Fusion Antibodies (LSE:FAB) — Interim results presentation

0:01 Good morning, ladies and gentlemen, and welcome to the FUSION ANTIBODIES PLC Interim Results Investor Presentation. Company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today, and we'll publish those responses where it's appropriate to do so on the investor

0:31 meet company platform. Before we begin, I would just like to submit the following poll. And I would now like to hand you over to the management team from FUSION ANTIBODIES PLC. Adrian, Steven, good morning. Good morning. Thank you very much, Jake. So my name is Adrian Kincaid. I'm CEO of Fusion Antibodies, and I'm joined today by Steven Smith, who is the CFO.

0:57 Thanks, Edward. Good morning. So first of all, we need to cover off the disclaimer. Rather than expect everybody to to read through that, we will assume that it has been taken as read. And then we can work through the agenda. So I will cover some of the introduction and the highlights, reminder of who FUSION are, and some of the highlights of the period that we're reporting on, which is the first half of this financial year.

1:28 Then Stephen will take us through some of the financial performance, and I will cover off the r and d particular focus on on the Optimal platform before providing a a summary. We'll then try and get through the questions or as many as we can. So as a reminder of fusion antibodies, we are a contract research organization specializing in antibody discovery, engineering, and supply. So that means we can find antibodies against a particular target, make them through a range of discovery engines or discovery models that we have. We can then make those antibodies better, or if somebody comes to us with a preexisting antibody, we can improve that through a series of engineering where we modify the sequences to give them better characteristics.

2:21 That can include things such as manufacturability, so improving the expression levels, reducing the cost of goods for the manufacturers, the owners of those antibodies. And we can also do supply, which is for research purposes only. We don't go into supply of materials for use in in man, in people. It's just the the reagent and antibodies for testing, taking through animal models maybe, but not into people. We do, however, within the supply remit, cover stable cell line development, which is the the final sort of cell line with everything locked to that to GMP approved manufacturers.

3:11 So we're very, very close to the manufacturing side of things, but not actually providing it for final sort of administration into into people. The people that we work with, our clients, fall into a number of different areas, so including drug discoverers, which can be biotech companies from small, even virtual companies through the larger biotechs and also larger pharmaceutical companies as well. We're increasingly trying to push out and improve our client base in diagnostics. You'll all be aware very aware that immunodiagnostics in particular through the pandemic were very, very heavily used. So those lateral flow tests that we all had to do with the little red line, that little red line is dependent on the use of antibodies.

4:07 There's a lot of money that's flowed into diagnostics diagnostics for exactly that reason, and those companies have plans to establish themselves and improve their range of products, which is a good opportunity for for FUSION to engineer and develop those antibodies in partnership with those diagnostic companies. So we're looking to expand more into that space. Those who have attended this meeting before will also notice that I've added in veterinary medicine onto this slide. So a particular niche of drug discovery is as it were, but veterinary medicine is an increasing application area for for antibody use. Indeed, my own dog has had a therapeutic antibody and it worked to treat.

4:56 But as the sector is growing, there's more and more involvement in that area. And FUSION having made our our name originally from doing humanization of antibodies, so making them suitable for administration to humans. That same sort of process, once you change the the the desired sequence framework to say that of a dog, is then the same process can be modified and taken through to give all the advantages that we had for humanization to canonization, in other words, making antibodies for dogs or for cats or or even race horses as well. So we're adding indeed to the to the repertoire of our client base and increasing the adjacent access to the adjacent markets.

5:52 So what we do is is really take our customers through to, typically, the clinic as rapidly as possible, and we have a range of techniques in to enable that. That includes using AIML, artificial intelligence machine learning. And, ideally, we position that as an integrated therapeutic antibody service to go through discovery, engineering, and then supply the whole package. We have in order to secure that business, we have a team of internationally respected scientists with decades of experience. They're really good at their jobs and have done tremendous work in the past. We've got a great track record.

