.4 million in 2018. This included a near doubling of sales revenue to EUR 7.3 million compared to EUR 3.7 million in 2018. Sales revenue for 2019 included EUR 6.1 million related to the ATAC Technology and EUR 0.6 million from our R&D service business. Another EUR 0.6 million in sales revenue related to our out-license product candidates, TLX250-CDx and MESUPRON. Other income was EUR 0.7 million, the same level as the previous year. This figure includes government grants, the reversal of unused accrued liabilities, passing on patent costs still related to out-licensing and other items. Looking into expenses. Operating expenses, including depreciation and amortization, decreased by 13% to EUR 18.1 million in 2019 compared to EUR 16 million in 2018. You can see a breakdown of expenses in the pie chart on the right of the table. The cost of sales related to the group's cost directly related to sales revenue. This corresponded to 21% of total expenses and are mainly related to expenses for customer-specific research and for the supply of Amanitin linkers to licensing partners. Research and development expenses were EUR 10.9 million compared to EUR 10.7 million in the year before. R&D accounted for 60% of operating expenses, the largest cost item. Due to the postponement of expenses related to the clinical development of HDP-101, R&D costs remained stable despite the expansion of cost-intensive external GMP production. Administrative expenses were EUR 3.2 million compared to EUR 2.9 million in 2018. Administrative costs include staff costs, including the issuance of stock options; legal and operating consulting costs; rent and utilities and expenses for the Annual General Meeting; Supervisory Board remuneration; and the stock market listing. Other expenses for business development, marketing and commercial market supply activities, which mainly included staff, travel and consulting costs, was slightly higher than the previous year at EUR 0.3 million. Net loss was EUR 10.1 million compared to EUR 11.7 million for 2018. Turning to the balance sheet and cash flow on Slide 20. Let me just briefly touch on a couple of key numbers here. Our cash outlay increased during the year, mainly resulting from the liquidity outflow triggered by the operating business. On 22nd January 2020, we secured a financing commitment from our main shareholder, dievini, in the amount of EUR 50 million. Based on the current planning, we expect existing funds plus the expected proceeds of this financing commitment to provide us with sufficient funding to conduct operations until mid-2021. Please turn to Slide 21. I will not go into detail here, but you can see some basic stock performance data, analyst coverage and ownership information on the slide. We continue to be quite active in the Investor Relations and have met with a number of specialist investors, both in Europe and the U.S. to discuss our progress and our strategy. I will not go into detail here but you can see some basic stock performance data, analyst coverage -- sorry, we have this already. We continue to be quite active in Investor Relations and have met with a number of specialists. As a shareholder -- as all shareholders have certainly followed, the share price has risen massively in recent days. Heidelberg Pharma shares closed yesterday at EUR 6.10, and has been up today. Hopes of potential active substances against corona seem to be fueling us at present. But I would like to make it clear that we have no business connection with the German company, CureVac, which is developing a vaccine against COVID-19. We have only the main shareholder dievini in common. There was a lot of media attention, including U.S. media covering CureVac and dievini. In addition, our partner, RedHill, published a few days ago on March 11, a product candidate update. RedHill intends to test the active substance RHB-107, which is our out-licensed MESUPRON in combination studies with other active substances in cholangiocarcinoma. And as an exploratory program against COVID-19. We have no further information beyond this and are not involved in the program's development. Let me now wrap up with an outlook for the rest of 2020. Please turn to Slide 22. We expect the year 2020 to be another busy and productive year at Heidelberg Pharma. Starting with HDP-101, we expect to complete a number of key activities during the year that will be needed to initiate the first in-human trial with this development candidate. This includes: completing final GLP tox study; completing GMP manufacturing on the clinical trial material; submitting an application to the regulatory authorities in Germany and the United States for approval to conduct a Phase I trial; preparing the clinical development of HDP-101, including approvals by ATAC commissions; continuing the development of a productive biomarker for TP53/RNA polymerase II deletion. Please note that our clinical development strategy involves submitting applications for both the Phase Ia dose escalation and Phase Ib dose expansion parts of the