Oxford Biomedica plc (OXB) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to Oxford Biomedica's Interim Results Conference Call. We are delighted today to talk through what hopefully you agree is a strong set of results for the 6 months ended the 30th of June, on a backdrop of what for all of us has been unprecedented times. As you'll see, Oxford Biomedica has never been busier, not only in our core area of lenti-based cell and gene therapy, but also in the fight against COVID through our work on AstraZeneca's vaccine. On the call with me today is our CEO, John Dawson; and CFO, Stuart Paynter. [Operator Instructions] And the presentation is being recorded. [Operator Instructions] With that, I'd like to hand over to John Dawson.

Thank you, Catherine, and we're showing you currently the forward-looking statement slide. And during the presentation, we'll make forward-looking statements which cannot be relied upon. Now let's go to Slide 3, please. So into our 2020 highlights, a summary here of what's been going on in the first half of the year. It's true to say, we think we've had a very strong first half of 2020 despite the COVID-19 pandemic. I would cite many reasons why it's gone well for us. But I think the one I want to home in on is actually our people, dedication and resilience and sheer hard work to get us through this part of the times we've been going through. Moving on to the highlights. We saw the number of CDMO partner programs grow by more than 50% from 13 to 20. We saw underlying revenues in bioprocessing and commercial development grow by 24%, and we're really excited to talk about the new partnerships with Juno/BMS, Beam Therapeutics and AstraZeneca. On to OxBox, construction completed back end of '19. We've now seen 3 of the GMP suites approved by the MHRA, with one to follow. And looking at June, we actually did our successful GBP 40 million placing with new and existing shareholders as well at that point in time. On to Slide 4, please. So looking at our strategy and leveraging our LentiVector delivery platform, the backbone of our company. This has 4 main pillars as we go forward: the IP, patents and know-how, so important to our royalty streams for the future. Facilities, now we have 6 sites in Oxford, totaling more than 220,000 square feet. Expertise, we have some of the leading people in the world working in our company. We've grown from 80 people back in January '14. December '18 was 432. And by the end of this year, we should be about 650. One of the really important things that differentiates us from competitors is the quality systems of the business. And again, we got those by working with Novartis for the approval of Kymriah. So important, though, in the other deals we do, big pharma love to see these systems in place. Moving down to the 2 pillars behind the business there would be the CDMO partner programs. We have 20 of those currently, bringing multiple revenue streams: process development fees, incentives, bioprocessing revenues and of course, the all-important royalties. There's a long list of companies, and I'll go through those in a few minutes. To the right-hand side of the slide, we talk about the gene therapeutics proprietary pipeline, 8 drugs in those areas. And we choose here to either out-license or internally develop our proprietary wholly-owned pipeline. The out-license example here would be Axovant, AXO-Lenti-PD, and I'll cover that in a few minutes during the presentation. On to Slide 5, please. Now moving toward the CDMO part of the business, we call it customer-centric. At that point, I'll go on to Slide 6 and talk about the CDMO highlights for the year so far. In March, we signed a deal with Juno/BMS, a $227 million deal for license and the 5-year clinical supply agreement for 4 CAR-Ts and TCR-T programs, a very exciting set of programs there and a great deal for Oxford Biomedica. In August, we signed a deal with Beam Therapeutics for development, manufacturing and license to Beam Therapeutics for the next generation of CAR-T therapies. And of course, we are building for the future. We completed construction of OxBox, our 84,000 square feet manufacturing facility, at the end of 2019. Two of the suites were approved by the MHRA in May: one in September and one to follow, we expect, in October. You'll be aware, we're now working with AstraZeneca about a COVID-19 vaccine. We originally joined the Jenner Institute and the other consortium members in April '20 to rapidly develop, scale up and manufacture a potential candidate for COVID-19. In May '20, we signed a 12-month clinical and commercial supply agreement with AZ for COVID-19 vaccine production, closely followed by the post-period deal in August, announcing an 18-month supply agreement under a 3-year master services agreement with AZ for large-scale manufacture of AZD1222. In 2020, the number of programs has grown by more than 50% from 13 to 20. And looking back to June 30 of '19 to June 30 of '20, they've grown from 10 to 20. OxBox is fundamental in being able to meet this demand in bioprocessing. On to Slide 7, please. The graphical picture of the pipeline for CDMO side of things is very interesting. If I turn you to Novartis part of this back in early December, here we've got 2 drugs. We got 3 more from Novartis when we did the deal with them to extend the manufacturing agreement for 5 years and another one in the first quarter. So now we work with 6 drugs for Novartis, all very exciting. Axovant is now our CDMO customer, making batches for them, and they are going through, great guns at Phase I/II trial. Of course, we're so excited about this new deal with BMS, 4 CAR-Ts and TCR-Ts, one more advanced than the others, but some very exciting indications. If you look back a few years and think about the CAR-T world, Novartis, Kite and Juno, now we have 2 of those companies working with us. It's very, very exciting. On to Slide 8, please. Orchard Therapeutics, we have 3 drugs with them, ADA-SCID, MPS-IIIA and one undisclosed. A new deal with Beam Therapeutics around cancer cell, CAR-Ts using their base editing, very exciting new generation of [ CARs ]. We're working with Sanofi, factor VIII, factor IX, hemophilia A and B, and we are on schedule for the things which we're producing for them at this point in time. Same can be said about work with Boehringer and the U.K. Cystic Fibrosis Gene Therapy Consortium for cystic fibrosis, that's on schedule as well. Working with Santen on an inherited retinal disease. And of course, as you all know, we're working with AstraZeneca on the COVID-19 vaccine. On to Slide 9, please. Talk a little about the Juno/BMS deal in a bit more detail. Obviously, we get royalties here, it's our normal business model. We're working with them on a 5-year clinical supply agreement, where we've also received undisclosed process development and batch revenues. The deal here had an upfront of $10 million, development and regulatory milestones of $86 million and back-ended sales-related milestones of $131 million. This is a very exciting deal for us as a company. One of the work here is being done in our OxBox facility. On to Slide 10, please. We are delighted to be working with AZ on a COVID vaccine, AZD1222. We want to play our part here. We want to make sure we try and beat this pandemic for mankind going forward. As such, we're not charging quite our full rates on this, but we are making sure we make some margins. The new deal, the 18-month supply agreement, actually will take us forward to work in 1,000-liter bioreactors, 2 of them in 2 suites. We have a GBP 15 million upfront payment as a capacity reservation fee and potentially in excess of GBP 35 million in revenues, plus certain material costs to be reimbursed to us. Three of our GMP suites at peak will be used by this particular drug, very exciting. Biologically, we got involved in the consortium in April, the first deal with AZ in May, entered a deal with VMIC to kit out 2 of our GMP suites with bioreactors and other equipment in June; and of course, the more recent deal, an important one here, within September. Slide 11, please. I'll move now to our gene therapeutics, which we call patient-centric. Moving on to Slide 12. Some highlights here. Axovant have had a busy year. In January, they presented the 12-month data from the first cohort of their SUNRISE-PD trial. This showed a 37% improvement in motor function from baseline as assessed by the UPDRS Part III scores with Oxford, I should say. This has moved up from the 6-month number of 29%. We expect to see 6-month base from the second cohort in the fourth quarter. And in July this year, we signed a 3-year clinical supply agreement with Axovant. Moving on to our own in-house portfolio. We have had a complete review of that and decided where to invest in the future. Our lead candidate currently is OXB-302 and working on a CAR-5T4 approach to hematological tumors, and advanced preclinical work is ongoing, and we're trying to move things towards the clinic as quickly as possible. We're working on OXB-203 in wet AMD, and this is using our gene delivery system to express aflibercept. This builds on from our work in OXB-201, and we showed long-term gene expression. Also doing a lot of pre-clinical work on LCA10, ALS and an unnamed liver indication. In June this year, Sanofi informed us that they wish to return Stargardt and Usher syndrome 1B programs to us. They will come to us by the end of the year, and we'll decide on what actions to take with those as and when we get them back. On to Slide 13, please. This is a graphical representation of our gene therapeutics pipeline. Axovant doing a great job driving forward AXO-Lenti-PD, Stargardt and Usher syndrome 1b coming back to us from Sanofi. And then we're working in the hematological malignancies, wet AMD, LCA10, ALS and the liver indication, which is unnamed at this point in time. On to Slide 14, please. If we just go back to our slide we had originally for Axovant, just reiterating the high-level terms of the deal, having done a new supply agreement now. The value of the deal was $842.5 million, $30 million upfront, $55 million of development milestones and another $757 million of specified regulatory and sales milestones. Again, we see Axovant as a great partner and want to move forward very quickly. On to Slide 15, please. And at that point, I'll pass to Stuart to take us through the platform as well as the financial results.

