Tasly Pharmaceutical Group Co., Ltd (ALMKT) Earnings Call Transcript & Summary

[Audio Gap] Mauna Kea Technology will [indiscernible] on the occasion of the announcement of the joint venture and licensing agreement between Mauna Kea Technology and Tasly Pharmaceuticals. I am Victoria, social media and Event Manager at Newcap. During this webinar, Sacha Loiseau, Founder and Chairman of Mauna Kea and Nicolas Bouvier, CEO of Mauna Kea. We'll come back to the announcement. I would like to remind you that you can ask a question in the question tab at the bottom of your screen. And we will take the time to answer them after this presentation. I let the manager of Mauna Kea Technologies make the presentation.

Thank you, Victoria, and good morning, good afternoon, good evening to all. Thank you so much for joining. So we're here to discuss, obviously, the announcement we made last night, but we'll also reintroduce maybe the company and a few things we've been talking about for the past few months. So as Victoria said, I'm Sacha Loiseau, the Chairman of the Board and Founder of Mauna Kea Technologies. And I'm joined here with Nicolas, who is just next to me, Nicolas Bouvier, our current CEO, and we're very happy to be able to talk to you tonight. So maybe for those of you who are joining us for the first time, a quick reminder of about who we are. We're global medical products, innovator, developer and manufacturer. We have a proprietary technology platform that produces real-time in vivo microscopic images that enable physicians to identify and target abnormal cells during interventional procedures. We have a vast IP complex of 250 issued patents, 20 FDA clearances, broad CE mark, regulatory clearances in key countries such as China, of course, that we'll discuss today, but also Japan, Korea. And we've obtained along the years reimbursement codes in different countries, including the U.S., where we have several Category I CPT codes. Tens of thousands of procedures on patients have been realized with Cellvizio in probably 20-plus countries. And in excess of 1,000 clinical studies and papers have been published and are available for anyone to see on PubMed. J&J is a key strategic partner and our largest shareholder. And as we will discuss tonight, we have now another important strategic partner with Tasly Pharmaceuticals. We have other key partnerships with 2 other biopharma companies, Telix Pharmaceuticals from Australia and On Target Labs from the U.S. So let me comment on where we have come from and why we believe this announcement, this deal that we're going to be talking about tonight is so important and aligned with the repositioning -- the strategic repositioning we've announced about 6 months ago back in late 2020-21. As a reminder, in 2011, we fast-tracked the GI market, and that included esophageal cancer and its precursor Barrett Esophagus, pancreatic cyst, biliary applications and so on. For various reasons, one of which is that we needed to introduce our instruments in a place in the human body that was not sterile and that was large enough to -- for mini probes, then things evolved. But in the 10, 12 years of pre-commercialization and commercialization of Cellvizio in gastroenterology, we amassed a large amount of knowledge, which includes, of course, regulatory affairs, KOL cultivation and relationship with medical societies, market access issues such as obtaining CPT codes but also coverage from commercial payers, logistics, production, service, et cetera. In parallel, we developed new products. We launched a new generation of Cellvizio a few months -- a few quarters ago. And our investments in R&D and clinical studies yielded over 1,000 clinical papers, as I said previously. Now in 2021, after a few years of, I would say, mildly growing revenue, we concluded the Board and the management that historically low rates of new technology adoption by gastroenterologists combined with an expanding clinical interest in other areas, clearly warranted a strategic pivot. And on the basis of the decision, this is what we did. We significantly reduced our commercial spending on the GI market. But as you've seen in the first quarter, we maintained and even we grew our revenue in this therapeutic domain. We reorganized the company a more concentrated U.S. sales force, some leadership change, new positions for key people in the company, et cetera. Doing so, we increased the cash runway of the company significantly, and we were able to reorient product development efforts to focus on much higher potential clinical use cases. One of which being lung cancer, of course. And doing so, we announced to you back in December that we were switching to a strategy which was more partnership-based, which, as we will see, can be more capital efficient and enable much broader developments for our different products. So this is where we have come from. And so today, we're announcing a very important step in the strategic repositioning, which is the creation of a JV and associated licensing agreements with a biopharmaceutical partner in China called Tasly Pharmaceuticals. So in this short webinar, we'll try to address the following questions: Who is Tasly, why this deal is so important strategically for us, what are the key components of the deal, what is the associated time line, and of course, open the floor for your questions, and hopefully, our answers. So who is Tasly? Well, Tasly is actually a household name in China. And as our own China business manager explained to us, everybody, every adult in China knows Tasly because they have been commercializing both traditional Chinese medicine products and, of course, more modern products for very common applications. And so everybody has gone to a pharmacy, a drug store in China and ordered and ask for over-the-counter or prescription-based medicine from Tasly. It is a group that was founded by the current -- by the father of the current Chairman of the group, Mr. Yan. Tasly is a company that is listed on the Shanghai Stock Exchange. Its market cap is, I think, around USD 2.5 billion, USD 3 billion. Its revenue is around USD 2 billion, and it employs about 10,000 people. It has an international presence. It has also created already several JVs around the world. And it's actually quite a well-known name also in France because it has several partnerships with med tech and biotech companies in France. And so we were fortunate also to be able to talk to different CEOs working with Tasly, who have been very excited and pleased with the developments they had with the team there before we actually entered into this partnership. And Importantly, Tasly has announced a strategic plan for the years to come, which includes more devices -- more medical devices and digital technologies and so it's in this framework that we were approached by them and we entered into this agreement. So why is this deal so important for us and we believe for our shareholders and investors? Well, I think we can summarize this in 5 bullet points. The first