SkinBioTherapeutics plc (5KW.F) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the SkinBioTherapeutics plc Investor Presentation. [Operator Instructions] Due to the significant attendance on today's call, the company will not be in a position to answer every question received in the meeting itself. However, the company can review questions and we'll publish those responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll, and I'm sure the company will be most grateful for your participation. I'd now like to hand over to CEO, Stuart Ashman. Good morning.

Good morning, Mark, Thank you. Good morning, ladies and gentlemen, and thank you for taking the time to listen to us this morning. This is a bit of an unusual Investor meets presentation. There's been an awful lot of requests for me to do a fireside chat with Mr. Elric Langton of LEMMING INVESTOR, of Small Company Champion. And I have the opportunity to sit down with Elric albeit virtually due to travel commitments earlier this week. Now a lot of people have thrown some criticism that this is going to be pre-recorded. Elric is not going to be able to drill them in his usual style, et cetera. There's a reason for that. First of all, we're doing this open source, so it's not behind a paywall, so everybody can see this. Secondly, we have put this through our legal advisers to make sure that there's nothing that's being discussed here that is material or price sensitive and, therefore, gets me or the company into trouble. However, in Elric's usual style, he does manage to get color and context on pretty much everything that he asks. So without further ado, Mark is going to play the video...

Okay. Stuart. Let's the elephant out of the room. Market was prime for forecast from Croda, October, November-ish. It's pretty clear we're not going to get them now. But I think it's important for investors to realize the reason why Croda being tight-lipped about this because this is a pretty big event that's building in April. And I think the fact that they're keeping tight-lipped should be seen as a positive for investors really.

Yes, yes. Look, I know that it's a difficult question to ask, and it's a difficult question for me to answer. So thanks for that. And I would like to clear the air on this. This has taken 5 years. We talked about it taking less time than that. And Croda will always say finding a new strain or a new active from doing origin sourcing, et cetera, et cetera, take 7 years, and they've done it in five and they're over the moon about that, that includes the clinical trial. So yes, we know the clinical trial went on in the summer and then it finished. And the results we were basically told that it was -- the results were good. They were very good indeed, and that's a direct quote from them. But we weren't allowed to already say any details. And the reason for that, first of all, talk about the clinical first. The reason for that, first of all, is because they've got to now file IP. We've got background IP, foreground IP. We've now got joint IP. We've got all sorts of different claims that we're making off the back of this clinical results. Now they didn't arrive, Croda didn't know what they were until they were written up on all done and dusted until November. So they're not going to release any details on the actives, what the mode of actions are, what the additional benefits and claims are purely and simply because if they did, there's nothing to stop another company out there saying, well, have they filed in China, have they filed in South America, have they filed in Canada and just trying to beat Sederma and the Croda team to it by filing and having prior off, what's called as prior off. So that would block the Sederma or Croda at filing any claim. So it's better just not to tell the market what the claims are and they are that significant. They don't want anyone to get a job ahead of them. So that's where we are in terms of the claims, and they will become very, very apparent when this product is launched. They have been shared with a number of people, but they've become very apparent when the product is launched in April of next year, which is the data which everyone is aware of. In terms of the forecast, the reasoning is very much the same. They don't want to give detailed forecast of where they're rolling this out, when they're rolling it out, who they're rolling it out with. First of all, customer information is confidential between them. Obviously, Garnier would want to know what Chanel is doing, who would want to know what Estée Lauder is doing. So they just don't do that. So in terms of macro forecast, we have seen the rollout plan. We are aware of the rate at which they're rolling this out. As I said, we signed a confidentiality agreement. It's very, very tightly bound. And the top and bottom of this, this is, we have to remember who we're dealing with here. We've been patient enough for 5 years. We've gone through numerous stage gates, numerous go, no go, roadblocks, where we've got through them all. There was dozens of other projects that I was reminded acutely of this by Croda on multiple occasions. Lots of other projects have started at roughly the same time as we did don't exist anymore. They fall by the wayside, it didn't make it through various formulation testing, various shelf-life testing, stability testing, clinical trials, et cetera, et cetera. We've come all the way through this. And we're there. This product is categorically launching and is already out there with various groups. And let's not get -- drawn any detail on that because that's part of the confidentiality. In terms of the forecast, they want to keep everything tightly. We're dealing with a company that's launched Matrixyl 3000, that's launched multiple beauty products, cosmetic ingredients. They are experts of this. Why would we want to do anything at all that would jeopardize the success of that product long term, give a competitor a jump on top of our partner, and that's exactly who they are in order to basically file IP that blocks them from selling blocks and -- our guys from selling anywhere in the world. So what they say is, the shutters are down, nothing comes out, not as simple as that. We've got an insider registered, we look at people who are in possession of that information are on a very, very tightly controlled list. We just have to be very careful with this. So as much as I would love to give -- why would I not want to give the market the forecast? I'd love to, but I can't because our partners have asked us, very politely and with great confidence behind the launch plan, we're going to show you that, but you've got to sign a confidentiality agreement. Otherwise, we just don't show you. So I would be sitting here saying I'm blindfolded. Absolutely blindfolded. As it happens, we're not.