6:38 That has also given us very extensive knowledge and expertise that we that we call upon. It's a very efficient process to go through and no more no time more so than when we're dealing with end to end. So we can begin with the end in mind, take people through each of those phases, and be planning and working on the next phase in readiness for the the lead molecules to be progressed through, and that's one of the advantages of the integrated therapeutic antibody services and end to end offering. But the overall, we have a comprehensive portfolio of antibody services, and we are still available for people to come to us, clients to come to us with relatively small orders and individual problems. We're very happy to help those two. So whilst we would like to have more of the longer term deals, we are very happy to solve clients' problems in in the short term as well.

7:37 So final icon on this slide, the AIML or AIM lab offering that we have is up and running, and we have our first successful project under our belt now. So I'm hoping that this will continue to grow. It combines AIML capabilities and leading cutting edge technologies from partner organizations with the excellence that we have in wet lab capabilities within within FUSION, and we'll hopefully also bring in clients who will then come back to us for that wet lab expertise as well as perhaps running their next AIML project with us as well. So in terms of the overall performance for the business, operationally, we have increased the number of commercial opportunities that are identified in in our sales pipeline.

8:35 That pipeline is continuing to grow very significantly, which is is excellent news and indicative that we're we're on the path to to recovery. We had had a number of projects being delayed by clients. Primarily, the reason for this is that they were seeking investment themselves. That's not unusual. Some clients come to us planning their their project with a preferred supplier to do the work because it's they they have a high regard for for us both in terms of likelihood of succeeding,

9:11 doing what we say when we say, and also being fairly cost effective for them. But if they need time to get their investment together, which has been the case for a a number of clients, then things slow down and and don't progress until those breaks are removed. So there's been a number that have been delayed through the period, which has been a little bit painful to us to say the least. It's resulted in a loss of 1,400,000. Steven will go into the details in in in the next few slides. What we are anticipating and has always been expected is that for this half, as things recover, we will be seeing a significant weighting in the overall year figures towards the second half of the year.

10:08 Everything is working towards that. The other operational highlights report on is that Steven himself was brought in as interim CFO during the period and has hit the ground running, which is great. So we had revenues overall of 400 sorry, £541,000 in in the half. That's recognized revenue. Expenditure on r and d has been cut back by 60% in that period, so we are burning a lot less on r and d and indeed a lot less on other parts of the business as well. Overall, loss as described.

10:53 Cash position was 500,000 at at the end of September. Highlights in terms of what's happened since the the half in particular, I expect many of you have already seen the the news about the collaboration agreement with the National Cancer Institute in The US or NCI to validate our flagship optimal platform

11:25 short while. The other highlight for me was certainly that the AIM lab first project was successfully completed, which is great, and, hopefully, we can use that as a well, we will be using that as a case study to take it through further. And then further pipeline progression is is improving with an increased rate of deal closures as well as an increased value within that pipeline. It's fair to say that some of the smaller deals naturally start to move more rapidly than some of the larger ones, but nevertheless, it's a good indication of things to come.

12:05 I'll hand over to Stephen. Thank you, Adrian. Good morning. I'll take you through some of the financial slides. So the income statement extract, of which Adrian had previously given some highlights, Revenue for the first half of the current financial year was $541,000 That's down 71% over the same period last year. This translated to a gross loss of 84,000 compared to a gross profit of GBP 607,000, again, over the same period last year. The primary drivers of the reduction in margin from 33% to 15%, other than the sharp decline in revenue, were redundancy costs associated with the restructuring exercise that was undertaken in the first quarter.

13:02 The effects of the restructuring, allied with a range of other cost cutting measures employed by the company, has seen EBITDA fall by 22% from a loss of $1,000,000 for the six months of last year to $1,230,000 for the six months year to date. So much smaller fall in EBITDA when compared to the headline fall of 71% in revenue. Turn to our summary financial position. Noncurrent assets have fallen by $125,000 to $250 from the previous balance sheet date, March 31.

13:52 That is simply the amortization, depreciation booked in the period. Inventories are relatively consistent. Receivables have fallen sharply due to lower recognized sales revenue, and a fall in the R and D credit receivable due to a reduction in the R and D spend as part of the cost cutting measures, as Adrian mentioned in one of the previous slides. Cash at bank at September 30 was GBP 487,000. Current payables have fallen significantly as well from the March 31 balance sheet date.