Thank you, John. Good morning, everyone. Thank you for attending the meeting. It's my pleasure to take you through the platform. As John has gone through the various centricities of our business, this one is very firmly innovation-centric. And it really does have a meaningful mission, driving the industrialization of lentiviral vectors. We believe, and I think everyone can see that gene therapy and in particular, lentiviral vectors in their work with Kymriah have really proved their utility. And when things prove their utility, they start their journey to become more robust, more repeatable and cheaper. And we want to be at the forefront of that in creating those technologies. So this is the mission of the platform, to keep it strong and keep that market lead. So if I advance you to the next slide, Slide 16. As part of the building the future that John has just taken you through in terms of the CDMO capacity for OxBox, we've also started work on updating both the GMP laboratories in Windrush Court and the Windrush Innovation Center. We took a lease out on that at the end of 2019. And we've now raised the capital in order to expand, refurbish and really look at building an infrastructure there that's going to help formulate and drive innovation within Oxford Biomedica. We've been looking at labs in the future, and there's some very exciting developments there. There's obviously the platform innovation partnership we have with Microsoft. This is really exciting for us. This is sort of combining the cutting edge of biotech with the cutting edge of traditional tech. And we have to be able to potentially speak more about that deal as we go forward. The in-house innovation, and I'll take you through a graphic example on the next slide. But we really are trying to attack this from all angles. The industrialization of this process is going to involve innovation in several areas. They're ongoing. They're exciting. As well as that, we believe now we have the financial firepower to deliver upon that mission, not just from in-house innovation because we don't believe for one moment that every good innovation in lenti is going to come out of our labs in Oxford. But horizon scanning for the best technologies that we can either license in or potentially acquire in order that we keep the strongest IP estate in lenti. And we are acting as a centralization agent for those technologies, so we can give the best services to both our partners and our own products. And it is something where we believe that now is the right time for that investment. We've gone to the market. We've received strong report. And now the work starts in earnest, albeit in the middle of quite challenging times. So if I lead you on to Slide 17. This really is what we call our innovation wheel. And this just highlights the fact that innovation is going on in many different areas right from regulated expression and targeting of the next generation of vector itself to innovations in upstream and downstream, like U1 and U2 that you can see at around 4:00 on this wheel, the second U; stable producer cell lines, which we believe will be vitally important to working at scale as the industry matures; and then all the way through, as we go clockwise around that wheel, to automation through LIMS and driving efficiency and scalability in our business as we grow, all the way through to the AI and machine learning piece, which is the leading edge of the industry. And that doesn't even include some of the mechanical innovations we've been making in terms of the next generation of suspension processes going on within the CDMO. So there are plenty of areas for us to explore. And there are many, many opportunities to invest and return on that investment. So we're very excited by the scope of the innovation that's going on, the ability to give our world-class scientists the best environment in which to innovate and also to supplement that innovation by looking at best of what's going on in academia and small companies outside of Oxford Biomedica. So if I just skip you on a couple of slides now. Slide 19 onto more of my day job, just taking you through the H1 2020 financial highlights in a bit more detail. I'll just draw out some of the highlights that John has already mentioned and dive into a bit more detail here. So I'm not going to go through every point on this slide. But I'm going to try to pick out the 2 or 3 things, which I think make a meaningful difference. Second point down that John's already highlighted. But the underlying revenues, and what -- and we do point to those underlying revenues, the predictable revenue streams, which we highlight, have grown 24% in challenging circumstances without extra GMP capacity. So I think as John mentioned, testament to the people working at Oxford Biomedica and our partners who have absolutely shown patient centricity and have plowed on during these difficult times. Third point down, the licenses, milestones, this is the more lumpy side. It's worth pointing out a bit at this stage that given the accounting regulations, in particular, IFRS 15, we recognized about 80% of the Juno upfront in revenues in the first half. There's another couple of million dollars, GBP 1.5 million to be recognized no later than March 2021. So somewhere down the line, there's going to be another couple of million dollars being recognized and it's the -- it's the intricacies of that particular accounting standard that made us account for the upfront in this way. Operating expenses, as you'd imagine, have increased, largely due to the annualization of extra staff that we have had on board for a long period and towards the end of the period -- well, in fact, quite steadily through the period, building up for staffing of OxBox. So OxBox was completed around about the end of the first half of 2020. And of course, we have to bring on staff between 3 and 6 months early to get them trained up, et cetera. And that effort has continued as we signed the AstraZeneca deal. And in fact, I think most of you know that the initial plan was to open 2 clean rooms and a fill/finish suite to begin with in the first phase of launch. That was very quickly accelerated with the AstraZeneca deal to 4 clean rooms. And of course, we need to staff up those clean rooms as well. So there's a little bit of the early stage of that creep into the first half year as we started hiring at risk for the vaccine, which is absolutely the right thing to do. So you would have noticed in the release that we've had GMP 7 approved by MHRA, and we are currently working on the licensing of GMP 8. So that would be 4 clean rooms in OxBox up and running, 2 accelerated, the best part of the year. So we really are moving