Oxford Biomedica plc (OXB) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Oxford Biomedica's Preliminary Results 2020 Briefing. [Operator Instructions] I will now hand over to Catherine Isted to open the presentation. Please go ahead.

Good afternoon, ladies and gentlemen. Welcome to Oxford Biomedica's full year results conference call for the year ending the 31st of December 2020. We are delighted today to talk through what hopefully, you will agree, is a very strong set of results. This is a year that the company has thrived in the most uncertain of backdrops and really shown it through highlighting to the world its global leading capabilities. We say we're a lifesaving cell and gene therapy company, and this has never been more true than the year that we've just had. To discuss the year in more detail, I would like to introduce our presenters on the call today: Our CEO, John Dawson; our CFO, Stuart Paynter; and our Chief Scientific Officer, Kyri Mitrophanous. With that, I'd like to hand over to John.

Thank you, Catherine. And I'd like to add my welcome to you all as well. It's great to have you here and talk about the year we've just had. And during the presentation, I will be making forward-looking statements, which cannot be relied upon. Next slide, please. So we thought long and hard about how to describe the year 2020. And we came up the thinking that OXB has thrived in 2020, highlighting our global abilities. And I'd like to talk to you about -- for a second about what COVID meant to Oxford Biomedica. To start with, throughout the year, we were thinking about our costs, making sure we had enough cash to take us through to the points where we had to get to because we had no idea how long it's going to last. We then thought about our workforce. And of course, 2/3 of our workforce were working at home, a transition which hadn't been done before, but we moved to it very, very smoothly. And on from there, there were 3 things that we really concerned us about the business going forward: Supply of raw materials; people wanting what we were making our batches; and on top of that, of course, with the COVID virus, our employees getting ill and not being able to work. So all of these things we came to do. There's some superb organizational skills within the business. We managed to work all of this to make it all happen, and I have to say I'm so proud of everybody at Oxford Biomedica. My first comment today is I want to thank all of the employees, each and every one, for the part they played in getting to these great results for the year. So then moving into what happened in 2020. Underlying revenues in bioprocessing and commercial development grew by 45%, top line by 37.7%. Operating EBITDA showed a profit of GBP 7.3 million, marginally above guided range, and we signed new major LentiVector partnerships with Juno/BMS and Beam Therapeutics. As you are well aware, we've been manufacturing the Oxford AstraZeneca vaccine in a new vector type, the adenovirus, and at a scale the group has not worked with before, the 1,000-liter bioreactor. This has truly highlighted our world-class team and CMC. I'd like to point out as well, we had an amount of work here in the 5 months which normally will take about 10 months to get to the point where we could produce this at scale. Oxbox has received MHRA approval for 4 GMP suites now, and 3 of those are producing the vaccine at 1,000 liters. These [ were for the purpose of expediting ] work on the vaccine because of our work there. Back in June, we successfully raised GBP 40 million gross, placing there with new and/or existing investors. And in June '20, we moved into the FTSE250. Now I've been doing this job for about 12.5 years. If you'd asked me my views back in 2008, would I get to the FTSE250, I would have been optimistic. But to do it was a fantastic achievement again for all the employees within the company. Next slide, please. This takes us back to our strategy slide, and the backbone of our company is our lentiviral vector delivery platform. There are 4 main pillars to that, which I'll talk you through. IP, patents and know-how, so important to get royalties around the patents. And of course, they include further royalties after the patents have run out with some of the know-how in certain cases. Expertise. We've grown as a business very quickly. If you go back to 2014, we had 60 people; end of '17, we're like 320; and the end of this year, 673, growing very quickly. Every person needs to do what we've done, and it's a business which is going in further places. Facilities. We now have 6 sites all based around the Oxford area and over 200,000 square feet in facilities. And it's so important to our business in -- where we've got our new partners onboard are our quality systems. If you work with big pharma and many other companies, they talk to us about what we have. Of course, we have FDA-approved systems in producing Kymriah commercially with Novartis. Going to the left- and right-hand side now of the slide. On the left-hand side, we talk about the CDMO partner programs. We have 18 of those at this point in time. We have multiple revenue streams: Process development fees, incentives, bioprocessing revenues and the all-important royalties. And to the right-hand side, we talk about the gene therapeutics or proprietary products, and we have 6 of those in the business. And we have 2 choices with each type we're working on. We can out-license or internally develop. We chose to out-license our Parkinson's drug back in 2018 to Sio. And here, you get a new manufacturing partner, development funding and, of course, upfront, milestones and royalties and bigger royalties, of course. That was an interesting deal for us with GBP 30 million upfront with a [ buy order ] of around $850 million. Of course, the other choice then is to think about internally developing. And if you can take this forward into a Phase I/II, our strategy now is to take drugs -- our own proprietary portfolio into Phase I/II trials. And here, we can think about what we do at a certain point. But to give an example of how it's going to be very attractive to shareholder value, if you think about the deal we did with Sio, in fact, it had a great Phase I/II data, that could have led us to probably around GBP 100 million upfront on a [ buy order ] of $1.5 billion, a much bigger set of numbers, for probably 3 years' work to get to the point of having the data. So very, very exciting. But our real ambition now is to take our own drugs forward and move into a development phase as Oxford Biomedica to truly show a hybrid model working. Next slide, please. Now we move across the CDMO side, talking about our customer-centric part of the business. And if I go to the next slide, please, I show the highlights of what happened in 2020. We were delighted to sign in March a deal with Juno/BMS around 4 CAR-T and TCR-T programs. The [ buy order ] was $227 million for a license and 5-year clinical supply agreement. We followed that in August with a deal with Beam Therapeutics, a very exciting company, which has just raised a lot of money on NASDAQ, for the next-generation of CAR-T therapies. What's been important for us as well is building for the future around the technologies but also our buildings. All 4 suites of Oxbox are now approved by MHRA. And the last one, it was approved in October. One of those is now working at 200-liter scale on the group's LentiVector partners work, and other 3 are working on the AZ vaccine at 1,000-liter scale. But also converting a lot of our office space to GMP suites -- sorry, Oxford GMP laboratories, I should say, at Windrush Court to meet the growing demand, commercial development and analytics. This all commenced in 2020, and some of this was done by the year-end. It's important to know we have had this because we've solved any issue we have around capacity for the manufacturing suites. Now we're doing the same thing around the laboratories, which are so important to the start of the business. What is really important to us as well in 2020 is the work we did with AstraZeneca, started working with the Jenner in April. We did our first deal with AZ in May, a year's supply agreement for the COVID-19 vaccine. And in September, we followed that up with an 18-month supply agreement under a 3-year master services agreement for large-scale manufacture of AZD1222. So you can see here, the number of pipelines we're working on has grown by more than 50% in 2020, 13 to 20. But also, if you go June '19 to June '20, it was moving from 10 to 20 as well. And Oxbox, the capacity we have there is the key to making this work. Next slide, please. So in this graphical form, it shows you really what we're trying to achieve in the CDMO pipeline. And we do 2 things here. We try and increase the number of partners by putting more drugs into a partnership with each partner we have already as well as finding new partners. If I'd shown you this slide back in November '19, we'd have had 2 drugs with Novartis. We put 3 more in December that year with the extension of the deal and another 1 in 2020. So we now have 6 drugs we're working on with Novartis. And this is the theory of increasing the number of partnerships -- a bunch of drugs, I should say, within a partnership. Further down, you see Sio for Parkinson's. We're working with them. They're a great partner. They are driving the drug forward there, and we're very excited about the future of where that can go. And I think the deal that's really important to us as Oxford Biomedica is the new one with BMS signed in March 2020, 4 CAR-Ts and TCR-Ts. We have great hopes of that being in more drugs into that portfolio, as on this side, they come to 4. But also, we can see this deal being really important to us, as important as Novartis has been and is going forward. So a great deal for the company. Next slide, please. Let me go then to Orchard Therapeutics, who had a strategic review in 2020. What we saw there was they moved their concentration to newer metabolic diseases, prioritized their MPS-IIIA and have now reduced spend slightly on ADA-SCID. So we're waiting to see how we go forward exactly with Orchard on this portfolio. There's the Beam deal, again, the first of other drugs, we hope. And again, this is the more advanced stage CAR-T programs. And we are working with Boehringer Ingelheim and the U.K. Gene Therapy Cystic Fibrosis Consortium in cystic fibrosis. This is inhaled lenti, and it's very exciting. And we just signed a new supply agreement for 3 years around this and other vectors also. On the very bottom of the page as well, you see the work we do with AZ, now an approved drug, to fight the pandemic with the COVID-19 vaccine. Next slide, please. A bit more detail now around Juno Therapeutics and BMS, and this was such an exciting deal to do. It's a nonexclusive license around the 4 drugs I spoke about. We get royalties from sales here as well. We got a $10 million of upfront with potential to receive a further $86 million in development and regulatory milestones followed by more back-ended sales milestones of $131 million. This is a really exciting deal, and it was possible because of Oxbox and the capacity we have there. Next slide, please. A bit more detail about our work with AZ and, of course, VMIC as well. We're currently part of the collaboration here, working on an 18-month supply agreement under a 3-year master services agreement to produce adeno vector-based COVID-19 vaccines. This follows up on a 1-year deal previously. Three suites at Oxbox are working flat out on this. And here, we received a GBP 15 million upfront payment as a capacity reservation fee, which is offset in taxes in the future, and gives us potentially in excess of GBP 35 million of revenue plus certain material costs for large-scale vaccine manufacture at 1,000-liter scale. So this drug got approved for emergency use in December '20 and approved thereafter in 2021. Next slide, please. At this point, I'll pass on to Kyri to talk about the gene therapeutics, our patient-centric part of the business, plus the developments in our platform. Over to you, Kyri.

