4basebio (LSE:4BB) — Final Results

0:01 Good morning, and welcome to the 4BASEBIO PLC final results investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time using the q and a tab situated on the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company will review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I would like to submit the following poll. And I would now like to hand you

0:32 over to CEO, doctor Heikki Lancriat. Good morning to you. Thank you, Alex, and thank you, and welcome, everybody. And thank you for dialing in this morning to our full year results update. We'll take you through our presentation today. And as Alex mentioned, you can post your questions on the board there, and then we'll deal with those in the dedicated q and a section. So

1:02 today oh, that was quick. Today, we have David and myself presenting, so you're very familiar with us by now. And as we are a public company, we need to put this disclaimer out there as well. So I'll just leave that up for a couple of seconds before we continue.

1:22 Great. So on the agenda today is a bit of a review on on our technologies and our platforms and focusing on the application areas that we wanna really dive into and the market opportunity around those, and then touch on a few of the achievements and milestones that we reached in in 2022 and and this year. To then move on to our commercial development and corporate corporate development and and the business around that and setting out some objectives for for '23 and '24. David will touch on the financials, and then finally, we'll have a summary well well, where we just wrap up the the presentation. First of all, the review. So as you know, we we we're developing two platforms.

2:08 On the one hand, we're focusing on synthetic DNA, and we have an enzymatic platform that we're developing to to produce these new products that, you know, are a safer alternative to plasmid. But our platform is also extremely flexible, which allows us to make these application specific products, which, you know, then yield benefits to our clients and and and allow us to have a competitive position compared to some of our competitors. Speed at which we can make product is is extremely important and a key differentiator compared to plasma DNA. And, of course, the entire platform is protected with a a range of IP. We we have very strong intellectual intellectual property already on the kind of enzymatic side of things, but also we've been filing a lot of new IP on further enzymatic processing steps, but also on on products that we we make within our platform.

2:58 Alongside that, we have delivery platform, the delivery platform, platform, which is, you know, an alternative that we're developing compared to viral vectors, particularly AAVs and then LMPs. So viral vectors AAVs in particular, they're somewhat limited in terms of their immunogenicity, so you you have to dose them in in a single go. And they also have some payload constraints. So maximum four and a half kilobytes genes can be loaded into these viruses. So that gives some some some problems when you wanna deal with certain genetic diseases that require large payloads. Viral vectors are also extremely expensive to manufacture. So we're looking to to produce a a nonviral based method which circumvents these issues, so enabling repeat dosing, cost effective manufacture.

3:48 But, also, we want to think about targeting and getting our payload into the tissues and, cell types of choice, which is one of the key drawbacks of the conventional LNPs that have been shown to be very effective in in the pandemic and in the vaccine space. However, systemic use of those are still limited as these narrow particles tend to migrate to deliver. And if you want to target anything in up deliver, this can be quite challenging. So, again, the platform is protected with a lot of intellectual property, and we continue to innovate and and file additional intellectual property. And and we're very excited about how how that platform has been shaping up over the past twelve months.

4:31 As I mentioned, our platform is very flexible and allows us to make a range of DNA modalities that can be tuned into specific applications. So what you can see here is the four DNA products that we currently have on the market. So you have hp DNA, o eDNA, o s, and o pDNA. And all of these products have have specific benefits for specific applications. I mean, if we hone in for instance on o pDNA, that product, you know, has the key advantage that it can feed directly into IVT reactions. So these are in vitro transcription reactions that people use to make mRNA. So whereas a plasmid would need to be linearized, which is an expensive enzymatic step that also is very critical in terms of efficiency because all all the needs to be linearized.