Okay. Well, given you -- I'm not misunderstood you. I think you've just given an indication you've got an idea what the technical enhancements are that they've been talking about that were -- they kept discovering each time scaled up. They were confirmed and confirmed again, and then we've done the validation studies with the clinical studies that have proven everything. Given this area itself, which looks to me possibly it could expand the commercial agreement. I know you can't get into that. But let's just say how quickly can you, as a company, forget what Croda were doing, what they do will just happen. And you'll be -- well, obviously, what will be the net benefit of that. They'll do that in their own pace, we know that's coming quicker than people realize now. But how quickly can you as a company move expanding on the agreement that you have inside the company, as yourself, go your own -- through your own gate rather than going through the gate with Croda if I make any sense with that?

Yes. I think I understand what you mean. We've always -- we announced this right at the start in 2019, one of the things that we negotiated was the right to launch our own product, the right to use the lysate within our own technology, within our own offerings to the market. There's obviously quite a complex set of terms that goes with this. Obviously, we can't go out there and outprice Sederma's customers. We can't go out there and outright undercut Garnier, Chanel, et cetera, with a groundbreaking product because obviously, that would upset major customers. So there are parameters in which we have to work and they are quite tightly governed. But we do have absolute right to take the lysate, and we also negotiate the right to buy back that raw material a little more than cost. So it saves us having to have a huge manufacturing plant, scaling that up the way Sederma have and [indiscernible]. But we do have that opportunity, and we will absolutely look at that. And we are indeed looking at it now. I think the other question that you're asking is what else could we do with Croda as a company, as a collaboration because this, when it's launched, hopefully, we'll be seeing globally is a huge success. Is there anything else we can do with them? Well, of course, there is. Of course, there is. Given the scientific background and the wealth of experience and information that we have, we have always talked about other deals that we could do with Croda. And I was always reluctant to do them, not because I don't want to work with Croda. Quite the contrary, I really do want to work with Croda that are quality partner, and they have the opportunity to get our science out much faster worldwide than we ever could. But because I wanted to prove to shareholders that we got one in the back, we got one there already. You can see the revenues coming. Why would we not want to do another deal? You can imagine the noise that I would have got from our friends out there, and the retail community, and I guess the institutional community, if 2 years ago, I announced another deal with Croda that was to do with deodorants, or to do with hair care, or to do with sun care. If I was to announce anything along those lines, people are going to say, you haven't got the first one over the line. Why are you doing more deals? Why are you stringing this out even further. So I want to make sure that this is done before we do anything else with them. They're in agreement with that, and we are working very, very closely hand in hand.