14:37 This is due to a reduction in the cost of sales spend associated with the lower revenue figure. And noncurrent payables have dropped by $10,000 from March. That represents HP payments made during the period. We'll move to the summary of cash flows. Cash used in operations during the period, 1,300,000 versus $750,000,000 same period last year. Again, that is due to a significant fall in revenue. No investing activities, no purchases of additional equipment like there was in the same period last year.

15:26 2,000 of interest income is the cash inflow there. Financing activities is obviously the raise in the first quarter. That's the gross raise net of expenses. So cash since year end has increased by $292,000 from 195 to $4.87. So that is the highlights of H1 FUSION's financial performance. I will hand back to Adrian. Thanks, Steven. That's really helpful. So the other area that I really wanted to explain a bit more about and update people on, in case they hadn't heard, was our flagship flagship technology, Optimal.

16:16 It's really important for, the business. It's actually really important for the whole sector because there's nothing quite like it out there. It's, cutting edge and potentially groundbreaking. So the news that we had recently was that the National Cancer Institute in The US, part of the National Institutes of Health and government funded, have concluded an agreement with us whereby they get access to Optimal to run-in their laboratories, which will be provide us with validation of the platform from really the best possible partner we could possibly have wished for specializing in the key market area or key area of of interest, which is cancer, but also the key geographical area in being a a flagship sort of KOL, a key opinion leader within The United States, which is the single most important market for us. We we already do roughly half of our business with The United States, and we should really be doing a lot more. So it's key to growth.

17:31 We couldn't have asked, as I say, for a a better partner to to do this validation work with. In addition, the individuals that we're working with over there are themselves experts on the Malian display. They which is the one half of the Optimal platform, the other half being the design of the the antibodies or the library of antibodies that OPTIMAL presents. So I thought it'd be helpful just to run through some of the reasons, top three reasons why, and there's many more as well, why the NCI would want to get themselves involved in OPTIMAL and validate it, run it potentially for a period of two years to see what see how good it is.

18:22 Well, first of all, OPTIMAL is a large library that provides fully intact antibodies, so what we would call IgG molecules. These are the structure that you would want to use for certain human therapeutics. That means if you're beginning with the end in mind and looking for the final product in the screen, you're less likely to have attrition through the path pathway of development thereafter. And because it is so close to the final product, development itself is going to be much more rapid. So there's tremendous advantages to to using Optimal for that reason. We were basically finding what it is that you're looking for rather than component parts that you would then try to build up.

19:16 In order to do that, of course, we're using mammalian cells, which in itself is really important. So antibodies that are found in NOPTEMEL have to have been expressed by those mammalian cells, which are loaded with their their DNA sequences. And mammalian cells are very much preferred system for production of therapeutic antibodies downstream in manufacture. So we're already identifying antibodies which express in mammalian cells. We may be able to improve on those sequences, which is core technology for fusion anyway. But they're partway there in that they're working in mammalian cells. If they weren't, they wouldn't be found. So that filter is already in place, which means that there's much easier manufacture downstream for for antibodies that are discovered through this platform.

20:12 The platform and the mammalian expression is is one part of it. The other part is actually the diversity of the library of sequences that are then expressed in the optimal library. That theoretical size of the the library itself is absolutely vast, and it's all based on the human repertoire. So, essentially, the sequences that we place into the library are, in by all means, They don't require humanization afterwards. So we, again, begin with the end in mind. The size of the theoretical library is 10 to the 42 inside, which takes some sort of comprehension.

21:00 So it's a one with 42 zeros after it. It is absolutely huge. It's almost inexhaustible. To run a screen, we would not go for the complete library. What we would do is sample from that, typically around 10 to the eight, so a 100,000,000 or possibly 10 to the nine, one billion different sequences, and put those through the library. That gives us, with that kind of size of library, greater chances for success. The more it's a it's a bit of a numbers game. So if you can get up to 10 to the nine, then that's considered to be a a very good place, particularly with the other advantages of Optimal to make this a a really, really good platform to use.