trial simultaneously in the U.S. and Germany. Beyond HDP-101, we want -- we plan to select our next proprietary development candidate in our ATAC portfolio. Turning to our collaborations. We hope to sign additional research and option agreements with new biopharmaceutical partners, similar to the agreements with -- we have ongoing with Takeda and Magenta. We also look forward to continued achievements in these ongoing collaborations. Regarding our legacy clinical programs. As said, our license agreement with RedHill obviously caused a lot of interest in the last couple of days. Therefore, we start with it. We out-licensed the development candidate MESUPRON or the active ingredient called upamostat to RedHill in 2014 for all territories, excluding China, Hong Kong and Taiwan. Since then, RedHill has invested a lot of efforts to investigate the mode of action of the drug in more detail and has discovered some interesting features, even outside of oncology. RedHill Biopharma plans to test RHB-107, that's the third arm in the Phase I/IIa combination study in advanced cholangiocarcinoma, subject to discussions with the FDA. RedHill also announced this pursuing exploratory program of opaganib and RHB-107, individually and in combination with hydroxychloroquine and other compounds for the treatment of COVID-19. Based on preclinical data and literature, indicating potential antiviral activity. Our partner, Link Health, in China is working on a revised development plan based on the new regulations of the Chinese Regulatory Authority, National Medical Products Administration. As mentioned, all research and development activities are performed by RedHill or Link Health. Heidelberg Pharma is not involved in those studies. However, we appreciate any progress achieved with our partners. And as a licensor, we would share some of the revenue associated to any potential successful development. The current events highlight that Heidelberg Pharma's portfolio not only covers the preclinical ATAC technology but also license projects in clinical stage, where our partners are driving the development. Therefore, let's also comment on most advanced candidate, TLX250-CDx, formally REDECTANE. Recruitment in the pivotal ZIRCON study at Telix with TLX250-CDx is expected to complete in the second quarter of 2020. The Phase I and Phase II study will be conducted in Japan called ZIRDAC, to look at safety and tolerability as well as dosimetry of the ZIRCON-89 labeled TLX250 in the Japanese population. As Andreas mentioned, Telix is also planning the further development of a therapeutic radioimmunoconjugate program based on the lutetium-177-labeled Girentuximab antibody conjugate and plan to submit IND in the U.S. in the first half of 2020 to start 2 trials. Please turn to Slide 24. Looking at our financial guidance for the fiscal year 2020. We expect revenue between EUR 8 million and EUR 10 million in 2020, mainly sales, collaboration and milestone revenue and to another extent, potential milestones from legacy clinical product candidates. Other income will mainly be related to government grants. Based on the current planning, operating expenses are expected to be between EUR 20 million and EUR 24 million. Earnings before interest and taxes in the 2020 fiscal year is expected to be between EUR 11 million and -- minus EUR 11 million and minus EUR 15 million. We assume that expenses will exceed income for the foreseeable future. These activities progress according to plan, we expect to spend between EUR 11 million and EUR 15 million in 2020, this corresponds to an average monthly use of cash of between EUR 1.9 million (sic) [ EUR 0.9 million ] and EUR 1.3 million. This planning takes into account additional potential cash flow inflows for new licensing activities at Heidelberg Pharma research. Based in current planning, we expect to have sufficient funds to conduct operations until mid-2021. To wrap up, please turn to Slide 25. At Heidelberg Pharma, we are excited about what the future holds and are driven by our vision of developing new options to address major challenges in cancer therapy. We are focused by developing -- on developing our own proprietary pipeline of cancer drug candidates, and we also are collaborating with other bio pharmaceutical companies to find novel ATACs to treat a variety of tumors and address other cancer-related issues. We believe we are very well positioned to reach our goals and to bring new hope to cancer patients. On Slide 26, you can find our current conference schedule for the first half of the year and our financial calendar for 2020. Ladies and gentlemen, due to the corona crisis, we have no clear picture which conference will take place or not, but we will keep you updated. The management Board and the Supervisory Board decided to postpone our Annual General Meeting from May 5 to July 22. This gives everyone a bit time to overcome the risks and travel issues. We hope you will understand this and we keep this new target date. With that, Andreas and I are happy to take your questions.