Okay. Now I keep calling it clinical trials and you've rightly wrapped on the knuckles previously before, but I want to bite at your slice. It's actually studies, clinical studies. Now in these clinical studies, I mean, I think, I'm guilty about this myself as well, Stuart. We keep focusing on the anti-aging side of the cosmetic side. Would I be wrong in thinking this is not just about anti-aging creams? There's a whole different -- there's a whole cosmetic products out there than just anti-aging?

Yes. And you make a very good point. I think everyone got focused on this is going to be a cream that you put in your eyes, and it makes you look young again. But the lysate does so much more than that. And we've always known that this is not divulging anything that we didn't already know. We know that it increases hydration. We know that it forms a barrier on the skin to prevent against pathogens, to prevent against all sorts of infections, we know that. And that was before it even went into any trials that we got that from the safety study that we did in 2019. So you're absolutely right. This is not just a cream that goes on. This lysate can be used in foundations, in lipsticks, in eyeliners, in eyeshadows, all sorts of different cosmetic products. it's not just a straightforward anti-aging claim product. And I think there's a lot more work to be done there. But we've always known that. I think the Holy Grail, and I think that's why people focused on it. The Holy Grail here was anti-aging because it's such a huge market because everybody wants to look younger than they already do. So obviously, that's a big prize. So that's why I don't think we've misled or RNS has misled or anything like that. It's just people are focused on the price. But there is a very wide application area for this.

Yes. Great. Okay. So how do -- how does your partnership with Croda impact on all the pillars of your business?

Well, Croda are a very, very large company. As you know, there are a FTSE 100 multibillion pound organization, and they don't just have cosmetics divisions. They have a health care division as well. Within the cosmetics division, they've got much wide areas. You also know that they've got other divisions in chemicals, in cleaning and all sorts of stuff. So there is a sort of crossover in just about every pillar that we have with Croda. That's not to say we would operate with Croda in every one of those. There are companies out there that are niche and more specialized and probably dare I say, better at some of the things than Croda are certainly things like advanced wound care, there are multinational giants out there that, again, are FTSE 100 and multibillion pound turnover that are experts in advanced wound closure and barrier enhancement. But Croda are a very good partner. They're a very solid partner. Certainly in cosmetics, we couldn't have chosen anyone better. This is the sort of -- I think this will -- this product and this deal will underpin the foundations of this company from here on in, it's that big a deal. But would that lead us to do everything else with them? No, of course, it wouldn't. Would it give us open to having conversations about the potential of other things? Why not? Why would we not? They're a very credible partner and we're very happy working with them. Despite everyone thinks they've kicked cans down the road and they haven't. They haven't really. They've basically just gone on with this. We went through a pandemic. They didn't drop not a ball. Other projects were canned, and our wasn't. So they are a solid partner. They are very dependable. We are very proud to be working with them. So I think, we'd like to do more with Croda. Do I think we'll put all our eggs in one basket? I think that would be a strategic folly.

Yes. Well, I'm sure, I don't want us to be all about Croda altogether, but there's other areas that I'm quite excited about your business. I'm sure that investors are as well. But as we lead up to the launch, what would be -- what would you say investors should be looking for as key milestones as a clue for what's coming down the pipe from Sederma's clients, for example, ahead of the April launch?

I think you're going to see -- what you'll see, you'll see -- what you get to see is it will be very much controlled by Croda Beauty team. They will come out with the marketing pack and marketing claims ahead of the launch that obviously to tease the market to make sure people want to get on that stand, actually want to turn up and have a look at this product. Obviously, they've got a group of other customers who are significantly -- well, very, very large indeed. And they get to look at this a little earlier. Ultimately, you will start to see the marketing pack being rolled out and you'll start to see that basically in the public domain. It won't require me to point you in the direction, although we will absolutely point you in the direction as soon as Croda release anything, which they do to the general public, you can sign up for Croda Beauty e-mail alert now. You can go on the website and do that. And as soon as they launch anything, or got anything to talk about, you get an e-mail, normally has got a little question on it, a lot of slides, that sort of stuff. And sometimes a lot of evidence in there as well. So as soon as that is made public, everyone will see that. We will always see for the people who don't follow Croda, we will point that out to people in our IMCs and make sure that everybody gets sight of that.