21:50 And because it's human repertoire behind it, there is you you've already found a humanized or a human sequence to go forward with. In addition, because of that size of the library, one of the I suppose it's a fourth benefit is that if we were to sample just 10 to the only 10 to the nine out of that 10 to the 42 and then sample another 10 to the nine out of the forty two ten to the 42 theoretical, there would be almost no overlap if significant

22:26 an insignificant amount of overlap, which means that the library can be used multiple times against the same target even if we wish to do so without needing to get involved with exclusivity arrangements, etcetera. So the library is absolutely huge and highly applicable for all of the the work that we would like to be doing. So some of the questions that have come up on the NCI agreement,

22:59 does it really take two years to to validate? We've granted NCI two years, up to two years, to work with the technology and enable them to do as thorough an evaluation as possible against the the targets they have already selected and we've we've agreed to. Now does it is it going to take them that long?

23:24 Probably not. There's no reason for them to do that, but it's entirely up to them. It's their theirs to use for up to two years. If it's working well for them, they'll probably want to take advantage advantage of it for at least those two years, and then we can talk about what happens afterwards. So two years is somewhat arbitrary. We expect to get positive news out of the collaboration ahead of that, and we do have the ability to to publish those results as co authored publications. So how much of FUSION's r and d resource is tied up with the validation? Well, much of FUSION's work to get this established has already been completed.

24:12 So NCI are doing all the running here. It's gonna be working in in their labs using their staff in their hands. Now we've got obviously a vested interest to make sure that it works well. So we will be on hand to provide advice and support, and it'd be great to get over there and meet the team and ensure that they're if they have any problems, we know about them and help solve them. Indeed, if they have any improvements that we know about them as well. So, basically, there's very, very little resource that we have to ring fence for for this agreement. It's really all over to the NCI to drive it forward.

24:56 Are the results of the validation going to be shared, and can FUSION publish results? Yes. They will be joint publications, so both parties would need to agree to to the publications going out. But that would be also probably through scientific peer reviewed publications. That's the most important validation for us to to get the state case studies out there that our clients, our other clients are going to believe and and work through. So that will really add on and enhance the validation itself and also the impact. So we're really looking forward to those coming through.

25:42 What happens to the antibodies that are found in the validation process? So this is the upside, if you like, for NCI. They will be retained by the NCI, and it's up to them. They may develop them into products. Remember, we've already agreed the targets that they are at liberty to to to use optimal against. We're happy with those. Doesn't preclude us from using similar targets per se for other clients. We've lost nothing in in doing that. So overall, absolutely delighted with the NCI agreement. And as I said earlier, you couldn't wish for a better partner for FUSION at this time with the flagship platform. So really great news.

26:29 So if I may, I'll come to a summary of of where we're at. First of all, the market has been extremely challenging. It continues to be a challenge challenging market, but it's appearing appears to be recovering as well. We're seeing movement. We're seeing investment returning. We're seeing clients more willing to spend their their money and invest in their programs.

26:58 We are expanding into adjacent markets, as I said on the earlier slides, most notably diagnostics and veterinary medicine. That expansion is ongoing. It represents some very attractive potential that we are very keen to to realize. Obviously, that would mean increasing the revenues that we can go after, but also just as significantly for for me, I think, is that it reduces our dependence our direct dependence on with the VC funded biotech sector, which then also reduces volatility across the the business. So it's and should pay dividends.

27:44 The direction through of travel through the first half this financial year has been positive. The revenues that we've recognized have been increasing, and that is a sustained and significant trend. So we're having increased confidence that we can continue to do so. It's what we thought would happen. We thought that h two would be significantly been better than h one, and the motion of travel throughout h one is just that we got that that right, and the timing is about what we had anticipated. Of course, we would like more revenues to come through, and we will do everything that we can to increase those revenues coming through. The team are working to to their full capacity and intent to to do what we can to generate more revenues throughout this financial year and indeed beyond as well, because some of these deals do take some time to work through.

28:52 We've been launching new platforms, and they have been well received. So in particular, the artificial intelligence led AIM lab, which makes timely use of cutting edge technology. So it's very much in the news. Scientists are keen to understand better what it can do for them, and it provides novel approaches. That's been extremely well received when we've spoken to to clients. It also has the potential to reduce timelines and initial costs for discovery. So it's appropriate, particularly in the marketplace that we've got. It's a good fit for that. What it might carry is a little bit more risk, but then the fusion approach to the artificial intelligence combines that with our technology with mammalian display, and that helps to derisk the project because we can then screen many thousands, if not millions of sequences rather than the hundreds that are typically output from AI l ML algorithms.