forward at a pace in difficult circumstances. And what that leads to essentially is operating EBITDA of roughly breakeven, slight loss of GBP 0.4 million, of course, that's the variability there around the recognition of the upfront from Juno. But we are delivering what we say we were going to deliver. So even during difficult circumstances in the first half, we have always said that we are not trying to leverage this business for profitability quite yet. It's too early in its life cycle. The investments need to be made to secure infrastructure, expertise and innovation for the future. And we are going ahead with that with very nice results. The last thing to mention, of course, is cash. And again, there was quite a lot of uncertainty as we entered the first period of lockdown. And we are very proud of the way that the story resonated with both existing and new investors, which enabled us to raise, on this application, GBP 40 million, which was -- and we actually had around about twice the demand for that. And it was more or less at par depending on the vagaries of share price movements on the day, which was very volatile at the time. So a pretty successful raise and people are understanding the dual strategy. It really resonates. And we believe we're in a really good spot. That led to a cash balance at the half year of just north of GBP 50 million. So we believe that gives us the financial firepower to continue to invest in that innovation, to horizon scan the best innovations elsewhere across the business, and it sees us -- it sets us fair for anything that COVID, the environment can throw at us, which we are still very well aware we're not out of the woods, although our best efforts on the vaccine gives us a lot of pride in being involved in a solution as well as being involved in the risk assessments around COVID. If I just take you on to just a very brief graphical representation on Slide 20. You'll see comparing the last bar on the top chart of H1 2020 to the bar -- to back H1 2019, we do have a slightly seasonal business, as we've explained regarding access to capacity in terms of shutdown and other things. But in the blue bar, you'll see the impressive 24% growth in the underlying revenues and the lumpy nature of the purple. And we always say we shouldn't be scared of this. This is a great opportunity to bring working capital and access to pay from new innovations into the business, but it's difficult to predict based on the timing. So we continue to have people focus on the underlying business growth, which now has had the capacity constraint largely removed with, as I said, 3 licensed new clean rooms in OxBox in our existing footprint. And we are very confident we can grow this fairly significantly over the next few years as well as bringing in milestones, license fees and other things, which will keep us -- keep the purple bar interesting. On the bottom chart, that's just indicative of where we're at. We are still in a heavy investment mode in this business, building out the infrastructure. It's resonating with the wider investment community. We are seeing that in our market capitalization, our share price. And we believe that gene cell therapy is going to be the paradigm for -- to all medicines in the 2020s, maybe the early 2030s, and we need to be a scaled player in that. And that's what we're trying to do at the moment. In terms on Slide 21 of just looking at the raw P&L, I'll just call out a couple of things here, which may form some element of interest to the audience here, is that you already know about the revenues and the growth. The cost of sales that we're listing there, the reduction in cost of sales has come roughly from the 3 different areas. Firstly, in 2019, we were just finishing off the process A batches, which had higher cost of sales. That was the adherent process rather than suspension process, which we all know produces a lot more for less money. It's part of the innovation we've already embedded into the business. The sales mix between commercial development and bioprocessing, the mix is being skewed towards bioprocessing in 2019 and commercial development in 2020. So that is naturally a slightly higher margin. And there was also a provision that was built up over time as we've become a more operational business. We are providing for any errors, batch failures that take place over time, which built -- do still happen occasionally even with a process that's becoming more and more robust. So a combination of those 3 things has somewhat skewed that number. If we go down the page in terms of the increase in the costs and an apology here on the second line, where it says research and development and bioprocessing costs, ignore bioprocessing costs. It's just research and development. The bioprocessing costs are split out above. You'll see a fairly steady increase across all 3 lines. The bioprocessing costs, I've explained from the scale-up and staffing of OxBox in the first half of 2020, which was necessary because we obviously need to get people trained. It's not a productive capacity in the first half as we were doing various quality runs, but the staff needed to be brought on and trained. So that's the estimation for the jump there. And then in R&D, we've got the annualization of the resources we've already added. We were, for the first half, being very cautious in our external R&D spend, as you'll see in the press release. But we are still making seeded investments given our financial strength, so we've been able to navigate this rather well. So growing business, as John mentioned. We're going to be 650 by the end of the year. In this time period, it was a jump of about 20% in staff, so that explains the extra cost. The one last thing worth pointing out is what we're very proud of, is the finance costs. We are debt-free. As we all know, we did that just over a year ago with Novo investment, enabled us to clear our debt, which eliminates that drag on loss before tax essentially or profit before tax and enables us to truly invest at the levels that we believe without having to service venture debt. So all those things, I think, are telling the story of the company in very good financial health, who have navigated a difficult situation really well in the first half. And in terms of the guidance we gave, looking forward to a second half, which is highly variable in terms of what we can produce but gives us a challenge and gives us a fortified view throughout our organization of doing something meaningful to -- as John said, to help alleviate the economic and social stresses that are on all of us through COVID-19. So I think at that point, as we flip to Slide 22, I'll hand back to John to close out for Q&A.