Okay. So as a company, how do you plan to leverage the growing trend in the science evidence, clinical studied cosmetics market because this is a pretty -- the thing I'm really excited about is it doesn't matter at the higher end of the market, accentuated from whatever the macroeconomics are doing because you've got the people that are simply just got too much money. So they're always going to be looking to look the best. I'm past all that, but accentuated, so how do you plan to take advantage of that?

I think that's a difficult question to answer in the time that we've got. But I think the partners that we have chosen and are choosing help us to do that or certainly hold our hand and walk with us on that journey. If you look at Croda, and I know we don't want to talk about Croda on the whole thing, but Croda made a macro commitment to reduce their greenhouse gases and to make sure that they use more natural products. They've made a commitment through the PLC across all the divisions. This is a classic example of taking naturally occurring bacteria and introducing this into cosmetics. I think we've got more ideas in that area, all of which are microbiome driven because that's what we do. All the microbiome, suggestions that we've got all of the work that we've done are naturally occurring. So it ticks all of the boxes. And it's not just Croda who we're doing this, this is a global trend. It's a macro trend. Major companies are being forced to do this. Everyone's having to reduce their carbon footprint and the greenhouse gases. But some companies are moving faster than others and Croda is one of them, which is what makes them an ideal partner. So that's the accelerator that we need. We need to make sure that people understand this is naturally occurring bacteria. This is not something that was made up in Frankenstein's Lab. This is actually good for you. It's good for the environment. It's good. We need to trust them that they will focus on sort of the right green packaging, et cetera, et cetera, which they have got an entire project that they're doing an entire movement within the company that's doing that. And we see a lot more of that across the board in supermarkets everywhere. And that is something that we are very much focused on. So yes, I think the macro trend will greatly assist us there.

Yes. Now there's been a lot of talk about the first revenues that SkinBioTherapeutics just going to receive. I know you can't give any details on this, of course, but just as a pointer, will these revenues be coming from the actual initial orders from the VIPs? Or will it be from the revenues purely from the samples that they've received and they've been testing for the past, what must be 2 years now?

No, that's for a question I can answer that one. Absolutely, and unfortunately, I am handcuffed on that one. I can't answer that one, I'll be in an awful lot of trouble. Needless to say, we RNS what we could to say revenue will arrived this calendar year, and let me just stress that's calendar year, not an financial year for those out there that were [indiscernible], we missed the word out. Yes. And what I can say is that we do get double-digit royalties. And again, that's a question being raised. People saying, where does this come from? Well, you remember that came from 2019. That was the original heads of terms that we signed. The deal that we've signed now is on very similar terms. And I know that you have been asked and I have been asked, "Stuart, I thought we had this year's delay, don't we get a higher percentage now that we've had this year's delay?" Well, if you just think about that from everyone's perspective here, Sederma and the team spent a lot of money doing those clinical trials. We didn't pay for those trials. They did. They were done in Paris through the Sederma team and the Croda Beauty team. So our deal stays the same. They just get to charge a higher price for this. So effectively, we do get more money because we're getting a double-digit royalty on a higher price point. We're not -- that double-digit royalty hasn't gone up by 50% or as some people are saying it should. Think about how that would work, that would be grossly unfair to Sederma and Croda. I did suggest it because as they say in my part, the world, shy bairns get no sweets, so I did suggest it and say we've had a little bit of a delay here. Can we see an enhancement in the margin. Quite frankly, it's a bit of a weak negotiating point when you think what they've spent, I don't know. We've just underpinned the higher price points and you are now trying to get a bigger slice of it. Well, you are getting a size of it and it's a lot more money. So I think that makes fiscal sense the way it was. So yes.