[Operator Instructions] Our first question comes from the line of Dennis Berzhanin from Pareto Securities.

This is Dennis Berzhanin from Pareto Securities. My first question was to -- just wanted to dig a little bit deeper into the progress of HDP-101. I think last time we spoke in the conference call back in October, the major challenges were with optimizing the formulation as well as getting through the toxicology studies. Could you tell me what progress has been made so far? What is left to do in those areas? As well as what your thoughts are about when you'll be able to submit the clinical trial application, whether they would still be this year? And when you expect the first patient to be in for the clinical trials?

Andreas, please?

Yes. Thanks for the question. So like pointed out in October, we had to resolve that formulation issue. And we are now back on track. So the first GLP tox study is already finished. And we are close to start the final and pivotal GLP tox study. So we plan to collect all the data by the mid of this year and then to submit for IND CTA by the second half of this year. Let's say, prognosis of first patient in is a little bit difficult to make. So that really depends on the questions of the FDA and the -- probably additions it would take. So the plan is to file IND and CTA in the second half of this year.

Okay, great. That's helpful. And my other question was related to the guidance for 2020. I noticed that the operating expenses line is a little bit higher, and it seems this is due to increased R&D expenses for 2020 compared to last year. I was wondering if you could provide a little bit color on what additional type of R&D you're planning since Phase I seems to be at least on hold until the next year. Where do you see the pickup in the expenses there for 2020?

Yes, sure. So basically, when we did our year-end guidance, we were anticipating still larger time gap with regards to starting the next steps, the next work orders with our external suppliers, mainly with regard to the GMP supply, but also preparatory activities like bio analytics for the preclinical and clinical trials. So this was a little bit accelerated by the end of the year more than we anticipated in Q3. That's why we had to build in some accruals at the end of the year because things had already begun. So it's basically external CMO-based costs that had to be considered already at the year-end.

Okay, great. And the last question is, I was wondering if you could comment on your selection process of your next proprietary development candidate. And when you would be able to announce, which candidate you will pick? Those are all my questions.

Andreas, would you like to answer that?

Yes. We are very far in the selection process. So from a scientific point of view, that's a typical one that we are generating preclinical data. So we're doing in vitro, in vivo profiling in an early non-GLP tox study to generate the preclinical data updates -- data package and a very good therapeutic index. We also would like to file IP around this. So that's a strategic move. And as soon as the preclinical data package and IP is filed, we will go public with the announcement of these next clinical candidates.

[Operator Instructions] So in the case as we have no further questions, I would like to turn the call back over to Dr. Jan Schmidt-Brand for any additional or closing remarks.

Well, I would like to thank everybody for attending, and well, keep safe and well maintained in the challenging times we have around us.

Jan, we got 2 another questions in the line. So wait on a second.

So the next question comes from the line of Thomas Schießle from EQUI.TS.

I hope everybody is well with Heidelberg Pharma in this troublesome times. The question definitely is on the biomarker. When will you start to produce and to further develop the biomarker? And how much money will you have to invest to get such a biomarker for your advanced studies in your lead study? That is the question.

Yes. As mentioned, so we already completed the feasibility study. So the proof of principle is working for the biomarker for the development. So the next step is to develop it to an RUO stage. And we would like to include this, let's say, in the -- even in the early clinical development. So during the dose escalation, of course, not selection, just for the validation of the assay. But after the dose escalation, the idea is to use this as a clarification biomarker. Investment, it's difficult to say because we are currently evaluating partners and the ideal scenario, the partners take also some of the cost of the further investment of this companion diagnostic.

Is some of the amounts already built in your guidance for the current year?