Thank you, John. Can we move on to Slide 12, please, next slide? At OXB, we are seeking to treat diseases with unmet medical need by developing one-off therapies using our lentiviral vector platform. We licensed our Parkinson's therapy to Sio Gene Therapies in 2018. This product is called AXO-Lenti-PD and is designed to supply dopamine to the areas of the brain that lack this neurotransmitter critical for movement. Last year, Sio released some very encouraging data from the ongoing clinical trial. In January 2020, Sio released 12-month data from the first cohort demonstrating a continued favorable safety profile and a 37% improvement in motor function from baseline by the UPDRS Part III OFF Score, which is a measure of the patient's ability to move. This followed an improvement of 29% seen at the 6-month time point. In July 2020, we signed a 3-year clinical supply agreement for the manufacture and supply of AXO-Lenti-PD to Sio. In October 2020, we saw the 6-month data from the second cohort, which showed a 40% improvement in UPDRS Part III OFF Score over baseline and again, a favorable safety and tolerability profile. The overall improvement in the patients is greater than that seen with ProSavin, the first-generation vector that OXB developed. In terms of our current pipeline, we -- our lead product is OXB-302 to treat hematological tumors with a CAR-T therapy, targeting a protein found on cancer and cancer stem cells called 5T4. Preclinical work is continuing as we prepare OXB-302 towards entry into the clinic. OXB-203 is aimed at treating wet AMD by delivering an anti-VEGF protein called aflibercept. This builds on our OXB-201, also known as RetinoStat trial, where we demonstrated long-term stable expression for many years following a single administration into the eye. We are also working on a number of other ocular ALS and liver indications. We believe that there are many more opportunities with lentiviral vectors to deliver lifesaving therapies. In June, Sanofi informed us that it intended to return the rights for the Stargardt and Usher syndrome programs. Once returned, we will undertake our own internal review and decide whether to develop these further. Slide 13, please. This is a summary of our therapeutics pipeline. AXO-Lenti-PD is now moving to the next dose group, and Sio are aiming to expand the clinical trial in due course to include a randomized patient group. We look forward to seeing the data from this higher-dose level in the future. We hope that this product will make a huge difference to patients' lives. As I mentioned, we have a number of products in preclinical development, and a lot of work is going on in this area to realize the potential of these therapies. I would like to highlight our work in the liver. Liver is a very attractive target for lentiviral gene therapy. The liver has a high cell turnover. And so ideally, by using and integrating vectors such as lenti, a one-off treatment at any age becomes possible. We will continue to work on OXB-401 and are looking to potentially expand our indications of interest in the liver in the future. We will be looking at how best to develop these new products and, if possible and available, seek collaborations with academic groups or other companies. However, these internal activities will take time. So we are also looking at the potential to in-license opportunities that are further along their developmental path. Slide 14, please. Innovation and the development of the platform are core to OXB's goal to industrializing lentiviral vectors. By industrializing lentiviral vector production and reducing the cost through innovation, OXB will open up to therapeutic indications that are currently inaccessible in the field of cell and gene therapy due to the amount, and therefore cost, of vector needed to address these targets. Next slide. In 2019, OXB leased what is now the Windrush Innovation Centre. We have now initiated further expansion and refurbishment of the laboratories within the WIC. Our partnership with Microsoft is progressing well. This is aimed at increasing our understanding of the processes within cells during vector production. The analyses we carry out generate huge data sets that can only really be understood by using AI and machine learning. By furthering our knowledge of these systems, we can target further improvements in our platform in terms of quality and yield. I will describe the further innovations at OXB on the next slide, please. We continue to invest in the lentiviral vector platform in order to maintain our lead in this area and to further industrialize the manufacturing processes. There is a lot of competition in lenti technology and manufacturing, and we want to make sure we have the best of these either by developing them ourselves or potentially in-licensing. The platform development activities have 3 aspects: increase the capability, the vectors; improve yield, that's the amount of vector that's generated; and improve the quality of vector, in other words, remove the impurities. In terms of capability, we are seeking to develop vectors that allow regulation of the gene of interest to fine-tune the therapeutic effect and also developing targeted vectors to be able to genetically modify specific cells. To produce more vector, we are further optimizing our bioreactor processes and incorporating technologies we have developed that improve yield and quality such as U1, U2, TRiP and SecNuc systems. In the future, we are looking to move most products to be manufactured using packaging or producer cell lines as these have better scalability and productivity. A big part of innovation relies on analytics, which allows us to understand what is taking place during manufacture. One of the challenges in gene therapy manufacture is the time to product release. We are investing in technologies such as automation and developing assays that will speed this up. We are also analyzing our production cells and vectors for their RNA and protein content and also analyzing batches during production. These types of analyses generate huge data sets that are best processed and understood by our AI and machine learning, as I mentioned. This has led us to our collaboration with Synthace and Microsoft, and the aim is to understand vector production better and from this, how to increase those components that improve yield and quality and remove those that don't or are not needed. Our next step towards further increasing yields, we are calling [ Process C ]. And this will incorporate technologies such as the improved bioreactor processes, U1 and U2 that I mentioned, TRiP and SecNuc. For [ Process C ], we are likely to have a menu of technologies to choose from, depending on the specific needs of that product. Looking further into the future, [ Process C ] would encompass technologies such as producer cell lines as well as aspects of [ Process C ]. I will now hand over to Stuart Paynter to update on the finances.

