Physiomics (LSE:PYC) — Trading update

0:01 Good morning, ladies and gentlemen, and welcome to the PHYSIOMICS Trading Update Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Just please simply type in your questions at any time and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, we would like to submit the following poll. And as usual, your participation will be highly appreciated. And I'd now

0:32 like to hand over to CEO, Jim Mellon. Good morning, sir. Good morning, and thank you very much, and welcome to this what will be a a fairly short trading update for PHYSIOMICS PLC just following our RNS last week. Mainly just rehearsing some of the points that that were made in the RNS, hopefully, to reassure you guys that that everything is on track here at PHYSIOMICS. And I'll do my best to answer at least a good selection of the questions that have come through prior to the meeting and and any that that come through during the meeting. The usual disclaimer, please read it at your leisure. So I've left in the first two or three slides that I normally present just in case there are any shareholders attending today who are less familiar or newer to the company.

1:26 So PHYSIOMICS, mathematical modeling company run effectively as a consultancy with expertise in cancer, in quantitative pharmacology, PKPD modeling, in in data analysis, curation, and visualization, and in coding, including some AI techniques. Two parts to our business really at the moment, the the CRO consultancy part, which is set out on the left hand side there, providing, you know, a soup to nuts service if that's what our clients want or or much more specialized analysis usually for our larger clients such as Servier, most recently, and Merck, Sirono over over some years. On the other hand, we've had also a number of grants that we've used to fund some projects in personalized oncology, specifically in personalized dosing.

2:22 I think those of you who follow the company will be very familiar with the the the several initiatives that we've got going on there at the moment, including a observational clinical trial being run down in Portsmouth, and also a a collaboration with DoseMeRx, which, is part of a larger listed US group called Tabula Rasa Health Care. And, again, we'll we'll come back to give a little update on that later. You know, we continue to add names both large and small to to this list of of clients. It's not a complete list because some of our clients require that that we don't disclose their their names for reasons of confidentiality. But I guess most notably since since I gave my last update in in April, I think it was, you know, we we signed a contract with the large French pharmaceutical company, Servier.

3:16 And, also, we have worked with a number of small companies. I I don't believe DeSentis is actually new. I did have a question about this. It it was a is a small project, and it may have may have failed to be announced for that reason. It it's not disclosable in terms of its size, but we probably should have highlighted that. It has in fact been on our website for for some months in any case for those of you who are who are more eagle eyed. I I won't cover this slide again. I mean, we we help our clients in in various different ways to support the drug development, the drug r and d process from approximately mid stage discovery through to approximately mid stage clinical, which covers quite a broad swathe of of the r and d process.

4:07 We do focus mainly on cancer, but we do operate in in some other areas as well. And recently, we've done projects in, for example, dermatology and and immunology. We're doing quite a bit of work in immune immuno oncology as we've highlighted in the past. And indeed, you know, the focus of our most recent new client project, which is Servier, is is in that space in the immuno oncology space, which which continues to be very interesting and a significant focus for for r and d spend in the industry. So just running through the key points from the update last week, there may be one or two things in here that that were not covered. You know, total income and profit after tax for the financial year ended 06/30/2022 are likely to be in line with market expectations.

5:00 By that, I mean, in line with with the forecast that our broker, Hybrid AM, puts out. Obviously, you know, we we have a pretty good idea about what our revenues are gonna be. We're we're still tossing out the costs, so there may be some small variations, but I'm not expecting any any surprises there. We should, you know, we should deliver on on the numbers that that HyperDan has had out for us. I believe that following the r and s last week, Hyperdan slightly increased well, that they they put out a new forecast for the current financial year. But in terms of the one that's just gone, then I think we're in good shape. I will just observe that we made a number of investments, deliberate investments during the year in areas where we felt, you know, they would lead to long term value generation.

5:51 And I guess the most significant investments were those in in people. Right? So we took on two new technical members of staff as well as a as a head of business development over the course of the year. You know, by far, that's our biggest expansion since I've been CEO, which has been just around six years now. And I hope that you'll take that as a sign that, you know, we we we expect to to grow the business going forwards. You You know, for a long time, we have grown, you know, slowly and incrementally controlled our costs out of a desire to control our costs and not add too much fixed headcount. You know, we have maintained a fairly steady cash balance years since our last raise a couple of years ago.

6:41 But during that raise, we we did say we wanted to invest in growth, and that's what I believe we've done. And that's what contributed to a a slightly higher level of of cash outflow in in the last twelve months than than we saw in in the couple of years prior to that. But I just wanna reassure the market that it it's part of a of a planned, you know, investment program, which we eventually expect to to deliver increased revenues. Despite all of this, you know, our cash position remains, I believe, pretty strong. We've got £687,000 in the bank at the end of the financial year. And assuming, you know, that there would be no change in the cash outflows, and that's not a forecast, by the way. We're we're we're still in the process of doing a formal forecast for the next couple of years, but but just doing simple math. If the cash outflow remained the same, that would give us, you know, very close to two years of cash, which which we're very comfortable with. Obviously, our objective will be to to to to close that cash flow gap through increased revenues and and business.