one is, as I said, it is, I think, a way to anchor our new strategy and this repositioning we announced back in December 2021 in reality. So this is a deal that is exactly what we have been talking about, which opens new therapeutic areas, new markets, provides liquidity to the company and is fully aligned with this new more capital-efficient strategy that we have been talking about. So, the second bullet point is obviously the financial terms. As you've seen in the press release, we will receive, of course, based on certain conditions that I will detail in a couple of slides, we'll receive upfront cash contribution of USD 10 million, which today translates into nearly EUR 10 million, thus providing the company with improved liquidity. The third bullet point, the third important thing to talk about is obviously that we are putting a significant value with this deal on assets from the company that were non-commercialized, basically non-used. So neurosurgery is something that we have been working on for many years. We have obtained FDA clearance for neurosurgery applications back, I think, in 2018, I believe, but we had not been able for -- lack of resources, we have not been able to develop this market. So this is a first great example of how to create value with our existing portfolio of intellectual property, regulatory clearances, et cetera. Of course, what comes next is that we will be able to access a whole new market with that agreement. So Tasly and the JV we create with Tasly obtains the worldwide rights to commercialize in neurology and neurosurgery. And importantly, this is an application where we have a competitor. Our historic competitor in Australia has a partner, which is a very famous German company, that has developed a competing product, which is also a confocal laser endomicroscopy system, but with different embodiments, different basic technology inside and different capabilities, but has developed a product which addresses exactly what we're talking about here, which are neurosurgical applications, namely margins of resection during brain cancer surgery. So this is a market that has already been evangelized, that is quite mature, and we look forward to entering this market with the strength of this JV. And last but not least, as you well know, we are already present in China. We have been present for about a decade. We have been present with our current partner Medical for about 4, 5 years. And we have had great success. We have a substantial presence in what's called Tier 3A hospitals, so basically the best academic hospitals in China. And we have about 50 of these using our technology, mostly for gastroenterology and pulmonology. We knew that to get to a much expanded market in China, we needed to invest more heavily locally and basically create a company or a JV and have resources associated with that. This is what we'll be able to do with this agreement. So we'll be able to significantly increase our market reach in China. And China has been for now several years, our second largest geography after the U.S. The key components of the deal are as laid out in the press release. First of all, creation of a joint venture, we will own 44.1% of the JV. So why? Well, because we owned 49%, but we are basically giving 4.9%, 10% of our holding to the investments bank that helped us create this deal. And so they will be also part of that adventure. This is a Franco Chinese investment boutique and so they will be fully aligned with the success of the JV along the years. Tasly will own obviously 51% of the JV. We will have upfront fees corresponding to our licensing and technology transfer for, as I said, $10 million, and we will give a license to develop, commercialize and manufacture Cellvizio for all applications in the Chinese market only. This is -- so it's important to understand there are 2 components: the Chinese market, where Tasly will be able to commercialize any application with the exception of a carve-out for certain interventional pulmonology applications which correspond to the right of first refusal that we have with J&J. And then there will be the worldwide component of the neurosurgery market that I just talked about. As part of the Chinese market development, we will have -- we have signed the deal that includes 5-year minimum purchase commitments. And again, as I said, there's also the neurosurgery market, which we'll be developing and commercializing with the JV in the quarters and years to come. The time line is quite simple, actually, for the short-term time line. The longer-term time line, of course, is more complex. But in the short term, what corresponds to the key milestones for the cash contribution or first, the incorporation of the JV, which is already ongoing. We have already taken a number of steps in advance administrative steps basically to incorporate the JV as fast as possible. Then when we will be -- when this is done, we'll be able to show the proof of the initiation of transfer of certain IP rights. And of course, the final signature with the JV of the already negotiated licensing agreements, which is part of the signed deal today. This will trigger the upfront cash payments from the JV to Mauna Kea Technologies. So where are we going? How is this basically fully aligned with what we've been talking about? Well, as you know, we're really on a mission to transform interventional cancer care with our advanced Cellvizio imaging platform. Our strategy, again, is to target commercial scale biopharma and med-tech companies, which are selling mostly oncology-focused solutions where Cellvizio advanced technology can really act as a differentiator in terms of clinical effectiveness and patient outcomes. So the reasons for that, I think, are quite simple to understand. We believe it's a more capital-efficient business model. We have had a robust and stable gross margin profile, which enables this kind of deal to be successful. We will be able to access large addressable markets, thanks to the strategy. It will clearly -- and this is one of the concrete steps we've taken tonight. It will accelerate the pace of the -- the monetization of our intellectual property, and it's a very broad and significant intellectual property. And we're very pleased that in the months that has taken this deal to happen, we've been able to basically put together a framework in which we are able to license specific therapeutic areas to specific partners. And then, of course, we hope this will create more predictable financial results. The target markets are vast because of our vast regulatory approval collection. So of course, including lung cancer, prostate and kidney cancers, this is something we're developing right now with Telix Pharmaceuticals. Brain cancer, which is, of course, the key focus via the deal with Tasly. And of course, our historic commercial activity, which is GI cancer. I think this was the -- a quick summary of this announcement, and we'll be very happy to answer any questions if there are any at this stage.