30:04 And that's that's that restriction to hundreds is really based on what's economically feasible when you produce those sequences one by one. We can provide a library approach which allows us to do much, much more reproduce sequences. Optimum validation with NCI is an excellent opportunity. We would really like to build on that and build on the QDOS that we we have with our our partner there, particularly as it's in the key marketplace for us, build on more of that and really use that to open doors and establish more commercial relationships with more clients.

30:50 There is more to come from FUSION. We have additional platforms that are waiting in the wings to come forward when the timing is right and the resources are available. So the strategic areas of focus for the business, really, first and foremost, increased sales, whilst maintaining the margins and, of course, the cost controls that we have, put in place to reduce cash burn very, very significantly. And all the intention there is, of course, for us to reach cash neutrality and from there profitability. The expansion of the client base is key for us. It allows us to build pipelines, get more visibility, reduce the volatility.

31:43 So the key areas there are to further implementation implementation of that end to end approach with the integrated therapeutic antibody service, longer deals with more visibility and higher values, increase the penetration particularly into the immunodiagnostic sector, and exploit our position within the veterinary medicine sector as well so that we can add adjacent revenues from adjacent markets to to the coffers as we go forward. We're continuing the momentum sorry, the momentum behind AIMLAB as well as Optimal and the related technologies such as mammalian display, which plays a a key part to both of those those platforms. We're continuing to seek additional new commercial partnerships as well, such as distributors and commercial alliances in order to expand our reach and get in front of clients that we couldn't necessarily get to ourselves, but also, of course, to generate additional revenues.

32:50 So with that, I will draw the presentation to a close. And back to Jake. Perfect. Adrian, Steven, thank you very much indeed for your presentation this morning. Ladies and gentlemen, please do continue to submit your questions just by using the Q and A tab that's situated on the right hand corner of your screen. But just while the team take a few moments to review those questions that were submitted already, 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 your investor dashboard. Stephen, Adrian, we obviously received a number of pre submitted questions ahead of today's event. And as you can see there, we've also received a number of questions throughout your presentation this morning as well. So thank you to all of those on the call for taking the time to submit their questions. And Adrian, Steven, if I may just hand back to you just to respond to those where appropriate to do so, and I'll pick up from you at the end. Thank you.

33:42 Thanks very much. This is with Steven and I trying to play tag team. I hope we get through as as many as we can available. So I'll kick off with the first one, which is related, I see, to a number of other questions that have come through. How much did we charge NCI? So it's cash neutral is the deal with NCI, at least at this stage. So in order to do an agreement such as this with the public body in The US, which is not known to move very rapidly, essentially, we had two options. One was to discuss a temporary placing of technology with them to do a validation for which there would be free access as it were in the first instance to the Optimal platform.

34:39 That's the route we've taken, and that meant that we could get the announcement and the deal that we have done in shortest time. That does not stop us then from asking them or or from them asking us about extending the access to the the technology for which an additional agreement would be required. So like I say, it's it's really good news. It's a really good deal for us. The initial period lasts for a maximum of two years beyond that if they want to visit, then we we would be delighted to be talking about what structure that would take.

35:25 There would likely be fees involved. There would there would certainly be fees involved, I'm sure. Beyond that, there's another one that's been asked about AIM Lab. Where are we with the additional partner that we had mentioned before? So, yes, there is another AIML provider that we'd announced that we are having discussions with to bring them on board. We are at the final stages of negotiations with that one. It has taken something somewhat longer than I had hoped, but it is still very definitely live. And there is significant interest from the AIML community about working with FUSION to support AIM level.

36:18 Another question here about grant funding. We had said previously that we were pursuing grants, and the question is, has any of them come through, I think? So, yes, there are applications still outstanding that we haven't heard from. There's also it's very pleasing to see there seems to be additional funds being made available for grant funding, which is very good news. But those funds apply potentially for FUSION direct applying for grants directly, yes, but they can often also fund the the client base for which we would be a commercial provider. So it's very good news all around that there's an increasing prospects for for grant funding.