Thank you very much, Kyri, and good afternoon and good morning to everyone. And maybe we can progress a couple of slides, please. One more. Thank you very much. So just a tiny bit of context before I dive into some of the financial highlights. This really has been a classic -- or 2020 has been a classic year of 2 halves, where this time last year, we were assessing the potential impact of the pandemic on the business and the wider economy and looking at various cash preservation measures, which we needed to put in place to ensure the sustainability of the business going forward. And as John has highlighted with the AstraZeneca deal and the original deal with the Jenner, then we had a second half of distinct acceleration of some of the projects and some of the infrastructure investments we needed to make in order to get the business back on track. So a really interesting year and one that we've navigated through. And as we've said in our highlights, we feel we've thrived. And I'll take you through some of the highlights, the numerical output of all the efforts of the business, which John has gone some way to thanking everyone for the efforts in going into some of these numbers. So if I just take you down. I'm not going to hit every single point. But as you're all aware, I mean, we are a revenue generation business now. Gene cell therapy is still in its infancy in terms of launched products, and we believe it's got a massive future as a paradigm for the treatment. And we're in -- at the elevator level here. And what we'll be judged on is our ability to grow revenues. And they grew by 37% to just shy of GBP 90 million in 2020. The underlying piece of the business, which I'll take you through graphically on the next slide, grew by 45%. If we just go one more slide, sorry -- go back to the original slide. Then we have some significant growth in the underlying business, which is, of course, important because that enables us to make infrastructural investments with the security of ongoing revenue streams. That was driven by AstraZeneca, Beam Therapeutics and Juno/BMS, the new deals which John went through. Revenues, all important from the less predictable stream as well, and we grew those from GBP 16.8 million to just over GBP 19 million in 2020. And large part of that was the recognition of the Juno license fee for their signing on and taking a license to our platform. And this is yet another example of a big pharma company, in fact, one of the pioneers in the CAR-T world, of Juno, recognizing the quality and the benefits that we bring to a process, the development process, especially through CMC and being willing to license our platform and pay a royalty on it. Operating expenses grew as well, of course, as we continued to make those investments, which are required to build out this business so we can generate those revenues. They didn't grow as quickly as the revenues, but we must continue to invest in this business. And as John mentioned, I mean, we brought on a cohort of GMP manufacturing suites, which needed to be staffed. We needed the quality personnel around those. So costs will increase as we keep expanding this business, and that's a good thing. Operating EBITDA was GBP 7.3 million, and that's at the top end of the range we guided to, to sort of mid-single-digit numbers for the end of the year. So we've hit the sort of top end of that range. This, of course, was done at breakneck speed towards the end of the year. So we're very happy with that result. And you'll see that the cash used in operation is GBP 3.9 million. We had a large sort of accounts receivable bolus at the end of the year, which has since been transferred into a very healthy cash balance. Capital expenditure, GBP 13.4 million in the year, down from 20 -- just under GBP 26 million. What that represents is the finishing -- or in large part the finishing of the Oxbox facility. Work is still ongoing in the Oxbox facility, particularly around fill/finish. And we have to, of course, get the extra suites up and running for the vaccine. But you'll see that, that's reflective of a more standard year of CapEx, albeit that if -- we expect that number to rise again as we start developing the lab space, which John referred to earlier. You all know that there was a successful equity raise in June 2020, done at sort of normal discount levels into a challenging marketplace. We were very proud to be able to communicate our message to the wider audience and get the backing of new and existing investors. And the all-important cash balance, GBP 46 million at the end of the year. And as I've just said, that's translated into just shy of GBP 66 million by the end of the first quarter as we've been transferring some of those balances, that side of the balance sheet, into cash in that time period. And we are, again, moving at 3 flat-out suites producing the AstraZeneca vaccine. So now the next slide, please. Graphically, you have all seen this slide before, remembering the blue is the predictable revenue streams upon which we build the business and grow the infrastructure. The purple, very important to us, for cash flow generation, but a little bit less predictable. You'll see now that we have a number of -- or enough shots on goal that we achieved a reasonable amount every half year, but we continue to grow the business. And on the bottom half of the chart, you'll see that the message remains the same. We are generating the top line in order that when the time is right and this industry has matured to the right extent, we will then leverage that revenue base for profit for the time being, to make sure that Kyri and his colleagues are funded in the correct way, to really give ourselves the best chance to be on the forefront of industrializing our platform. And industrialization is going to set us there and give us the IP and the know-how that is required to be on the forefront and the market leader in this area. For the next, yes, foreseeable future, we need to keep investing, and we will be doing that. So it's a very, very positive story, and we continue this growth to -- we continue to expect this growth to continue. Next slide, please. And so here's just a view of the income statement. As we said, strong revenue growth. You'll see the margins have increased as well, and that really is a tale of how a commercial product can make you a very efficient CDMO. And that's led us to start investigating the balance of early stage license-bearing deals against later-stage tech transfer deals in the area that we're operating in, in order to get the right balance of stage of business. Of course, we want the royalty-bearing deals for the future. But we also now know -- it's being made aware to us that we have really good know-how across vector types, the ability to scale up very quickly, flexibility in our suites. And we are now looking to expand our revenue base across some of those areas. R&D continues to increase, as it should do, even in a year where we started with free cash preservation. We've managed to keep the momentum, keep those programs running. Bioprocessing costs are up, of course, because we've been producing many, many more batches. And from an administrative expense base, it's flattish. It's a bit covered by some foreign exchange, which made last year's number look a little bit bigger than this year's number. But we've continued to grow the back office as well. It's equally important that as a FTSE250 company, we have the right systems in place to support the growing base of employees and make sure that absolutely, we're doing the right thing in terms of communication and innovation in the back office as well. The last thing I'd like to point out is the finance costs. Of course, the finance cost in 2019 was essentially the back end of the venture debt that we had. And that is now gone. So it's a much stronger base on which to continue this journey. We have a very strong supportive investor base, and we have many opportunities with the funds we have and the company's strategy in order to drive this business forward. So at that stage, I'm going to hand back to John just to close off with news flow and outlook.

