MedinCell S.A. (MEDCL) Earnings Call Transcript & Summary

Hello. Hello, everybody. I am David, Head of Communication at MedinCell. Welcome to our video conference dedicated to the results of our fiscal year that ended March 31. We published today a press release at the closing of the Parisian market, our -- with our consolidated financial results. It's available on our website. Today, we have with us Christophe Douat, our CEO, Hello, Christophe.

Hello, David.

And Jaime Arango, our CFO. Hello, Jaime.

Hello, David. Hello, Christophe. Hello, everyone.

Before they speak, I want to remind you that you can ask question by using the chat tool on the right of your screen. We already received question. Thank you, again, for being with us tonight. And Christophe, I give you the floor. It was a great year for MedinCell.

Yes. Thanks, David. In the case you didn't guess, we are based in France. And I'm actually talking from our offices in Montpellier in the State of France. Yes, David, this has been a great year, one, of course, with the COVID, but as you will see in the rest of the call, we will come out of the crisis even stronger than we were at the beginning. We have done a lot of efforts to protect the company and its employees. And very importantly, our portfolio has evolved very nicely. We have kept the rhythm, and we are on plan, on track. We have one new product that entered clinicals, a product in collaboration with Teva. 2 new products entered preclinical development again, 1 with Teva and 1 with the Bill & Melinda Gates Foundation. Both programs are financed by our partners, Teva, for the first 2, and the Gates Foundation as part of the significant $19 million grant that we received in December to develop a 6 months bioresorbable, biocompatible auto-injectable contraceptive. As we announced in January, several programs have now are going to reach the lead formulation stage in 2020 to next go into preclinical development. The first one is the contraceptive program with the Gates Foundation. So that's already 1 out of the 3. And the 2 others are program in organ transplant and the last one is our program in animal health.

Thank you, Christophe. We also launched new interesting projects this year with the Gates Foundation one more and with Unitaid involving funding, can you talk about this project, Christophe?

Yes. These are 2 quite amazing projects, actually. And the first one has for objective prevention in HIV, what's called prophylaxis. The goal is to inject a new generation HIV drug over a few months, so that the patient is protected against HIV infection. We have already obtained some quite encouraging in-vitro results. The second one is a project financed by Unitaid, which was announced in March with a $6.4 million grant using Ivermectin to break the transmission vector of malaria.

Christophe, despite the COVID-19 crisis, several major events happened since the end of March. And more to come in the coming months. Can you explain it?

Yes. First, our lead program, which is in Phase III with Teva, just completed recruitment. It's a great news, although more that there was uncertainty during the crisis about clinical trials in the U.S., recruitment is completed, and our partners still expects to have analysis of interim data in the second half of this year. As a reminder, this is a program targeting schizophrenia. Schizophrenia is a very severe disease that -- with a 1% prevalence patients that do not follow their treatment, get hospitalized, and there is also social consequences. And so having a long-acting injectable that ensures that the treatment is taken is a great advantage. We have 3 programs with antipsychotics with Teva, and Jaime will remind us of the financial metrics.

Thank you, Christophe. Yes, indeed, this deal with Teva is a classic biotech pharma deal. Teva is in charge of all the development costs and we'll ensure also the commercialization of the different products. In return, MedinCell, we will receive milestones of up to $122 million per product. So for the 3 products that would be a total up to $366 million. And MedinCell will also receive royalties from the first sales of the products, high single digit.

Thank you, Jaime. Second most mature program. It's a program that intends to reduce pain, inflammation and therefore, opioid consumption after orthopedic surgeries. The first indication is knee surgery, knee surgery where patients use the most opioid and you know that the opioid crisis was the priority of the FDA just prior to the COVID crisis. And the great news here, again, is that Phase II is completed. And the management of our partner expects to enter directly into Phase III without a Phase IIa before the end of the year and after validation from the FDA this summer. Jaime, can you please just remind us of the metrics?