Thanks, Stuart. So first of all, I'll go to news flow to talk about that around the partner programs and CDMO. We do expect to do further deals this year. Timing can always be difficult to predict, but that's our expectation. Looking at OxBox, we plan to be fully operational in the second half of the year, producing the COVID-19 vaccine, along with our other partner programs. We expect to see Novartis CAR-T programs progress in development during the year, and we also expect to see further data on the COVID-19 vaccine during the second half of this year. Moving to the proprietary pipeline. We do target to spin out or out-license one of our in-house products during '20. These are even harder to predict time-wise. We expect to see the data from the 6-month efficacy from cohort 2 of the SUNRISE-PD trial with Axovant in Q4. And we do expect also to progress internal candidates into our portfolio and towards the clinic during 2020. On to Slide 23, please. Looking forward, the outlook for the year is positive. We have seen improved financial performance in 2020, building on the growth of bioprocessing and commercial development partnerships, and we're also benefiting now from the increased utilization of the capacity in OxBox. Work with AZ, this is likely to boost our revenues in the year in excess of GBP 10 million, subject, of course, to scale-up being successful and regulatory approval of the fourth GMP suite in the fourth quarter. All that said, this is leading us to believe we'll have an EBITDA for the group this year to be in the low- to mid-single-digit million range for the year on the basis described above. We do expect OpEx, operating expenses, to increase due to the number of employees growing towards 650 by the year-end. CapEx in the second half of the year should be greater than the first half of the year because we continue to convert office space into GMP laboratories in Windrush Court, and we're seeing the final costs associated with the completion of the installation of the fill/finish line with OxBox. Despite the COVID-19 pandemic, we're really excited about capitalizing on our leading global lentiviral vector market position with the dynamic and fast-growing cell and gene therapy sector. Thank you very much. And are there any questions?