5:17 OP DNA circumvents that and can be fed directly into an IVT reaction without the need for linearization, and hence, that brings our clients a lot of advantages. Now all of these DNA modalities can be packaged up into our nanoparticles alongside other nucleic acid modalities, of course, such as mRNA, microRNA, sRNA, or even proteins such as RNPs that are used in in genotyping applications. So the the the nanoparticles can can then be deployed across a range of different applications again as well, going from vaccines, cell therapy, and and gene therapy. And whilst initially we're thinking on the vaccine space, we were gonna focus more on the the cancer kind of area. The kind of enhanced stability that we see with our nanoparticles compared to the the the conventional LMPs really gives us an angle to to think about infectious diseases well and and and and rule out this this particle and and infectious disease space as well.

6:19 So in terms of the market opportunity, of course, central to what we do on the DNA platform is the plasma DNA market. This has now grown to about 1,300,000,000. And we've put some numbers into our annual report as well. And then you you see, I mean, some of these numbers vary somewhat from report to report. There's quite a few reports out there. But the general trends are the same where the the markets are becoming quite sizable into the billions, and the compound annual growth rates remain very, very high for the foreseeable future. So the pDNA market is kind of our main market for our for DNA products. And then, of course, the nonviral delivery market, a current value of 2,300,000,000, is is the main market for our nanoparticle platform.

7:06 But you can see all these kind of other submarkets around that viral vectors, mRNA, gene editing, and DNA vaccines. And, of course, our products feed into these markets as well. So there's a lot of opportunity. And as we can open up and and validate new application areas, you know, we really can open up additional markets that we can feed into and create value from. So in terms of milestones, so, I mean, it's been a pretty exciting year, 2022. And and the first half of twenty twenty three has has also been very good in terms of the progress that we are we we continue to make. I think, you know, in terms of DNA product validation, we've made great strides. I think we we we have got the solid data packages on the use of our products to to make mRNA and to make viral vectors such as AAV.

7:57 We're coming on coming on a long way on the gene editing side as well. On the DNA vaccine side, again, we have great collaborations going where we can really see the utility of DNA products and and and DNA vaccines, particularly personalized cancer vaccines. We we we're very excited about that opportunity. And You might have seen the the press release that we announced, I think it was about two, three weeks ago, about the supply agreement with NeoMetrix, and that feeds into to the market segments. From a GMP perspective, we've completed the build out of our clean rooms and, you know, our QMS system has been built out quite quite quite substantially over over 2023, and we're putting the final touches to this in in 2023 to really get ourselves into position to supply GMP compliant starting materials for viral vectors and and mRNA production. That's kind of the first market opportunities that we would want to enable ourselves for.

8:56 So from a commercial perspective, 2022 was quite a a milestone as well. You know, we made our first sales on on the DNA side, and we also made some sales on on the hemi side. And, of course, now the main objective is to start scaling our client pipeline and and bringing additional clients through evaluation into the supply of DNA products.

9:24 So from a commercial development point of view, I think it's probably good to explain a little bit how the client life cycle goes and and and, you know, how how we bring our clients into onboard our clients into DNA supply. So it all starts off with exploration kind of phase. So we go to a lot of conferences where we meet clients or or prospective clients. And then we we we build relationships and and essentially position the technology and the products as great alternatives to plasmid. And that often then leads to an interest from from these potential clients into setting up technical discussions, and they can explore how they could evaluate the the our products and and their processes.

10:11 So we we then move into, like, an evaluation stage. Once the client has evaluated, it really comes onto onboarding the client to be a commercial product, which means we we need to sort up a a a lot more paperwork, including MTAs and and and potentially supply agreements. And then that leads to, you know, the sale of products. Now typically, our clients will start with research grade material. The type of client that we're looking to to attract will sit in discovery or early preclinical kind of phase within their development programs where research grade materials are are required. And then as they move through their kind of own development program and move to later stages of clinical preclinical work or or indeed clinical work, they will require higher grade batches we'll we'll move from research grade to first high quality grade material and then ultimately to to GMP grade material.