Okay. Well, given the positive revenue that's going to be coming over the next few years with SkinBioTherapeutics. I guess it's probably going to be pretty sweet moving on from a year from here. What's your strategy for the company? Because you've got the projects. I mean, does it speed up the oral care, for example.

Good question. Another hard one to answer. So I think from a macro perspective in terms of strategy, we'll just rewind a little bit, people saying, why did Stuart Ashman go out and buy two companies? Why did you do that? Why did you go out and dilute us all, take on this convertible loan note, all those sorts of things, when this deal with Croda was coming, why didn't you just turn the gas down and sit and wait and simmer the whole thing. So first of all, that's kind of not what I do. Watching pan simmer is not really in my DNA, nor is it in the team that we've created. Secondly, we did not know what the outcome of those clinical trials was going to be. Had it been, yes, it's moderate, and we were going to get moderate incomes, we needed a plan B. Had it been, actually, guys, we've used this, we've done live clinical testing here on human beings. This is not what we thought it was. We're going to pull the pin. We needed a plan B, which is why we bought those two companies Dermatonics and Bio-Tech Solutions. So they're both excellent strategic fits for us. And I think in years to come, we will see just how excellently they truly are. They are relevant. One is a dermatology player in podiatry and the other one has the ability to manufacture all the products that, that first company buy in from a third party, which is a huge prize. It's a GBP 600,000 price as we went through it in the RNS and in the investor meet when we announced it. So there are other companies out there that we can buy. There are other companies that are very relevant and every time we buy one, it makes us stronger. It gives us multiple revenue streams. It means we're not just reliant on Croda plc. We're not just relying on AxisBiotix-Ps. We've got Bio-Tech Solutions' revenues. We've got Dermatonics revenues, et cetera, et cetera. So we're trying to derisk ourselves, make ourselves a solid player with multiple revenue streams that given a downturn in cosmetics, we're playing in the medical field as well. We're playing in the cleaning field. We're playing in all those different areas. If there's a downturn in cleaning products, we're playing in the dental field. We want to be a multiple revenue source company. We do not want to be a one-trick pony. That's a dangerous game strategically. It's why we built the foundations. If you look at what we've achieved of that strategy this year, as painful as it was, and trust me, I was right at the front of this. Easy to smile about it now. It wasn't at the time. And I get why people got angry about the convertible loan note. But I'd say, again, it was a necessary evil. It got us to where we needed to be quickly and allowed us to then buy that second company. As it turns out, the clinical has turned out magnificent. As it turned out, commercial terms all agreed with Croda. As it turned out, could I wait it through the back end of this year, early April next year? Yes, I probably could have done. But I didn't. And that's in the past. I didn't sit still, and I didn't wait for what may have been a disaster. I actually did something proactive about it. So do we need to go out and raise tons more money in that? No, we don't because we've just proven what we've done, and it's been a bumpy road. But if you look at where we were when I made that bold, possibly foolish statement that we would transform this company in this year. I think we can fairly say we've done that. In 10 months, we delivered GBP 6.3 million year-on-year sales, which is a 2,525% growth year-on-year revenue. Show me another small cap. In fact, no show me another company that's done that on the market. We had a hell of a year. And it has been bumpy and it has been uncomfortable for a lot of people, not least to all myself, the CFO, from Manprit, from the Board of Directors and from all the staff in the company, everyone was sort of hanging on for dear life. But behind it all was a solid plan. It's just a reaction that we didn't expect it to be as aggressive as it was. That's calmed down now. And certainly, I think investors can look back and say, okay, I think that they're in clear blue water now. This is all looking very good. So in terms of the strategy, are we going to rush out next year and buy 10 companies? No, we're not. But we do have a list of companies that are strategic little wins. You look what we paid for Bio-Tech Solutions. Look at the upside, that's a bloody good deal. So was Dermatonics. The Modi upside is yet to be realized fully there. And I know that you're going to ask me a question about that because you always do. But if you look at where we are and the steps forward we've made, this has been one hell over year for SkinBioTherapeutics plc, it truly has. We're not a single company. We're a group of companies now, and we're growing, and we're growing fast.