Thank you very much, Stuart. And next slide, please. So news flow for 2021. First of all, looking at the partner programs and CDMO. The aim, of course, as I said earlier, is to think about having more partners and more drugs to work on. So we'd like to expand existing partnerships and have new partnerships in place as well. We are currently talking to AZ about an extension of the current 18-month manufacturing agreement with AZ as well. We are looking at this very aggressively at the moment. We want to see what happens next, but it's an interesting discussion. There's also, of course, news flow potentially arising from progress of our partner programs. And moving on to our priority pipeline. We will progress internal candidates into our portfolio and towards the clinic, update on new potential pipeline targets. And of course, there will be further updates on Sio Gene Therapies on the progress of AXO-Lenti-PD in the SUNRISE-PD study. Next slide, please. So on to the last slide here. We have a very positive outlook for 2021. We expect to increase underlying vector-based revenues around the LentiVector platform and also see this happening on both sides of bioprocessing and commercial development. Again, subject to the continued manufacture of the vaccine, we expect total cumulative revenues to move up from our guidance here, from up GBP 35 million by the end of '21 to GBP 50 million. And we can see another strong year of revenue growth for the group as a whole. That said, we expect EBITDA to increase in 2021, albeit at a more modest rate than revenues due to the increased R&D spend as we invest in the future, which is so important for the future of our business. Head count will also increase in '21 by -- but by levels lower than seen in '20. CapEx will rise above 2020 due to the expansion being undertaken at both Windrush Court and the Windrush Innovation Centre. And finally, with the group's ever-increasing number of partner programs and continued broader market growth, we are very excited about the future. And we're very well positioned here to maximize all the opportunities ahead of us. So that's the end of the presentation. So can we switch to questions, please? It would be good.

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

Sorry. Can you hear me now?

We can.

Great. I have 3 questions, team. And I'll ask them individually, if I can. The first one was on the Boehringer Ingelheim deal from last week, and Stuart just touched on the ambition to be more vector-agnostic going forward. So it looks as though, given the comments in the BI update, that business development has already moved beyond lentiviral vectors outside of what you're doing for Astra. And I think you said in the past that you typically have a pipeline of around 10 or 12 active new potential partnerships at any given time. Is that number still broadly in the right ballpark? And how many of those opportunities involve things beyond the bread-and-butter lentiviral that you've been doing in the past? That's the first question.