11:13 So this is kind of, you know, the product stages. So first was how the clients move through the through the funnel, and this is kind of what type of product that they buy at the different stages. So as as mentioned in the evaluation stage, we're we're looking at research grade product. In most cases, clients will use our off the shelf materials. So we have some viral vector products that people can use. So we have some wrap caps and some transgenes and and and some helpers that people could just buy off the shelf and then use these in their manufacturing processes and see how how these products compare against the alternative plasma solutions. Once that is done, then the clients will want to try their own sequences in their, you know, real discovery or early preclinical work. And at at that point, we start making these specific custom batches for our clients and and research grade material. So this is at the point when the client has been onboarded.

12:09 And then, of course, as a client moves into GLP talks, you know, they'll need higher quality engineering batches and and produce those. And then, ultimately, as they go into clinical phases, they will need their GMP batches, which is then the third kind of product that we'll customly make for them.

12:30 Right. So in terms of business strategy, as mentioned in my first slide, we have two platforms that we're developing. Right? So on the one hand, we have the DNA synthesis platform, and on the other hand, we have the the nucleic acid payload delivery system. So both of those platforms are progressing nicely, but, of course, you you can clearly see that the business model behind them can be slight dip slightly different. You know, the DNA business is more of a a CDMO custom product kind of business, whereas the nonviral delivery platform requires more fee for service and then kind of validation and licensing opportunities around that. So for us on the DNA side, you know, the the real objective now is to increase our capabilities to onboard more clients. So we've been really investing quite heavily in setting up our NPD teams and MSAT teams, which are focused on bringing in these new clients, onboarding these new clients, bringing in these new sequences, running them through our platforms, and then getting them ready for tech transfer into manufacturing.

13:38 So as that scales up, you know, revenues, of course, will scale. And then as our clients move through from research grade into high quality in GMP, revenues again become scale and become more significant. On the nonvolatile delivery side of things, you know, things are slightly different. We're we're we're not as far in terms of commercial development compared to our DNA platform. So there, you know, we are currently evaluating the unique side points of the of the the nanoparticle in vivo on a range of different organs. And as mentioned, you know, the stability of the particle is something that we we are extremely excited about because I think it gives us opportunity to feed into market opportunities that potentially we we weren't considering twelve months ago.

14:31 So in in terms of value realization for our shareholders, of course, if if you look at the top two kind of sections, the CDMO and the licensing part, those are revenue kind of driven angles. But as mentioned in the previous slide for the DNA side, this is very much going to be a product based supply, a high margin product based supply, which will lead to revenues and and ultimately profitability. Whereas on the overall platform, we can we can see this more as a a licensing kind of business model. Now that said, on the DNA side, several of our clients are also considering or or asking the questions whether the technology can be tech transferred in and whether they can bring this in house. So there could be opportunity as well to revert some of the product supply into a licensing model further down the line as well.

15:25 Now, ultimately, the the big shareholder value realization and and from our perspective, can lead from corporate transactions, which is really driven by the technology validation and getting our products clinically validated as well. So demonstrating that the products are suitable for use in clinical programs, which is, you know, one of the key objectives for us for the next phase of the company's development. So if you look at the valuation events, you know, I mean, of course, you know, everybody always looks at revenue growth, and revenue growth is important, but there there's a lot of other things that happen in advance of revenue growth that are very important in terms of added value and value inflection points to the business. So technology validation and open up opening

16:12 up these application areas, which has happened in in 2021 and 2022, you know, is is a major achievement for the company and and really has has made commercial deployment possible. And then in the next phase, of course, as we start with the commercial deployment of our products, getting into the clinical programs, getting through the regulatory kind of approval processes, and and how GMP plays into all of that too. They're they're really big value inflection points that the company is working towards in the in the near future. So putting all of that together, if we look at 2023, what are we trying to do? Well, of course, you know, the next phase is now manufacture of GMP batches that we can sell sell to our clients and then grow our commercial pipeline, which ultimately then will lead to to revenue.