[Operator Instructions] Our first question comes from the line of Amy Walker of Peel Hunt.

I have, I think, 3 questions, if I may, and I'll ask them individually so you have a chance to respond. With the new GMP suites that you'll have completed by the end of this year, I mean overall, one of your GMP suites is fully committed to Novartis, if I remember correctly. For the others, can you remind us, do you need an entire GMP suite for commercial development work for the duration of a year or more than one? I suppose what I'm really asking is by January 2022, how many of your available GMP suites will you need to service your commercial customers and your commercial development work, not including what you're doing on the AstraZeneca vaccine?

So to answer that question, the reason we're helping out with AZ asset, the vaccine asset here is because we have the space to. We hadn't planned to bring some of these suites online quite as quickly. And I can tell you that in no shape or form will it, in any way, affect our LentiVector business as we go forward. And that will mean our current or our future customers. And we are still talking to future customers to bring them in as well. To go down to exact suites, it's a difficult thing for me to answer sitting here today because it depends on demand and how things come through to the last part of the year. But suffice to say, we have capacity to do what we need to do. And of course, you know already that the OxBox facility is only half used at this point in time with the 4 GMP suites plus the fill and finish, we have the other half to actually build out where we need to.

Okay. My next question was around Stuart's talk about the innovation investments that he went into in some detail on Slide 16. I just wondered if you could help us understand the economics of those investments. So what proportion of your R&D spend that you present as pure R&D is devoted to those investments? And how are you baking returns for that innovation into your contracts? Are you offering your clients a menu of things like you can have TRiP and SecNuc and then you tell them, well, the royalty rate scales depending on how many things you choose? Or just to give us some understanding of how the economics on that works.

Look, cost of sale, I'll pass it to Stuart in a second. But as far as when we embed new IP into a deal, we do expect to have some return for that. So we generally would embed a new IP as we have it now into the contracts. And that would bring an increased royalty rate in general, should that be used in a deal we do. I'll pass to Stuart for the first part about what we spend on it to actually get return.

Yes. It's an interesting question, Amy, and one that I'm going to answer partially because we are obviously not drawing that level of detail currently. What I would say is that both -- the way that we interact with customers in terms of our commercial strategy is evolving. And as we do more of these big deals, it becomes more business as usual for us, which is great because it closes the start to finish time on some of these deals. And in terms of the investment in the individual innovations, it's something that we've been investing in, but we know that, to a degree, we need to make an element of change in the way we invest in the platform itself. So it's one of those areas, which I think what I've already talked about as being more transparent about potentially by this year-end in terms of how we spend across the business segments we've laid out here. I think it's something you'll find out more about. I can't really say at the moment without going beyond what we're currently disclosing. Suffice to say that we are well funded to make those investments in the platform as it was a distinct use of funds in the fund raise. And as we go through with our new Chairman, the strategy of Oxford Biomedica is something that we're all very interested in and how to get the best returns. Obviously, as John said, we expect to both fortify our position, give our customers the best opportunity to access whichever technologies make most sense and to make a good commercial return upon those decisions they make, the details of which we can't disclose at the moment.

Okay. Understood. I mean I guess aligned to that, the reason for doing all that innovation, part of the reason is to maintain your competitive advantage. And I wondered if you'd be able to update us a bit on the status of your closest competitors because it's something clients ask us about regularly. Are the closest competitors in lentiviral vector still the Lentigens and the [ Momeds ] of the world? Have they made any progress in closing the gap to you? And something that I'm often asked is about the likes of Brammer and Thermo Fisher. They've obviously got money available to invest to try to catch up with the innovation that you guys are doing all the time. Are you seeing evidence that they're doing that? And if they're not, why do you think they're so happy to just let you continue to dominate the lentiviral vector space yourselves?