Okay. Very good question, Amy, and thanks for dialing in. So the first part of your answer is yes, the Boehringer Ingelheim announcement was talking about obviously cystic fibrosis, CF, but also other vectors, too. We probably couldn't go further than that at this point in time. But I think what it has shown to the market by working on the vaccine is that we can do 2 things that we hadn't done before: Firstly, scale to 1,000-liter bioreactor, which we had planned in the past for lentis but never had done to date; secondly, we are actually able to work in other vectors. [ Of course ], many people would tell you that the lentiviral vector manufacturing is harder probably than adenos or potentially AAVs as well. So the fact we have done that and demonstrated it means that we have external people coming to us to work with them, so in lenti, of course, but actually in other vectors, too. But also, we have current partners potentially talking to us about working on some of their other gene therapy products in vectors other than lenti. Now to say we have -- if I showed you the funnel we have to talking about our BD deals we're talking about at the moment, I think it's pretty full. It's very busy. Our BD team continues to expand, and we keep them extremely busy. So yes, we have -- I've talked about the targets we have at the moment. Obviously, these things are at different stages of advancements. But we have more than 10 opportunities currently, without question.

That's great. And just as a follow-up to that, John. I think in history, you've shown a chart that showed a sort of a range of something like a bioprocessing market opportunity of around $800 million by the second half of this decade. What would -- if you were to reproduce that now, given what's happened over the last 12 months, do you have a feel for how that sort of addressable market number has increased or moved?

That's a really good question because on the same base as we produced in the first place, because we produced this year internally. And what we do here is take a very conservative forecast of what's in [ task ] at the present time and take that forward. That $800 million of pure lentiviral vector manufacturing by 2026 moved up over to $1 billion on a conservative target. And we always believed building Oxbox, if we can get 25% to 30% of that market, that would be a great achievement for us. But that said, of course, now we're going into things like adenos, potentially in other vectors, too, then you can see there's a market out there bigger than that first market we spoke about.

So it would be multiples of that basically?

Potentially, potentially.

Great. Okay. And then I guess the other question that I had, just related to the similar field, is your Oxford Biomedica scale and know-how in lentiviral vector has always been a very clear reason for Oxford Biomedica to be the preferred development partner and manufacturing partner of choice in the lentiviral space. When you're moving beyond that, is the interest there more -- you alluded to some of your existing partners wanting to do some other projects beyond lenti. So is it more as a sort of add-on service that we should be thinking about it? Or is there -- are there other reasons why you could also be the partner of choice for those other flavors of vector that you're now able to offer?

I think at a high level, the technologies we can offer such as TRiP could work in AAV as well, for example, maybe adenos. But I think Kyri is better than me to answer that question.

Yes. That's correct, John. Yes, we have demonstrated that the TRiP system will work successfully with AAV and adenoviral vectors. We've published on this and some of the other technologies that improve the purity of the material we make like SecNuc. It may also be applied to that. So as we gain experience with these new vector systems at scale, we will develop that understanding that will attract other companies to come to us for their manufacture because of the superior, hopefully, technology.

And maybe, Amy, this is Stuart. I'll just add on to that, that one of the messages we're receiving from the marketplace is around analytics and quality as well. I mean, we have successfully navigated a product through FDA approval and onto the market. And there aren't too many CDMOs who can say that they've supported a partner in doing that. So some of that investment that we were talking about, making WIC, will be for analytics. And some of the improvements and innovations that Kyri was talking about earlier about automation is in the analytics area. And that's becoming vitally important as people develop their programs these days. And quality systems having been uplifted by Novartis, another big pharma partners of ours, are absolutely one of the USPs that we have now.

That's very encouraging to hear. My very last question, because I know other people want the chance, is just probably one for you actually, Stuart. The 2020 gross margin was just a shade below what I forecasted. And so I wanted to ask how you expect the gross margin to develop in H1 and H2 this year and beyond that. Can the vaccine manufacturing components in the bioprocessing rise to parity with the rest? Just any context you can give us for how to think about that gross margin piece.

It's an interesting question, Amy. I mean, it's not something we're guiding upon. But what I can tell you is that the ability -- and in the CDMO world, commercial products are like gold, especially in the cell and gene therapy world. We've seen that with Kymriah and the ability to campaign some of these products. We are absolutely going flat out with the vaccine in 3 suites currently, and what I can say is that our ability to absorb overheads really does lead to an efficient operation through CDMO. So we would expect -- even though we've signaled these are not our full commercial rates, we've covered that with super efficiency on the back end. So it really does depend on how one looks at gross margins. But we are very confident we can be extremely efficient and maintain, if not improve, our efficiency throughout this year in the CDMO. And of course, it's a journey. And as the whole industry matures through cell and gene, and we can attract some more late-stage assets into the CDMO, we will become more and more efficient. And there's a journey to go on to be a world-class CDMO. And we know what we're aiming for in terms of those margins. So it's [indiscernible] but the signs are good that we can get there. And it's also worth pointing out at this stage that we want to make it easier for those people who are doing a great job in following the story by making the reporting increasingly transparent around gross margins and, indeed, the entire CDMO. It's something we highlighted in 2020 that we were looking at. We, in the end, decided 2020 was not the year to deal with segmentation, given how busy we were towards the end of the year with the vaccine. But certainly, 2021, we're going to increase that transparency of reporting.

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

A couple of questions as well. First, I wanted to focus on the underlying CDMO business. And I'll just preface this by saying, I'm sure I'm going to be butting up against your competitive profile versus others. But I wanted to talk about some of the internal logistics that are ongoing, especially since you have a growing business and a number of clients. So the question really revolves around lead times and scheduling of suites. Obviously, you have a broad continuum of types of experiments that are ongoing from the early side of process development and feasibility. That also, I would assume, come from a lot of undisclosed partnerships or people that are looking at you right now through your commercial products. So I guess, how are you handling the scheduling of your suites? And what kind of lead times are you seeing right now for your clients, whether they're disclosed or not, to be able to get in there?

At a high level -- I'll pass to Kyri in a second on this one. But at a high level, we were very, very careful to make sure when we took on to work on the vaccine, which, by the way, we have a moral duty to do, that we didn't upset and curtail our working LentiVector in the slightest. So everything we've done still means we can satisfy and work with our current customers and new customers coming as well. In saying that, a lot of feasibility is ongoing, a lot of the things we're working on and a lot of new projects. And of course, you do remember that Oxbox is only half kitted out so far. So we've had the 4 GMP suites. But depending on our choices, depending on how we decide to configure, we can put 4 to 6 GMP suites in the second half of Oxbox or maybe fewer if you go to bigger bioreactors. But Kyri, do you want to take this one?