17:07 But logs and and these are very much, you know, commercial driven objectives. But alongside that, I think we also need to look think a little bit about the longer term too. And we continue to invest in in research and development, and we we are excited about new DNA modalities that we can develop such as single stranded DNA, circular DNA, both single and double stranded DNA, which particular and particularly in the gene editing kind of space, you know, is is getting a lot of traction. And we see a lot of opportunity there to to make DNA modalities that, you know, are simply very difficult to make through plasma based methods. Whereas with our synthetic flexible platform, we can make these modalities that our clients are looking for. In 2024, that will, you know, then lead into GMP accreditation or working towards GMP accreditation, I mean, we're somewhat subjected to the lead times with MHRA around that too.

18:03 And then ultimately supplying our products into into these clinical programs and and really scaling that up and scaling up the revenues as a result of that. So with that said, I'll hand over to David. Thank you, Heikki. So looking at the financials and and looking back at 2022, this really was about the continued investment in the technology platform and the infrastructure of the business to deliver the the the commercial agenda. And I think as we indicated during the course of 2022, the loss for the year and the cash burn was expected to increase versus 2021. So in terms of overall results for the year and the position on the balance sheet, this is very much as we expected at the outset.

18:52 Turning to the income statement. I perhaps it's useful just to highlight a few features here. So I I I guess one thing that that will attract attention is is is where the revenues sit versus the prior year. And that's really a product that I think as as a longer term shareholders will will be aware of of where we are positioned versus legacy income. So that dipped significantly during the course of '22 and and really isn't particularly well supported. And that's been offset by initial revenues on DNA and homies as as previously indicated. For us, though, the probably the more notable captions are operation expense and r and d.

19:37 So operation expense reflects our investment during 2022 in manufacturing and quality and also, obviously, associated expenditure that goes with P and L related to to the clean rooms. And the r and d is is really the continued development of of the platforms. And alongside what sits within the income statement, we also have another 600,000 or so capitalized during the course of the year as well. So you can see there's been fairly substantial ongoing investment both in manufacturing and and also in r and d. And then perhaps just to highlight towards the bottom of the income statement is the the tax line, which is r and d tax credits, principally from The UK, but also small amount in Spain.

20:29 So that all manifests itself in the balance sheet, and and clearly the most important number here is cash and cash equivalents. On on the following slide, I'll just go through the cash flow briefly. But, really, this is the product of of of the investments in in infrastructure and the ongoing investments so that during the course of the year, there was a significant cash burn. And but it also includes an initial drawdown under the term best loan facility, which took place at the end of the year. And you you can see the offset in that in certainly long term financial liabilities, which clearly shows the increase in that line. The other point to highlight is other current assets, which have grown notably, and that's really to do about expected recoveries on on r and d tax credits.

21:19 So then moving on to the cash flow. Really, this sum summarizes the position I've described. Operating cash flows, 2,000,000 the outflow is 2,000,000 higher than the prior year. You can see the ongoing investments in property, plants, and equipment, and also capitalized development and intangibles, which is a combination of capitalized development costs and some expenditure relating to patents. And then finally, the cash inflows from financing activities. Again, long term shareholders will will be aware that there's a recurring outflow on this line related to soft loans in Spain.

22:05 Slowly but surely, we're coming to the end of that. There's a bit more to come, but but but that's progressively moving forward. And clearly, that that positive number there reflects the the amounts drawn down from to invest. Very briefly then on 2023. So it probably won't surprise you when I say that cash burn is set to increase in '23. Clearly, we continue to grow the business through '21, through '22, and through '23. And that's really about the infrastructure and resources we have we have in house. So both from the manufacturing and r and d particularly, you know, it's it's very much a model of of relying on on those internal resources.