Sure. Similar to Teva, AIC will assume all the development costs of this product. However, MedinCell will not receive milestones. But on the other hand, MedinCell will get 50%, 5-0 percent of the profits that will be generated from this -- from the product.

Thank you, Jaime. Now some of you, of course, are expecting some -- further information on the COVID-19 program. It created a lot of interest, and we believe it is justified, of course. As a reminder, we call it the third path. The first part is curative treatment, the second is vaccine, but nobody knows when and if vaccines will ever arrive plus viruses have mutants. And so there is room before that, for a third path, which is prophylaxis, prevention, which could also complement vaccines as well. When you do prophylaxis, you can, of course, administer oral treatment. But as soon as you stop your treatment, you're not protected anymore. So this is a field where long-acting injectables are absolutely key and this is why in HIV, all the prophylaxis programs have now long-acting injectables. We work with Ivermectin. It's not just a random choice, we chose this API because it has shown efficacy in the past in vitro and in vivo on several viruses, dengue, West Nile, HIV, pseudorabies, and some others. And we knew there was a potential against COVID. And then things accelerated. The Australian University showed that it was destroying the virus on cells in vitro in the lab. And then several shown studies, not clinical studies, just observational studies for now, showed that it could have a potential impact by decreasing significantly mortality among hospitalized patient. But further, and most importantly, beginning of May, there was a publication from one of the most prestigious hospital in Paris La Pitié Salpétrière and Dr. Zahir Amoura and Dr. Changeux, one of the greatest neuroscientist of our era from Institut Pasteur. And they described their hypothesis, explaining why smokers seem to be protected against the virus. And the hypothesis is that nicotine has a prophylactic impact. And when the virus wants to bind to the nicotinic receptor, the nicotine prevents that binding. Now Mr. Changeux -- Dr. Changeux from Institut Pasteur has been working on this for 40 years. And 20 years ago, he published a paper where he showed that Ivermectin was the most powerful modulator of the nicotinic receptor. So which means that Ivermectin has the same impact on the receptor as nicotine without its addictive effect. Same effect in a different manner because sometimes if -- for those of you that are scientists, Ivermectin is an allosteric modulator. So we have more and more hints that comfort us in our strategy to move into the -- our prophylactic program using Ivermectin. Our strategy is threefold. First, we intend to validate the protective effect of Ivermectin in vitro on cells, and we expect data this year. Second, we plan on starting clinical trials, Phase II -- Phase I/II trials with oral Ivermectin, which is already available to -- with objectives to first validate the safety of Ivermectin in frequent daily administration and also have some first indication of activating prophylaxis, probably in regions where the virus epidemic is still active. So we could have data before the end of the year, of course, subject to the evolution of the pandemic and of the possible recruitment. There are many other studies ongoing. And you will notice there are about 15 of them on clinicaltrials.gov. Some of them in prestigious places like Johns Hopkins or the University in Japan where the inventor of Ivermectin, Mr. Omura works. He was -- he received the Nobel Prize of Medicine in 2015, thanks to his work on Ivermectin. So first part, in vitro. Second part, clinical trials. These other trials, of course, worldwide, will all feed our strategy and our goal is to show that Ivermectin works. If others work on it, this is even better. But the final goal of MedinCell is to develop a long-acting formulation to have efficacious prophylaxis. Third, we are already working full blast on a new formulation of Ivermectin, 1 month and 3 months. Our team has done remarkable work in the last few weeks, and we intend and expect to have a final formulation at the end of the year, which is remarkable. The goal is to be ready in 2021 to enter regulatory development and a potential Phase III, of course, if there is a new wave of COVID. There are many ways or many subsidies given by governments, foundations to finance these type of programs, and we are actively looking at ways to finance it through those means.

Thank you, Christophe. Jaime, can you explain why we can estimate that MedinCell benefits from a solid financial situation today?