One of the things -- well, I know you mentioned it. One of the things that excites me, you've got -- you've -- like you mentioned, you got your Dermatonics company that's got a portfolio of dermatonic products. It's got -- it looks like it's going to be a coning deal with Umesh Modi and you got Bio-Tech Solutions. So all these three. There are incredible synergies there. And knowing the way you think, how do you get that across from investors to give them an idea about giving anything away of where you want to go as a -- because eventually you're a group of companies. How are you going to go forward? Because if I understand it correctly, you've got some incredible assets with Bio-Tech Solutions. We've got the packaging side of it. You've got the manufacturing side of it, which can replicate the lysate if I understand it because you've got a similar equipment to what Croda has got. You've got the encapsulation side of it, which I would imagine is going to come in -- going to be prove quite interesting for our acne in your probiotics side -- acne and your psoriasis. So how -- what's your vision there?

Well, that is the vision. The vision was to buy -- and the reality of this is, when I spoke in December last year, the first company that we were supposed to acquire was Bio-Tech Solutions. It was a cheaper company to buy. It was a smaller purchase price. And it was a strategic starter because it had the manufacturing also has its own sales, et cetera, et cetera, and it opened a lot of doors for us. Unfortunately, the pathway to mergers and acquisitions is bumpy to say the least. And you work at the speed of various teams of lawyers, tax advisers, et cetera, et cetera. And it would -- we were running a 2-horse race. Dermatonics just overtook Bio-Tech Solutions. It's just the way it is that the Dermatonics diligence team were faster. So we closed that deal first, higher purchase price and seemed like a bit of a strategic misfit, put it didn't to us because we knew that Bio-Tech Solutions was coming right behind it. Once the two were together, people started sort of eyebrows are raised, yes, okay, now I get that. I understand why they bought the first one, wasn't supposed to be that way. If I could have had my way, it would have been the right way around, but it wasn't. And then you don't get things your own way in life or in business. So that business, Bio-Tech Solutions runs one 8-hour shift, and it runs at 4.5 days a week. So they closed for essential maintenance and cleaning on a Friday afternoon. So just by increasing that to 12-hour shifts at 7 days a week, you pretty much double your capacity. So we can drop in all the Dermatonics sales into there. Any other company that we buy, that's one of the drivers that we look for. Where do they get the products from? Can they be manufactured by Bio-Tech Solutions? Because the upside as it is with Dermatonics GBP 600,000 or thereabouts, you start pulling in companies that have got synergies like that. And you start making some real money. And we get the sweat an asset that is sitting pretty much 2/3 dormant at the moment. So that's part of the strategy. The other strategy then is to back in microbiome technology, i.e., using the lysate using other areas as well into the Dermatonics range and into the Bio-Tech Solutions range, and into anything else that we buy. So we now look for low-hanging fruit companies that could be integrated quickly, motivated sellers that are at the end of a sort of working career and don't have any sons and heirs but are willing to stay on for sort of 6, 12, 18 months, very much like Greg is doing on his earnout, very much like Ian Moulds is doing as a consultant. So that's the plan in general. Aside from that, as the second tier or aside from that, we've got a strategy whereby we continue to push our advanced technologies through multinationals. And those discussions are live in pretty much every pillar other than the pharma one. And you're right in what you're saying. We do have the capability in Bio-Tech Solutions to put AxisBiotix-Ps into a capsule put AxisBiotix for acne into a capsule. We can do that. We can do tablets and capsules now. We've never had that ability before. And the cost saving on doing that in-house is phenomenal. So is it something that we should have done 6 months ago. No, it's too cost prohibitive. So now we can do that in-house. It makes a ton of sense.

That would seem a useful way around getting the Axis pillar over there. I know when you first -- when we first announced Umesh Modi, there was talk that there are other avenues that we're working through other commercial drugs would that be one of them?