22:49 We do, of course, expect revenues to increase during the course of '23, but it's very difficult at this stage in in the revenue life cycle to to offer any meaningful indication on on on how that might unfold. We don't expect that to to be offsetting the increases in in expenditure over the course of the year. So in terms of funding the business moving forward, we will continue to draw down the two invest loan facility during the course of the year, and we expect to end '22 '23 and '24 in the position that we have a cash runway that moves forward into 2025. So, yeah, taking over from David again, the the final summary slide here, which is kind of recapping the business and and and the opportunity in in front of us. As mentioned, we have very disruptive technologies which have been protected with intellectual property, and the intellectual property portfolio continues to grow. Some of our later filings well, earlier filings from '21 and '22 are are now moving into PCP stage, and and we're looking to get some grants on those in in the foreseeable future.

24:05 And alongside that, the technology has now been validated in a range of applications, which has enabled us to start building and growing our client pipeline, which will then lead to to revenue generation. From a GMP compliance perspective, you know, we've made great strides forward and, you know, we we we want to be in a position to sell GMP compliance material into viral vector production and mRNA production in 2023. And then, you know, as a result of that kind of progress, you know, we now are in a position to start securing clinical supply deals with clients, and we hope to secure more of those deals in the in the near future. So with that said, I would like to round off here and hand back to Alex, who can then open up the Q and A session. Hi, Keith, David. That's great. Thank you very much indeed for your presentation this morning. And if I may bring your cameras back up. Ladies and gentlemen, please continue to submit your questions using the Q and A tab situated on the right hand corner of your screen. While the company take a few moments to review those questions submitted today, I would like to remind you that a recording of this presentation along with a copy of the slides and the published Q and A can be accessed via investor dashboard.

25:20 Hi, Keith, David. As you can see, we have received a number of questions throughout today's presentation, and thank you to investors for submitting their questions. If I may hand back to you and kindly ask you to read out the questions and give responses where appropriate to do so, and I'll pick up from you at the end. Thank you. Thank you. So, yes, so David will just dive in, shall we? So the first question was about the market opportunity. It's large, but really focusing more on who our competition is and what we're seeing in the market space. So yeah. I mean, the incumbent product in the market is still plasma DNA. So from that perspective, that's our main competitor. So it's held up from it's, you know, the the BGXI, the the the big CD modes in this space that make plasmid that that are the main competitors from that perspective.

26:11 On the synthetic DNA space, companies who are in a position to really think about supplying clinical grade material, there's very few of those. I mean, really, there's ourselves and then there's touch light that we see in the market space as well. But alongside that, there is we see very little other companies at at this stage that that we have reached. That doesn't mean that more companies can't move in, but at this stage, the synthetic DNA space is, you know, definitely fairly limited in terms of direct competitors. I hope that answered the question. The second question was

26:59 yeah. So it's more about revenue kind of generation model. Right? So whether what what visibility we expect to see from from revenue generation. So, I mean, we have a slightly different approach compared to the the plasma providers. Plasma providers, the queues are are fairly long at the facility, the production times are fairly long as well. So typically, you know, clients go to plasma DNA manufacturers. They're they're looking at lead time of of twelve months. We want to significantly significantly reduce that, which also, of course, means that you have less visibility on the book, and your book might only be, you know, three months deep rather than twelve months deep.

27:46 That said, you know, we we do expect clients to readily move through from research into high quality into GMP. But at the stage that we are now, it's very difficult to give you kind of clear numbers or or rates on

28:05 how fast and and and, you know, what the attrition rate is in in in in that process. So I think we need to wait a little bit longer before we can make meaningful comments on on that. Okay. So the next question is about GMP certification and and when we expect GMP certification. I think there's always some confusion around GMP and and what that really means. I think that the important thing we've always said is that we want to supply DNA materials into viral vector production and into mRNA production. Those are the key markets that, you know, require lots and lots of DNA, and those are the markets we wanna feed into. That's it's important to note that for those markets, you do not need GMP certified material.