Yes. So I would add to that, that our technology improvements that we're aiming to make and bring into GMP seek to increase the number of doses you can make for a batch, particularly for lenti, I'm thinking here. So you may not need as many batches and make more doses in one session, if I put it like that, in a GMP facility. The other thing is that if you're making the same product back to back, you can make many more batches because you can [ concentrate ] some of the processes overlap and so on. So we're using all these different techniques to allow us to meet the demands that we have. And as John said, there is extra capacity that we can build into, if necessary.

That's really helpful. And actually, Kyri, you might have touched upon my next question. When you look at the innovation wheel, you obviously have a lot of things ongoing, especially with the AI and machine learning, et cetera. So I was just curious, from your scientific standpoint, what are the things on that wheel that you're most excited about that could really push your technology forward? And are any of those parts of the wheel that you consider rate-limiting?

Yes. So the wheel is interesting, right? So there are parts of that activity that we can see coming onstream in GMP this year. And then there are further exciting opportunities that we are looking to develop and coming the following year. The U1 patent has now published. That's looking very promising. There are -- the technology for U2 will publish end of this year, so we can talk about that in more detail soon. These technologies, plus some optimizations that we've done on the bioreactor processes, are making significant improvements in the amount of vector we generate and, importantly, in the quality of the vector we generate as we make -- if we want to treat diseases where you need a lot more material delivered to a patient, the quality becomes even more important. So as you transition from ex vivo to in vivo, having more and cleaner vector is where we want to be. So the exciting thing for me this year is bringing in [ Process C ] and bringing -- and seeing what level of improvement we can achieve at scale in a GMP setting. Will it mirror what we've seen in a small scale in the lab, 5-liter, 50-liter? I think it will, and that will make an exciting differentiator between ourselves and our competitors.

Got it. And my last question, I guess, John, when you look at your internal pipeline, and you made a specific reference to Sio, obviously, because you were able to generate some data before you partnered it out. When you consider your earlier stage internal products right now, you have the financial wherewithal to be able to, like you said, bring one or more of these assets forward on your own. But I guess the question would be, is this something then you would have a target of, say, having a Phase I/II data set before potentially looking to partner? Or are you sort of agnostic at this point about how long you might want to hold on to a product based on the data generation and your finances?

So I mean, if you think about our hybrid strategy, we want to be a product company alongside what we do for CDMO. That's the whole nature of the platform we work with. So I think what we'll do is we'll generate data in Phase I/II trials. And then if I follow what I've just said, then that would be meaning we actually try and take drugs further ourselves. So we want to bring other ideas in. We want to bring the things into Phase I/II. We want to bring new ideas. But also, we're going to keep looking outside and maybe doing some early-stage collaborations with university hospitals, that type of thing. But also, if we could find the right assets to bring in and maybe buy some assets to bring into the business, we'd do that, too, if we think they have a good prospect. So I think we have a new hunger to do this. Our new Chairman, Roch Doliveux, has come in. We are definitely going to be working very hard to make sure our hybrid model is successful and has both arms to it. So I think having reviewed that with him in depth, I think this is definitely what we want to do going forward. So I'd say it's no -- by no means guaranteed at the end of the Phase I/II, if we want to partner out, we'd have to think about where we were at that particular stage of time, our finances. And if we could actually take this forward ourselves, I'm sure we'd be very keen to do so.

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

I have 3, please. The first actually, Kyri, is around the news flow, both positive and negative, around gene therapies, around adenoviruses, AAVs and lenti over the last year. And without wanting to get comments on individual products or programs, can you give us a sense of the sort of risk/rewards perception of pharma companies and the people you're talking to specifically around genetic medicines and the use of these specific viruses?

Yes. So that's an interesting question. So obviously, these are new therapies that are being developed, and we're going to learn a lot as more patients are treated. I think you're referring to some issues about the possibility of, for example, lentis causing insertional mutagenesis. The data coming out from the analysis of those patients indicates that this is not the case. And with AAV, there is a question mark. But again, there's not enough update yet -- well, there are not enough data with the AAV to say. I think there's going to be a risk with a lot of these new vector systems, especially as we see you're treating millions of more patients. The issue in my mind is getting the risk/benefit right. So if you're going to treat a patient who has a few months to live with a CAR-T therapy, you can accept a certain level of risk. If you're going to treat a child for a condition that is bad but can be addressed with standard of care, although it's not best, then until that technology is proven in a large number of patients, you may not want to go there in the first instance. So tailoring the products you're developing for the right diseases to take into account the unmet need in that population and the risk/benefit is key. And I think the industry and patients and regulators understand this.

So the financial markets reacted strongly to the prospect of a potential of mutagenic insertions. Would you then sort of conclude that the pharma companies and biotech and regulators are a bit more measured in their reaction?

Well, I imagine that the markets reacted that way because of the uncertainty. Now that, that question has been addressed and LVs, again, have not been shown to have any -- have caused any insertional mutagenesis in any patients, and they've been in hundreds of patients, even this particular vector has been in a number of beta-thalassemia patients without any issues. So I think the regulators, companies are taking a bit more time to look at the data. But the financial markets are reacting more quickly to the uncertainty. Hopefully, over time, once the data is there, they will take that into account.

My second one for John perhaps, please, is around the length of time it might take on average for projects to move from the preclinical stage into the clinical stage. I know that, that's slightly how long is a piece of string, but you bring on these projects for -- from Novartis, from BMS, and you have a number in preclinical. I'm just wondering when we could expect a wave to be moving into Phase I or at least to get to a sort of a Phase I go-no-go decision?