[Operator Instructions] We already received a few questions. So the first one is about the joint venture. When will the first service solution being marketed in China? And do you believe China can become the first market of Mauna Kea in the coming years?

So great question. Cellvizio is already commercialized in China. So it's basically -- it's going to dovetail into a new scheme. But currently, we have an important Chinese partner, which commercializes in the Shanghai area, which is, of course, one of the very large areas in China. So with this new framework with the JV, we'll be able to expand our geographical reach in China and, of course, also provide more resources to our current partner in China, which has been asking for, to be honest, for several years because it is a large market that needs significant investments to address. So you asked also, can China become our first market? Well, we can't rule out this possibility, but we do have very significant ambitions for other markets, and of course, especially the U.S., but not only -- and with the amount of good news we've announced recently on the developments that we have in interventional pulmonology, so in the lung cancer space with and without molecular imaging, which has also been a very significant announcement recently. We believe we have the potential to become a must-have for interventional pulmonology suites and the U.S. will be one of the key target markets for that with, again, a great ambition there. So who knows, we'll see how fast the Chinese market can be developed in the next few years.

What is very important to mention as well is that it is -- what you are doing with Tasly is additional markets. This is something that we are doing already in neurology and neurosurgery or assets we have in our portfolio, but we have no commercial activity and nearly EUR 0 revenue on those activities. So this is a new -- nearly a new market, even so it's a known market, but it's a totally new and new addressable market for the company.