28:56 You know, you need g material that is made in compliance and in accordance with GMP rules as a starting material for for those processes. So, you know, that's something that, you know, we, you know, are very close to to achieving now. And and and, you know, we we really want to get that type of material supplied into our clients' clinical development pipelines. From a GMP certification point of view, if you want to bring DNA products directly into the patient, so essentially, our our our material will go into a patient, that's the point where you are making an API or a drug substance or a drug product, and that's where where GMP certification is required. So we have a road map in place to to get us to to that position, and we we expect to achieve that in 2024.

29:47 But as as as as we said last year as well, you are somewhat limited to the regulators as well and and the speed at which they move at too. So whilst we can have objectives to achieve this, we're somewhat, know, at risk with the with the timeline given the the speed and the pace at which regulators can sometimes move. David, do you wanna answer this one?

30:22 Yeah. Sure. So our views on on sorry. This this goes to the valuation of the company and and whether we consider it to be undervalued. I I I think our views in the company haven't haven't changed. Having said that, market context has changed. And during the course of that that market context, while there's been some fluctuation in the share price, it's it's also actually been pretty robust compared to to to many other companies in our in in in the broader sphere. So really for us, it's the the challenge around potentially raising equity is is considering our financial position. And, obviously, over the course of '24, particularly, we're gonna need to give some consideration to that if indeed the cash runway is expected to to go into '25, possibly beyond. But, you know, I think we we need to see in due course where we sit. So recognizing where the market sit and recognizing that this is this is an agenda item that we need to move forward, They eventually make a point where we need to be we need to recognize the requirement to fund the business moving forward. That depends on where we are in terms of revenues.

31:40 It also depends on where we are in terms of our overall expenditure. So our overall position on on on the valuation and the the equity raising hasn't really changed. We have we're well funded through '23, and we certainly funded into '24 and beyond. Being pragmatic at some point, it's a consideration that may need to be addressed. So then the next question was about the particles and whether we would expect, you know, a transaction in that space to be nonexclusive for a particular disease area. Yeah. So that's typically how we I mean, that's typically how we how we see that side of the business. Well, it's it's a licensing model. So combined with a fee for service model, clients would come to us and they would, you know, like to deliver a specific payload for specific disease indication within a specific target organ.

32:40 So we would then develop that particle and help with the validation of that particle. And alongside that, we would give our clients the option to to then license the the particle for for that specific indication. That could be exclusive, but it could also be nonexclusive depending on client requirements and client needs. Some clients may also want to include additional indications around that nanoparticle that we're developing. So it really depends a little bit on on client needs and client objectives. But, fundamentally, it is a license based model rather than a product based model. I think that was the last question. Unless there's any more questions that we've missed, I think that would wind it up. So I'll hand back to Alex.

33:26 That's that's great. Hi, Keith, David. Thank you for being so generous with your time, and I believe you have addressed all the questions you can all the questions from investors today. And, of course, the company will review all questions submitted today, and we'll publish those responses on the investor meet company platform. But just before redirecting investors to provide you with their feedback, which I know is particularly important to the company, Heikki, could I please ask you for a few closing comments? Yeah. So I think, you know, David and I are really pleased with how the company is developing and shaping up. We're very excited with platforms and the strength of the platforms. And and now the the commercial development of the company is picking up, and and the first clients are starting to build up as well. So we think, yeah, 2023 and 2024 will be very transform transformative years for the company again, particularly on the on the commercial side. We expect to see some sort of good changes, and and that, of course, will reflect the shareholder value. So, yeah, we we look forward to updating you again in six months' time, and keep you abreast of developments.

34:28 Hi, Key, David. Thank you once again for updating investors today. Could I please ask investors not to close this session as you will now be automatically redirected to provide your feedback in order that the board can better understand your views and expectations? This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of 4BASEBIO PLC, we would like to thank you for attending today's presentation. That concludes today's meeting, and good morning to you all.