Sure, David. So our threshold levels today are really comfortable, which translate into a solid cash visibility. We have today over 30 million available for MedinCell and in split as follows. At the end of March, we had EUR 16 million as part of cash and cash equivalent instruments of EUR 12.4 million and also short-term and long-term investments. But since then, we have received EUR 3.1 million that correspond to the research tax credit that we can get from the French government, and that is coming from the calendar year 2019. And apart from that, we will also announced last week that we received the loan from our partner banks. That is in the form of state-backed loans of EUR 10.9 million. And apart from that, we also have access today to EUR 5 million concerning the loan with the European Investment Bank. And these to take into account of the cash burn rate -- operational cash burn rate that we have today of about EUR 1.5 million per month, which was for the prior year in line with our expectations.

Thank you, Jaime. Can you tell us more about costs and revenues during the past fiscal year?

Absolutely. The revenues that we reached were EUR 6 million. That's a growth of about 48%. This revenue is composed in 3 ways: one, is the milestones that we received last year from our partner, EUR 1.3 million; the services that we rendered to the Gates Foundation, EUR 1.5 million; and the rest corresponds to the research tax credit that due to the consolidated financials, IFRS, we recognized in the top line of EUR 3.1 million. Let me remind you that the revenues may vary significantly from 1 year to another, which is because they're linked: one, on the advancement of the different projects of our partners, and therefore, the milestones that we receive 1 year to another, and also depending on the advancement of the different projects that we have with the Gates Foundation. Now if we talk about the expenses, they reached EUR 25.2 million, a growth of 29% compared to the same period last year. From these EUR 25 million, EUR 17.2 million correspond to research and development charges and investments. So 95% of the growth of the expenses -- of the total expenses of the company were coming from the R&D line. That's where we invest. That's in line with our forecast and, of course, in line with our strategy.

Something about the other expenses? No? Okay.

Thank you, David. Concerning the other expenses, which are business development, marketing, support functions, G&A, they had a limited growth of 5% and are in line with the forecast. Thank you for the reminder.

You're welcome. Thank you. So let's go -- let's look ahead a little bit now. How could income and expenses evolve during the current fiscal year, Jaime?

The revenues that we can count on today are based basically on the revenues linked to the advancement of the projects that we have with the Gates Foundation, the contraceptive product. And also the works that we will rehearse for Unitaid for the malaria project. In addition to that, we are expecting a milestone payment for the end of the Phase III of the product that we have today with Teva and possibly the milestone payment for the second antipsychotic project, which will end its Phase I later on. The good news is that today, the programs are advancing well. And our partners, they have not communicated any bad news on the current clinical trials. On the operational expenses, excellent news that considering our financial situation today, we have decided to return to normal activity. Let me remind you that in the beginning of April, we put in place a partial activity. Why? We decided to maintain our strategic projects, delay the expenses that could be delayed in order to maximize the cash visibility. Now we continue to be very alert on our cash position. That's in the DNA of MedinCell, and that's what we will continue to do in the future. Now talking about our operational expenses. We're expecting these expenses to grow between 10% and 15% for the current fiscal year, taking into account the advancement of our internal projects. Now one thing to pay attention to is that these guideline excludes expenses that are linked to the COVID program for which a separate budget and separate financing resources will be specifically found.

Thank you, Jaime. Can you now share your analysis of our debt?

The debt is very important. Today, at the end of March, we had EUR 32.7 million gross debt. But what is important is that our debt is very well structured. What I mean by that is that 84% of that debt shall be reimbursed after June 2023. So for the next 3 years, we'll have limited cash going to re-invoice the current debt. And by that time, we should already be proceeding regular royalties from the first product that should be on the market by then. Since the end of March, our historical bank partners, the Banque Populaire du Sud and BNP Paribas have given us a loan of EUR 10.9 million, which is under the instrument called over here in France, PGE, or state guaranteed loans with excellent conditions. And let me remind you that these are non-dilutive instruments. What I can say today is that we are even stronger financially despite the current COVID crisis. However, on another side, we could be looking also at a capital structure reinforcement. This is something that has already been announced in the past. We continue to evaluate the opportunity to do a potential capital raise to reinforce the capital structure of the company. However, should we do that, that should be on a limited amount. We do not need the cash today, but something that I'm working on is about optimizing the financial structure for the company. So the potential operation, if it's done, would be done only if the conditions are favorable for MedinCell and its shareholders.