Well, we have budgeted for this activity already.

The next question comes from the line of Marcus Wieprecht from [ Marcus Main Trust ].

Yes, apologies for the late question. I thought I pressed the right button already earlier. Three quick things I have. One is more clarification on the time lines for your product 101. So if I get that right, there is absolutely no change in previous communication, meaning preclinical data package ready by mid this year and Phase I trial application and start afterwards? Or has there been any change in your rolling out communication?

Well, basically, you're right that we kept to the announced time lines this year. And I guess we broadly commented why we had the delays last year. But well, in the end of the day, as we are dealing with final activities with the authorities, with application procedures and then translating all this into the hospitals, there's certainly, as Andreas mentioned, a certain degree of uncertainty when the first patient will be in, but we are now progressing so far as planned and hope to be ready to file over the summer.

And also, keep in mind, so this is all based on the assumption that all sites that CDMOs are working continuously. So this is a caveat in these days.

That assumption that would, in fact, bring me to my second question, which I have to ask every pharma-biotech company these days. What's your take on the, obviously, COVID-19 situation? Is there any impact on time lines when communicating with regulatory authorities or clinical trial centers or any logistical interruption? Is that something you are experiencing in your business?

I guess it's too early to say. It's still all pretty recent. So far, well, we are more driven by school and kindergarten problems than regulatory authorities. But it's not that we cannot manage it. So everything -- let's say, if you speak about Heidelberg Pharma performing their work, we have no downside right now. We are up and running. We have the same with our direct suppliers. And Andreas, maybe I transfer the question to you with regard to any authorities that we are communicating with. I'm not aware of any serious delays so far.

Yes. Yes. As mentioned, so since this is more a virtual note and you should only check compounds around and we have not experienced any lockdown, shutdown. So all sites of the involved CDMOs are working as of today. You know that can change from week to week, whether they say employees at certain sites are getting infected. This is beyond our control. So that is, let's say, every week, we have to check the situation. But as of today, no lockdown or shutdown. Our regulatory agencies are responsive, so as of today, everything is working fine.

Okay. Sounds not too bad actually. Okay. Last question, on your partnership deals, what can you tell us about the dynamics, the financials on -- obviously, RedHill is most in focus for most people, I guess, but also Telix, Magenta. What do you foresee for this year? Are there any potential relevant milestone payments, which obviously are not in the guidance, but which may come? Any color there, please.

Well, yes, we have some -- based on the planning of our partners and our own planning, we have assumed to reach the milestones. And we also, to the best of our knowledge, have considered this as a potential income in addition to more regular, let's say, planned income. So we hope that the dynamic we see at Magenta will not be affected in any way. They're very pushy and have also plans to take the next hurdles in this year. We cannot make detailed comments on that with regards to Telix, which is basically, even though it's out-licensed, the most mature product. It's a Phase III compound. So we are really approaching a potential market approval. However, currently, the pivotal Phase III trial is ongoing. Telix expects to complete the recruitment by middle of the year. And then it's just about collecting the data and filing to get a step closer to market. So we are very happy that Telix is bullish and this will become an important, let's say, support to our own activities to help this licensing income when everything goes well. With regard to MESUPRON, well, the whole compound is in Phase II stage with our partners. So we are happy that it moves finally because we had to saw a couple of years without any movement. But obviously, there are new activities in China as well as [ congratulating ] Israel. And as you can see from our presentation and from the headlines and the announcements, they are going not only for oncology, but also other indications and based on -- well, they have findings on also inflammatory effects of MESUPRON that might be even more. So yes, we are, of course, very happy if that moves, and we are also optimistic that we will see more milestones met by our partners.

We have no further questions in the queue. So again, I will hand back to you, Dr. Jan Schmidt-Brand, for concluding remarks.

Yes. Well, I already had the opportunity. So thank you, everybody, for coming, and all the best to everybody.

Thank you for joining today's conference. You may now disconnect your lines.

Thank you.