37:10 I'm also sure that the QDOS that we have with the NCI validation will add weight to both our and some of our our some of the independent grant applications as well because they'll be accessing they'll be accessing the same technology. Steven, do you want to cover off anything? Yeah. I think there's a significant number of questions around the cash runway of the company and the the potential need for a future raise. The company is of the opinion that we have a sufficient cash runway. Now that is predicated on FUSION hitting its h two revenue targets.

38:02 The board is constantly reviewing the situation with regard to to revenue and the the cash flow of the company to assess what the best option for the company and its shareholders is. We obviously need to be mindful of market conditions, but the board is very aware of the, you know, the dilution that shareholders had to endure to complete the last raise. We don't take any decisions on, you know, raising funds lightly. I think that's sort of probably covers off quite a few questions there, Adrian. Yep. Thank you very much, Steven. There's another one here, which I think it's appropriate to answer now. Do you have plans to recruit a new CFO?

38:49 We're very happy with the relationship and the performance that Steven and his team are doing, So it's not the most pressing issue for us. So, yeah, I guess it's not pressing at this time. I'll move on. There was also another question about the AIM lab project, the one that we had successfully completed, and did it include access to mammalian display? No. That one did not use mammalian display. It worked from the AIML generated sequences, but we continue to use mammalian display as an attractive feature for AIM lab, and it acts as a a safety net if you don't get what you need out of the AIML sequences themselves.

39:47 Just scanning down some of the more recently added questions. It's an interesting one there, which is impossible to answer, but I'll I'll have to do the best that I can. What is the potential value of Optimal, particularly to big pharma in light of some of the enormous deals that we've seen. I think you can look at some of those deals and where there is some comparisons, can extrapolate from those what the value of Optimal might be for for FUSION. There's one in particular, which I think is is highly relevant just CROs in order to get access to their platform.

40:34 It provided some advantages that Optimal also covers. But in certainly, in my opinion, not nearly as good. That company was earning revenues of about 15,000,000 per annum, and the largest CRO paid a 100,000,000 for them. Getting FUSION to those sorts of levels is entirely doable. We are on route in the right direction towards those numbers. I can't tell you how long it would take. At this stage, we need to get much more under our belt, but that's one of the the areas that we're we're heading towards. Can the company do more face to face meetings with investors?

41:24 A very timely one, that one I've just recently agreed to do a live presentation through the proactive platform on January 11. It is something that I do appreciate investors even on this platform have been asking us to do. So, yes, we are responding to that. There is an opportunity to do so, which we've taken on January 11, and we'll look to do some additional presentations as well. Steven, is there any more that you you've seen that you can answer? Just move through a few more. No. I think I think I've probably answered most of the financial ones during my presentation.

42:13 I could give an update on, I think, asking about the cash position post H1. I don't have November's management accounts, but I could say as October, October was cash flat. So we're we're in a similar position at the end of October. Other than that, I think we've covered everything else. Yep. There are a few questions which I'm afraid I don't think I can answer because they're getting into the nitty gritty. What I can do is suggest that people refer back to the financial results that have already been released. I think that's fairly standard practice, But thank you, Steven. Thank you, Jake.

43:00 And thank you everybody who's attended and given us your attention today. Very much appreciate it because we appreciate the continuing support of investors. Perfect. Adrian and Steven, thank you very much indeed for addressing all of those questions that that came in from investors this morning. And, of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended. Just for you to review to then add any additional responses, of course, where it's appropriate to do so, and we'll get those responses published on the platform. Adrian, I was just going to ask you for a few closing comments, but I think you might have just well delivered those. So if it's okay, what I'll do is I'll redirect those on the call for their feedback, I know is particularly important to yourself and the company. So unless there's anything further to add, Adrian, if that's okay? No. You're quite right. I got it got it out. And the only thing that I would add is I am very much looking forward to 2024 with FUSION ANTIBODIES.

43:54 Perfect. Thank you very much, sir. Adrian, Steven, thank you once again for updating investors this morning. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can really better understand your views and expectations. This will only take a few moments to complete, but I'm sure be greatly valued by the company. On behalf of the management team of FUSION ANTIBODIES PLC, would we like to thank you for attending today's presentation. That now concludes today's session. So good morning to you all.