The first part of that would be I think the barriers to entry to come into working in LentiVector are very high. I mean that's clear and even just working with the bioreactors to get that to that point, not many companies can do that. So there is competition out there. I wouldn't want to go into individuals where they stand and where they don't stand. What we do want to do is industrialize the process, which is why we're innovating so actively here to bring new things into the platform. And I think we still stand. We believe we're the best in the world at this at the moment, and we are ahead of the competition. Why are we better? Because we keep improving what we do and putting new techniques into it. Our idea is to have scalable manufacturing at a very cost-efficient price for the customer, therefore, treat as many patients as possible, and of course, in our business model, that gives us royalties later on as well. Anything to add, Stuart?

Yes. I think we could probably categorize it as we've got a healthy paranoia about being caught up. And that's why we're doing what we're doing. And I think to your point, Amy, the way we break down the competition is largely into 3 areas: the [ vector cos ], who aren't direct competition, they're not trying to be GMP manufactured, but using innovative new technologies; companies of our size and scale, and you mentioned a couple of them; and then the really big guys where they have loads of resources. And we try and partner with the [ vector cos ]. We try and beat the companies like us, and we keep a very friendly -- a friendly demeanor with the companies that are much bigger than us. And we sort of know what we're up to in that sense. So a healthy paranoia is a good place to be. We've got the lead, as John said. And with the combination of healthy paranoia, world-class science and good funding, we will -- we believe we can keep the lead.

Our next question comes from the line of Charles Weston of RBC.

I'll also take them one at a time, please. First question is on whether you can give us any color around the latest trends of pharma companies thinking for lentiviral vectors versus other vectors and give us some color on the health of your pipeline of discussions that might deliver in 2021. Is there sort of a nice run rate going on? Is it accelerating? Any color would be helpful.

I think we see lenti becoming more popular. There are reasons why that's the case. We think we can do a great job because it does show great long-term expression. As far as thinking about where we'll go in '21 and the deal flow, we certainly have a very active deal discussions ongoing at this point in time. And the measure for us as well about how many deals we'll get done is generally feasibility studies ongoing as well. Some people want to do those and go straight further than that, but the majority wants to do feasibility, gives us a really good judgment point as to what we're working on. We don't tend to lose anything if we do a good feasibility study. We don't tend to do bad feasibility studies. So once we get them into that position, we're reasonably confident we'll come through to good deals later on. As far as the view of the world of LentiVectors, I only see them getting larger, not smaller. There are many indications we're working on, as you well know, the lung, the liver, the [ scars ], the brain, the eye. I think these things are becoming profound. And literally, I think our projections that we did back in 2018 to justify the building of OxBox, and we predicted that, and I think it was conservative estimates as well, LentiVector manufacturing in the world then would be about $800 million. And that's just the manufacturing cost and not the royalties. And we hope we'd get between 25% and 30% of that, again, being conservative. So I think we see an uptake in LentiVector, and we believe that can continue to grow as well at this point in time.

And just to clarify, you've done single-asset deals, you've done multi-asset deals with big companies. Is that still the mix that you have discussions in? Or are there other way of doing that? Or are they all sort of single-asset type of deals you're talking about?

It does depend upon the type of company we're talking to. I mean a lot of companies bring a lot of ideas with them and want to work with all of them at once. Others might have one asset, and it might be proved to be effective. So we tend to do a lot of homework to make sure we understand what we're going into. Our ambition here is to have a partner we work with the goal to commercialization and brings us royalties and manufacturing at that stage. Doing one batch for people to us and something failing is not particularly attractive to us because we turn something else down to do that. So we are particularly careful in what we take. And again, I think we're happy to take one program or more programs. Most of our activities with customers have led us to a place where you have something to start with, and it tends to be incremented later on, and that's what we work towards as well.

And then moving on, the IP that you've been developing such as TRiP and LentiStable, so just following on from Amy's question, that would generate high royalty levels. Have they already started to be integrated into some of your more recent deals or the discussions that you're having now?

They have been integrated into deals already. Again, it depends on what they use. And not talking about and being able to do is one thing and being used in the program is another. And we're still working through to make sure that the technology we're embedding gives the right returns to be included in something we're working on. So yes, we have embedded before, and we will embed again without question.

And last question from me. I note from the press release a deal with Papyrus Therapeutics, if I pronounced that right. And can you give us a little bit more color about that, please?

Sorry. Loudly, again, so I can hear you.

So just to ask a bit of -- a bit more color about the deal with Papyrus Therapeutics.

That's a quite exciting deal. It's -- as you might imagine, it's quite a small one led in working with our old CMO actually and another company is working in. But it's something that's going to aid our technologies. It's one of those things that we are reasonably excited about, and we think it could be something that makes our programs better in the future. So I think it's something that's very early stage, without question, but has a way to go before we know it's going to be useful to us that we have all the work to do with all that.