That's a very good question. It's not something I can really talk about by individual project, of course, as soon as possible, to our benefit and the company's benefit -- the partner's benefit. But I couldn't really go into that in too much detail because we're not allowed to talk about other people's plans or expectations. But suffice to say, we've worked very hard to drive them forward as quickly as possible.

Okay. And last question, please, for Stuart just on tax credits. There wasn't much of a tax credit this year. Just wondering what you can guide us for next year, please?

Yes. No. Well, you'll notice, and you have done, eagle-eyed Charles, that the tax credits disappeared. We ceased to be a small company in the eyes of the tax authorities. So -- but what we did do is have an RDEC tax credit, which is above the line. So we have replaced something that you'd see in the tax line, something that's actually in the R&D line, and it wasn't a million miles different. It was -- both of them were about GBP 4 million or GBP 5 million. So we are now reclaiming tax credits under RDEC, and they appear above the line in R&D. And it's listed out in the RNS. And there'll be more detail on that in the annual report when that comes out.

And the next question comes from the line of Brian White of Calvine Partners.

It's just a broad question about the business model, and I sense perhaps a willingness to take on a greater degree of risk in terms of own development. And does this mean, for example, that looking at the reprioritization of pipelines elsewhere in partners is a fairly common theme? And I wondered if programs were returned at, let's say, Phase II and beyond potentially, wouldn't that be something that Oxford Biomedica might now look at as something they can develop themselves?

Without question, we're looking at doing an awful lot of work evaluating what is the right target for us to take forward. We have a lot of ideas internal to the business. We're also doing an awful lot of work externally to make sure we're following the right targets commercially longer term to actually have things that are attractive to go into. So yes, if we had things back like that at any point in time, we would look very carefully at them. I mean, the only partner -- real drug we have left to be partnered out at this point in time would be the Sio drug working with Parkinson's, and we see them committed to the business and driving that forward. So it's not something I see just about happening anytime soon. But effectively, what we do, do is when we work with partners, we learn an awful lot about working in a particular therapeutic area. So for example, I think Kyri said earlier on, when we look at our proprietary portfolio, we are taking a good look at liver to see what we can do there to actually be able to drive that part of the business forward.

And the next question comes from the line of John Priestner of Edison Investment.

Congratulations on a strong 2020. So I have 2 questions, and I'll ask them one at a time. So you previously mentioned plans to in-license new assets in later stages of development. So can we expect those to be post-Phase II assets with proof-of-concept data? And can you also comment on how you'd be expecting to work and kind of integrate your manufacturing IP into these assets at a later stage?

So first of all, the target is -- we want to look at targets. So we'll look at things that might be ready for trials. It might have the pre-clin done already or the tox done. We'd be looking at various stages there to find assets to license in at Phase II. They're few and far between, actually. So we need to think very hard about that and, again, think about how much they cost us at that stage to license in. But I do think, and I'll pass to Kyri to talk about it, if we were to get some things in lentiviral vectors to actually work on, our technologies would allow us to actually make it far more cost-efficient in manufacturing because of what we can apply to it. Kyri, over to you.

Yes. So we have experienced through our CDMO activities of taking partner products that are already in clinical development and translating them into using our materials, and we know how to do that. So it won't be something that we haven't done before. We believe our vectors are the best in the business, and our assays have been developed alongside those. So in terms of speed, commercial launch and so on, it would be faster to translate and move a product, if it is a lenti product, to use our specific components. So we're willing to do that, so not an issue.

That's fantastic. And then my final question was just whether you could provide an update on the progress of OXB-302 and when we might expect that to be entering the clinic.

We predict that to about 18 to 24 months away from the clinic, but Kyri is probably the best person to talk about that.

Yes. So at the moment, we're completing additional preclinical studies, finalizing the way we're manufacturing the vector, so what components do we add in to, to get the best titer and locking down the cell process -- processing, so using the lentiviral vectors to genetically modify a patient's T cells. And as John said, within 18 to 24 months, we hope to be in the clinic for that for a hematological malignancy.

And the next question is from the line of Alistair Campbell of Liberum.

I've only got a couple of questions left. So with Kyri on the line, I think, first of all, just -- it's been a great year, but just to focus on one small bit of bad news, which is obviously Sanofi stepping away from the lenti program for hemophilia. So I just wanted to confirm that's probably just priority -- them sort of pipeline prioritizing rather than any sort of significant issues with the program itself in terms of on your side with manufacturing and yield issues? And then also, always keen to understand in the CAR-T space, competing technologies in terms of the transduction process in CAR-T. So 5 products now in the market, they all basically use viral vector transduction modalities. But just intriguing to hear what you're seeing for nonviral transduction modalities. And is that sort of gaining momentum? Or do you still see viral transduction as the mainstay of CAR-T?

John, do you want to take the Sanofi question?

I mean, Sanofi, we were progressing. We were manufacturing. We had all the technology there to increase the yield and make that work. So we don't believe that was anything to do with what we were doing. I think it was a reprioritization of the portfolio within Sanofi at that point in time.

With regard -- Alistair, with regard to your second question, so I think it's interesting. With the use of the RNA vaccines from BioNTech and Moderna, I think the use of nucleic acids and nonviral systems have now been demonstrated to work at least in one setting. So I expect to see more of those in the future. As you point out, lentiviral vectors are particularly good at generating CAR-T cells. You get long-term expression, stable, is not affected by the surrounding chromatin. So I believe CAR-T therapy will still carry on using lentiviral vectors. Nonviral may be coming in. We're keeping an eye on that. We haven't seen any of those approach the efficiency, can I say, of lentis. But we haven't done any side-by-side comparison. So I'm relying on the literature here. In our minds, the next innovation in CAR-T therapy is not moving to nonviral but moving to using lentiviral vectors in an in vivo setting. So instead of taking out -- the current bottleneck in CAR-T therapy is generating the T cells. So taking them out of the patient, shipping them to a GMP site, processing them, transducing them, passaging them, freezing them, testing them, all that takes a long time, is expensive and limits how many patients you can treat. We think a better way is to use a lentiviral vector that can hone and transduce T cells in situ. So you administer the lenti directly into the patient. The lenti would have been engineered to be safe going to the right cell types, express only in the right cell types and then confer on that cell the CAR-T phenotype. This way, you can avoid the costly and limited GMP cell processing that is currently a bottleneck. So I think in terms of innovation for CAR-T therapy, that's where it's going to be in the future rather than a nonviral. That's my opinion.