Absolutely.

Victoria, did you get any other questions?

Yes, sorry. Thank you for your answer. So will the joint venture Mauna Kea to address Asian-Pacific market as well?

So the JV will address the Asian-Pacific markets and other markets for the fields of neurology and neurosurgery, absolutely. It will not -- it is not planned that the JV should address any other market than China for the other applications, which are the current applications that Cellvizio addresses. So basically, gastroenterology, interventional pulmonology, urology. This will be restricted to the Chinese market with the JV.

Thank you. Why did you transfer exclusive worldwide rights to develop and commercialize Cellvizio in this field of neurology and neurosurgery? Could another agreements be made in other fields of application?

Yes, of course. So that's an excellent question. As I was saying, the work we've done to establish this JV is very important because it creates a framework for future agreements. For many years, we actually contemplated being able to do such a thing, which is to license out certain areas -- certain of therapeutic areas, certain applications of Cellvizio and that's exactly what we've succeeded in doing. And we're very pleased with that because now it opens the door to again other such agreements, which could be transporters, but for one given therapeutic area that we can address or specific applications, et cetera, et cetera. So that's how we see the future now.

Thank you for your answer. Another question. Do the $10 million cash payments depend on the successful selling of the Cellvizio solution?

I'm sorry, Victoria, could you repeat the question?

Yes, sorry. Do the $10 million cash payments depend on the successful selling of the Cellvizio solution?

No, no, no. The upfront cash payments are solely based on -- as I was saying, the establishment of the JV, the creation of the JV, which could be really quick. And then the fact that we are initiating the transfer of certain IP rights and of course, associated licensing agreements. So that's -- these are the only milestones that need to happen, which should be very quick.

Okay. Thank you. What are the minimum purchase quantities of Cellvizio system and probes on the 5 years agreement?

So, we can't communicate on this. We have negotiated significant quantities, which are -- obviously will create growth for the Chinese market. But we're not communicating on the exact quantities right now.

Okay. A question about the strategy and the perspectives. Is there a possibility of a takeover bid on Mauna Kea in the medium term?

If we're talking about a hostile takeover, I think it's -- it really -- it's not something that happens for small med-tech companies. But of course, as a public company, there's always a possibility that's following, we hope, a significant positive development for Mauna Kea. There could be an amicable proposal. All the options are on the table. But right now, I think we're focused on basically showing that we have well repositioned the company strategically that the strategy that we announced 6 months ago is paying off that we are now anchoring it very strongly in reality that we have increased liquidity for the company, which provides adequate cash horizon, during which we'll be able to achieve and pass very significant milestones, whether they're clinical or product or revenue milestones or strategic milestones altogether. And so that's what we're focused on with a very energized company and employees today, and we're very happy about that.

I think we have achieved all the questions. Victoria, can you confirm?

Yes, of course. So is there any agenda for next communication or any other announcement at coming?

Yes, there is our financial agenda, which is, of course, available. And on July '21, we'll report our second quarter sales -- first half sales. That's what's planned for now. And then in September, we'll report, of course, our first half financials, as always.

Okay. Are other partnership considered by Mauna Kea in other region or part of the world?

Well, this is part of the strategy that we've announced. So obviously, again, this is the first example of what we've been working on, and we're certainly working hard to deliver more on this -- on this front.

Can this joint venture become the worldwide supplier of Mauna Kea and thus supply Mauna Kea at a lowest cost?

Well, it's an interesting question. It's not planned -- it's not planned for the moment. But -- and we have already quite an efficient production unit here, and we've been delivering significant gross margins. But why not? If we are able to achieve very attractive cost, we'll see then.

Thank you very much. We have no other questions, so maybe we can conclude this webinar.

Great. Well, thank you, everyone. Thank you for listening. Thank you for joining us, and we look forward to updating you on our progress in the months and quarters to come.

Thank you. Goodbye.

Thank you. Bye.

Thank you. Have a nice evening.