Thank you very much, Jaime. Before we answer the questions we received, you also conclude, Christophe?

Yes. Thanks a lot, Jaime. This was very clear. First, again, this has been a great year. We have great news flow coming this year, again, potential analysis of interim data by our partner in the second half. Our Phase II program moving to Phase III. Of course, there'll be hopefully some news on our COVID program. Jaime explained that our cash resources are significantly higher than a few months ago. But most importantly, I would really like to thank all of MedinCell's employees, 140 people, 25 nationalities, who, during this period, have demonstrated once more the amazing qualities of adaptability and resilience of the company, despite difficult home office conditions, sometimes with young children, they've been able to move all our programs forward. And on top of that, work on this ambitious new COVID program. So I would really like to say thank you to all. And now I suggest we start with the questions.

Yes, Christophe. So a few questions. First, maybe, Christophe, you can answer, I'm not sure. Ivermectin is a recognized antiparasitic. This is certain. My question is, can it also act as an antibacterial targeting more particularly bacteroid, including Prevotella? I don't know if you can answer that.

David, thank you. It may be an interesting question that I won't comment here. I don't think it is related to MedinCell and activities.

Yes, I can concur. Next question. You said that you have enough cash money for next year. So why do you talk about an AK? Thank you for the answer.

An AK, it's a capital increase, potential capital increase. Indeed, our treasury situation has largely improved. However, we also need to look into reinforcing our capital structure. This is what is important in order to enable us to work on other solutions, potential non-dilutive solutions for the future. Now this is something that we're looking at. This is something that we have said in the past, we always look at the different options and all the options are always on the table for us.

Thank you, Jaime. Next question for you, Jaime. Are you anticipating milestone payment from Teva for mdc-IRM in this new financial year? When will the royalty revenue stream kick in?

Right. So from the revenues that we can expect this year, these milestone payment coming from this program, mdc-IRM concerning the end of the Phase III. So we're expecting that. I cannot disclose amounts. We're not allowed to do that. Now the royalty revenue stream, we will begin touching those royalties from the first sale of the products. So assuming under the hypothesis that the product is launched in 2021, that will be the first date when we will perceive these royalties.

Thank you, Jaime. Christophe, how has you demonstrated the positive effect of an injectable long-acting formulation of Ivermectin on Onchocerca Ochengi in Zebu cattle? Have you initiated contact to sell it as the veterinary product to start to generate -- to start, sorry, to generate revenue? Sorry for my poor English.

Thanks, David. Of course, this could be an animal health program. But this particular study you referred to and which we published with IRD in France, the goal was to do a proof-of-concept showing that when we injected cattle with Ivermectin, mosquitoes that bite the cattle die. This proof-of-concept, which was successful, helped us get the support of Unitaid to finance our malaria program. If you translate this to a human population during rainy season and if you inject men and women with the long-acting Ivermectin injection, all the mosquitoes that carry malaria that could bite them would die, preventing infection of other people. So the goal here was -- would be to break the malaria transmission vector and other great pandemic, especially in Africa, where there is a lot of -- still death of children due to malaria.

Thank you very much, Christophe. This was the last question. Maybe you have a word to add something for the conclusion, Christophe, Jaime?

Thank you, again, for your attention. As you see, MedinCell keeps moving. The team is very proud of its achievements. If you have particular suggestions to improve communication with you, our shareholders, please let David know. He loves that. And we are looking forward to speaking to you soon. Thank you again for attending this presentation.

Thank you, Christophe. Thank you, Jaime, and thank you all for being with us today. For the information, the replay and the transcript of this meeting will be available quickly on our website. So good evening, everyone, and see you soon. Bye.

Thank you, everyone. Thank you, David.

Bye-bye. Thank you.

Thank you.