Our next question comes from the line of Joe Pantginis of H.C. Wainwright.

Two questions actually. So number one, I wanted to build upon some of your earlier comments regarding the innovation wheel and look to build upon that a little bit. Obviously, you can't go into any of the proprietary nature of the innovation wheel. But I wanted to see, at least from a broad stroke standpoint, is there anything through your innovation process right now that's particularly exciting to continue to keep you guys as the go-to player?

Stuart, take that one. I think you presented this slide.

Joe, thanks for making time. Yes, the thing that jumps out to me on that one -- that slide as we saw probably just because it's the melding of 2 high-tech sort of industries is the AI and machine learning piece. We're well aware that as a company, we produce tons and tons and tons of data. This is what bioreactors do. I mean the vector substance, as it were, is a liquid and then you run rafts of analytical tests on that to see what's actually contained within. And within that data, we all suspect that the answers lie to help industrialize this process. And it's just too big a task for technicians to draw out that data. So in terms of combining AI and machine learning to gene therapy production, this is the thing that we think can make a really big difference and probably one of the areas where it's almost unique. I can't say it's absolutely unique. I don't know everyone else in the world. But as far as we're aware, we're the people who are sort of pushing the envelope on this one, with a partner like Microsoft. It really does show that the scale of the business is now attracting some of the biggest players in the world with Novartis, Astra, BMS, Microsoft across different industries. It's a real testament to the hard work going on in R&D and in Oxford Biomedica.

Got it. That's actually really helpful. And then I just wanted to focus on -- well, first, it's very nice to see the pipeline visibility that you've provided today, and I wanted to focus on one of these assets, specifically the wet AMD program. So I wanted to maybe discuss some of the differentiation around this. Now obviously, from a commercial standpoint, it's certainly very promising to significantly reduce the number of direct injections to the eye with aflibercept. So I guess with regard to the vector, I guess you have some sort of specific, I guess, gene therapy -- I'm sorry, some arrangements you made to the promoter and enhancers of the vector that assist with tissue targeting in the eye?

We've always had great success in the eye. If you go back to our original drug, RetinoStat OXB-201, we did show long-term expression, does make the same expression in the eye after 7 or 8 years now if you look at the data. So we're very confident we can reproduce that, and it's just now built, doing our preclinical work on this to make sure we're in the right place to go forward.

Our next question comes from the line of Julie Simmonds of Panmure Gordon.

A couple. Firstly, just on the bioprocessing cost in the P&L. Just wondering how they shape up now you're actually starting to use OxBox. I mean do some of the people that you've got in there that were being used on the sort of validation of the lines, that sort of cost move up to cost of goods now you're actually utilizing the facility?

I'll let Stuart take that on.

Yes. I think that's true, Julie. Yes, it's a disproportionately high expense this year because of essentially, like you said, the validation and the water runs and the qualification of the facility. As they -- as those -- that group of biotechnicians begins to work on live projects, a good proportion of that cost will be moved up against the revenue lines.

So we shouldn't be looking at it continuing at that level. It's likely to sort of drop off a bit and more similar to it was last year type of thing.

Under those assumptions, yes, I mean, unless we are building new stuff. So we often -- as John mentioned, we keep an eye on that demand. And if we see that demand that we need to kit out the final half of OxBox, it's a great problem to have. There'll be infrastructure preceding demand.

Excellent. And just on the innovation platform again. You're obviously talking about potentially looking more about in-licensing or acquiring technologies to fit into that alongside what you're developing in-house. I was just wondering whether there are particular areas that you were looking at to sort of acquire new technology in.

Well, I think we have made a broad remit there. We look at things that can make our business stronger and make it more competitive and give us -- keep our edge that we have over the others at this point in time. So it's pretty wide and we look wide and far at this point in time.

Our next question comes from the line of Alistair Campbell of Liberum.

The first one really is just in terms of some of the early clinical development you got going on with Novartis and Juno. I mean Novartis with Kymriah as example, basically, they'd see no COVID-19 disruption, which I can kind of understand is on the market and these patients are very sick. But I was kind of wondering if your experience with any of your partners, either sort of Juno or Novartis, you noticed a slowdown in activity in some of the earlier clinical programs, which could be linked to sort of COVID disruptions. That's kind of the first question. Second question is kind of more specific on Sanofi. So earlier this year, they basically flagged their intention to get into the clinic in 2022 with a lentiviral gene therapy product for hemophilia and specifically referenced the San Rafael program. So just to confirm that that's still -- you're involved in that program, that's still a program you're heavily involved with Sanofi on. And I have to say in that presentation, John, where you've been somewhat disparaging us of viral vector companies they've been working with. But just to confirm that you still have a very healthy relationship with Sanofi on that program.