Okay. That's fascinating. Are you working with anyone in that field? Or is that still very sort of very early-stage work?

Yes. We're working on that internally and obviously looking at possibilities of expanding that with other organizations.

The next question is from the line of Max Herrmann of Stifel.

Great. Congratulations on your results for last year. I just had 3 questions, if I may. First, just in terms of the R&D spend, I wanted to understand how much of that is in the internal generated programs. How much are you investing yourself? And how much is sort of refunded R&D spend for maybe some of your partners? The second question, just in terms of capacity. Obviously, Oxbox was primarily envisaged as more lenti capacity. Obviously, a large amount of that has been taken now by the coronavirus vaccine. What are the expansion plans beyond the current 4 suites, I think, that you have? And then finally, just any thoughts you've got in terms of how you view the vaccine sort of story playing out? Obviously, tough question because no one really knows the definitive answer. But I'd just be interested to know your perspective on AstraZeneca's plans and how long the market will be there in terms of just -- to get to everybody being vaccinated.

I think it's a hard one to answer. I'll take the last one and give Stuart the other 2. But I think on the vaccine market, we are working very closely with AZ to understand their demand. And they're still formulating that themselves as we speak. So we know it's going to happen, from our perspective, in '21 now. We're looking forward to '22 and '23 and maybe beyond. We don't know that yet, but it's -- there's a lot of other drugs coming through and a lot of things to be launched still, and demand is very, very hard to forecast at this point in time. So I wouldn't want to sort of try and preempt what AZ would do, wouldn't be right of me to do that. But there are a lot of variables currently. But we will play our part when we're asked to. Stuart, over to you.

Thanks, John. Max, so your first question was on R&D spend. So in the RNS, I'd point you to the segmental reporting of products. So there you'll see a bit of a guide to how much we're spending from an R&D perspective on internal products. It doesn't break out the platform. I'm back to my original point then. We're not disclosing, although you'll see the R&D spend on the products is about GBP 6 million, but we are committed to further transparency on some of these R&D numbers, segmenting the business, so people can have a further understanding of where we're investing the capital and where we're investing earnings back from the CDMO into other parts of the business. So partly an answer, partly give us a year or give us 6 months, at least, until the half year where we start signaling this new transparency. And your second question was about capacity. And we'd remind you that actually, our plans were never really to have 4 GMP suites running in 2020 in Oxbox. Our goal is to have 2 and then to bring 2 more online in 2021. So we accelerated the Oxbox expansion by a year in conjunction with our collaboration with VMIC, giving us 1,000-liter bioreactors, which we [indiscernible]. So actually, it didn't affect the underlying business. As John said, we were very clear [indiscernible] particularly ethically was the right thing to do. But actually, we didn't want to put the core partner business in jeopardy, and we believe we've successfully navigated that. So what we've really done is bring on 2 more suites a year. And actually now, we've had a year to think about that further expansion and to reshuffle the deck in a number of ways. And we can tell you that we don't foresee any sort of capacity constraints in our business. We have, as we've said, the fallow area to build out in a modular fashion if we need to. And we still have obviously our facility at Yarnton and another facility at Windrush Court from a GMP perspective. So we think we're well set in order to meet demand both of the vaccine and of the underlying LentiVector business.

But no plans to that fallow area, no plans to build that out at the moment?

No. There's nothing being planned for that. We've had all sorts of options with that. I mean, the great problem to have is have -- to have a need to build it out quite quickly. There's a situation where we can see that could happen, but it depends upon which deals come through, when and how we go forward with AZ as well.

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

So I have one more question to ask really. And certainly, this slightly follows on from Max's question on capacity. If you're constrained on the manufacturing capacity, which you have been for some time, obviously not now, is there any other areas of the business where you're capacity constrained? I mean, does the sort of work you're doing currently, sort of building out the other things, address all of that? Or are there other areas of investment that are needed?

I think -- I mean, again, very good question. Kyri is probably going take a part of this for me in a second. But I think what we're doing is we knew we had a GMP constraint -- GMP suite constraint. So we fixed that with Oxbox. We then had a laboratory constraint to keep up with analytics and development work. We're fixing that now with the conversions in WIC and in -- with our -- within Windrush Court. So we think we are addressing the real bottlenecks at this point in time. But Kyri, over to you.

Yes. So there were constraints in terms -- well, we can see constraints coming up in terms of some of the development work that we wanted to do. So we've -- in the last -- towards the end of last year, we built additional labs within Windrush Court. We are planning to do the same this year for another part of Windrush, and we are completing our plans with regards to the WIC and essentially doubling the amount of lab space that we can have in that site in the future. That's probably going to come onstream in 18 to 24 months' time, around that kind of time. So we have addressed the shortages that we saw coming up. We believe there will be more in the future. And so we are building more capacity.

And Julie, if I could just add. I mean, we've never actually been capacity constrained. So I think Kyri alluded to this just very briefly in his answer. We foresaw a capacity constraint, and we unblocked the manufacturing site with Oxbox. And then as we can foresee on the analytics and the R&D side a capacity constraint, we're unblocking those both by investments back into Windrush Court and converting office space into laboratories and then the bigger project in Windrush Innovation Centre to make sure we're fit for purpose for the future. But whilst it's been a relatively hairy ride because it's been a fast-moving business, we've never actually been caught by the wave of constraint. We've always been surfing right on the top of it. So yes, we're pretty proud of making those capital investments at the right time.

And we have no more questions. I'd like to pass back to John for some closing comments.

Well, thank you all for dialing in. It's been what we believe to be a very good year for Oxford Biomedica. We're very happy with the results, and we are anticipating a very good 2021 as well. So thank you very much and speak to you all very soon.