Well, first part of your question is about the slowdown. As you can tell by our results, our bioprocessing has been very active, and we will be doing it with our customers who are taking the drug we made. So yes, it's been very active. Things haven't slowed down. We're working very hard to keep up with demand. On to the second part, our relationship with Sanofi, I can tell you that they're very active with us, have a good relationship and the work we're doing to get those drugs to go forward that transaction with wet AMD is on track to what we expect it to be and is continuing.

Our next question comes from the line of Stefan Hamill of Numis.

Two for me, both on the topic of yield scale-up and liver disease. I guess just following up on the comments on Sanofi, its ambitions in hemophilia, particularly after what we've seen with BioMarin and just durability being in question. They've stated pretty clearly that they want to enter the clinic in '22. Does that imply that you guys need to sort of scale up your yields there to a significant extent in advance of that? Are you confident you can deliver sufficient material to enable those trials?

It's an ongoing process, Stefan. We're working diligently at this point in time. We are achieving what we hope to achieve by this point, but we have to keep the pressure on and keep things moving to be able to achieve what they ask us to do.

And then just OXB-401 there in liver disease. Just any sort of more color on that indication? Is there an edge for the transgene and just the time lines on that one?

That's very early stage. It'll be premature of me to speak about this at this point in time. It's very early stage. It's one of our exciting things we seem to work on, but a lot of work to do there to get [ building ].

[Operator Instructions] Our next question comes from the line of Peter Welford of Jefferies.

I've got 2 left, please. And firstly, just on the AstraZeneca collaboration. I'm wondering if you could just outline if worst case, and I appreciate, obviously, none of us hope this happens. But if worst case, the vaccine were to fail and does not go any further, just trying to understand what sort of revenues, I guess, beyond the upfront you've got you're assured to receive or any sort of compensation, I guess. Obviously, you've accelerated and you've done a lot of work here. And I guess I'm just trying to sort of understand what sort of this has been at risk versus, on the other hand, funded by obviously AstraZeneca and the U.S. government. And then secondly, really following on actually from -- sort of from the previous question. I wonder if you can give us any sort of idea to help us out over maybe the shift from process -- from process A to OxBox. And obviously, as you're now going further, what sort of magnitude of yield improvement have you managed to achieve over the last year, 2 years? And I guess take your -- but can you give us some sort of, I guess, quantification of how it happened in terms of how yields have changed over a period? That will be helpful.

Okay. To go to AZ first, they paid us, say, GBP 15 million reservation fee. We've also been working for a while now on process development, which they're paying us for as well. So if things were to stop tomorrow, we would keep the GBP 15 million, and we've already been -- or we'll be paid for the work we're doing at this point in time. So we would not be out of pocket. We're not doing anything at risk. But as I said earlier, we are doing these things at a reduced rate to our normal activities. Okay. You're taking the second part, Stuart?

Yes. I'm not on mute. So yes, it's an interesting question, Peter. I mean just adding a little bit of color to John's answer there. There is some variability around AstraZeneca because it really depends on when any event happens as to how far we're through. But they understand that they are driving the process and their suppliers who are working, if there is any risk, needs to be covered, and that's what they've been doing. It's also worth mentioning that in terms of kitting out GMP 7 and 8 in OxBox, it's being done in conjunction with VMIC. And so they have loaned us the equipment in those 2 facilities. So that is being done at 0 CapEx. So we have derisked this as far as we can. And on the other hand, Astra have been very good partners and understood that they need to incentivize the smaller companies to take these risks, which they have. On the second part of your question, I think it's clear. We've always said that from the adherent process to the bioreactor process, process A to process B as we've labeled them, you get a tenfold increase in productivity, i.e., 10x as many doses per batch, i.e., the use of a clean room essentially. We believe that we can probably push this at least 1, maybe 2 orders of magnitude further. So looking at analogs of other industries and how they push forward, we like to look at antibodies as a bit of an analog as to -- as to where this technology could go and how it becomes more repeatable, safer, more robust and cheaper over time. And we think we're in the early stages. So what we want to be able to do is innovate the technologies, which translate into royalties, as we've already mentioned, which gives us a unique selling proposition to potential partners. And then if we only have to make -- we have to make fewer batches, it means we can be far more efficient in our manufacturing footprint and get higher-quality revenue through royalties. So we believe we've got a cogent business strategy here where, frankly, our goals are aligned with our partners, which is to reduce their cost of sales. And we know that if we can successfully do that, we are going to assure ourselves higher-quality revenues, the less use of our capacity, which means we don't have to roll out so many clean rooms and keep on investing the capital we have been doing. So we believe it's one of the best sort of barometer test of, if you've got a good business model is, are you aligned with your partners? And in that sense, we absolutely are.

And I'm showing no further audio questions at this time. I'd like to turn it back over to John Dawson.

Thank you very much, and thanks for your questions, and thanks for attending the presentation. And we look forward to updating you on our full year progress in 2021. Thank you very much.

Thank you, ladies and gentlemen, this does conclude today's call. You may now disconnect.