7:50 You know, also just to note that over the course of the financial year, we signed new or follow on business with a number of existing clients, including those you see listed there. I won't read them all out. The little new one, Dissentis, mentioned earlier, and Cairo was new this year. Bicycle was a repeat. NewMob, I believe, was a repeat this year, and then and then Merck KGAA, of course. The other thing that that I've noted previously is that we signed a first agreement with a a French big pharma company, Servier. Apologies if there was any confusion on this. I did get a couple of questions saying, is Servier the big that we were talking about? And and the answer is yes. Servier is the big company that we were talking about over the course of the last six months, and we were very pleased. We we were delighted to to be selected by them for what is quite a, you know, a a significant project both in terms of, you know, of its materiality, but also in terms of the the the the targets that it's looking at, which I'm afraid I can't disclose, but can say that they're, you know, they're novel targets in immuno oncology space. So we continue to to build our capabilities in that area.

9:07 The other thing that we did since our last announcement was retain a highly experienced new nonexecutive director in the form of doctor Tim Corn. Tim comes to us with extensive experience of working in small companies, both private companies and aim listed companies where he's worked as a nonexecutive director and also as as a chairman from time to time. He's a very experienced drug developer, and, obviously, that knowledge, you know, could be quite helpful for us as as we consult with our clients and also look at other options for the company to grow more quickly going forwards. In terms of the, the observational clinical trial, I actually have a slide on that. So perhaps I won't dwell on that too long at this point, but but just to say that, you know, we are generating data. I think we've had about 25 patients.

10:05 We're conducting an interim analysis now, and the purpose of the trial, as we've, mentioned on a number of occasions is to further validate and and develop the the tool that we've that we've put together over the last couple of years with with grant funding. Then just a a note, I don't think this was in in the r and s, and and it's it's not new. But just to observe that at the end of June, our partner Valerex announced that they were extending the exclusivity period for a a small US biotech company called PHYSIOMRx to complete a proposed sublicensing of one of the Valorex compounds, val two zero one, which is the compound as you guys will remember where we had a a a risk sharing agreement with you. So, you know, you know as much as I do on that. I don't have any any inside track there.

11:01 But I guess just to note that that is still under discussion. I thought it would just be note worth noting the of of total income over the course of the last couple of years and in particular over the last twelve months. So what this dotted bar shows is simply the level of second half revenue for the year just completed that would get us to the hybrid and forecast, which I think is $8.60, if I'm correct. Yeah. You know, we are saying today that we believe we're gonna hit that, and that would represent almost an 18% growth over the previous year's revenue. Obviously, our previous year was down because of COVID and because of some risk sharing activities that we engaged in as I've discussed previously.

11:54 Nevertheless, it, you know, it seems to me that this represents a strong bounce back. And if we do hit that, forecast or or or even overachieve against it, then, either way, that will represent another year where we

12:07 have hit a a highest ever total income level. Then just a quick update on the partner study. So this is the observational clinical trial going on down in Portsmouth. We have interim data from about 24 patients, and we are using that to pull together a report for the NIHR right now. The study will continue to recruit until the end of q three. And then during q four, we will conduct a final analysis which incorporates, you know, both the interim analysis, but also further patients that will have been recruited, have already been recruited, in fact, between now and then.

12:56 Some of the things that that we're looking at just for your interest are the ability of the tool to predict clinically relevant events. Primarily, this relates to toxicities. So as as we've talked about previously, the tool helps clinicians predict the level of neutropenia. That's the level of depression of white cell count associated with chemotherapy, in particular, docetaxel in this context. And, you know, that low level of white cells can sometimes be lead to, you know, certain adverse events with patients such as fever. So one of the things that we're doing in our interim analysis is to look at what actually happened to these patients, to look at what the tool was predicting for them at that time, and to try and make links. And, obviously, you know, I'm sure you guys can see that that the potential value is is where we can determine that we can have some predictive power in relation to those to those associations.

13:59 The other thing which we also think is quite interesting is in relation to the use of a drug called G CSF. Its full name is spelled out on the on the slide there, but I'll I'll call it G CSF. And what this drug does is stimulate cells in the bone marrow to to increase production of white cells. So it's often given by clinicians in conjunction with chemotherapy to preempt the reduction in white cells that that is often associated with chemo. G CSF is a, excuse me, a biological drug. It's you know, many forms of it are still on patent, and those patented forms are quite expensive, especially in The US. So, you know, you could see that that if we if the tool is able to make any predictions about the potential utility or otherwise of this drug, when used to treat patients that have been given chemo, you know, that could be a useful thing as well. So, you know, I'm not saying that we will be able to, but this these are the sorts of things that that we're looking at in relation to the tool.

15:06 I had a lot of questions about next steps. You know, where is this initiative going? You know, what happens after this? You know, I'm not gonna be able to give you fully satisfying answers at this stage, I'm afraid. You know, some of the possibilities going forwards, include, you know, further development or evolution of the tool to incorporate, and take advantage of of any findings that that that we generate from the analysis of the partner data. You know, we still have a dialogue going with with DoseMeRx, and, you know, this could also form part of that. And then the other thing that that is an obvious possibility is to, you know, extend our work with, for example, NIHR by applying for follow on grants, which could potentially be larger than the the the I think it was approximately $150 grant that that that funded the the current the current clinical trial.

16:03 So there's, you know, some of the ways in which we can move this forwards. So I'll just make a brief summary, and then I will go to the questions that we received prior to this call. And then I'll have a quick look at the the questions that have been submitted over the course of this meeting as well. And then we'll see where we get to. So, you know, really, the purpose of this presentation was simply to say, you know, the company is performing per per market expectations. You know, cash situation is is good in my opinion. You know, we have made some investment investments this year, and that has led to a a slightly higher level of cash outflow. But but that, you know, for the most part is is a very deliberate strategy on the part of the company to invest for growth. And it is something that that we said we would do when the time is right, and and we believe the time is right.

17:04 We are in the process of conducting an interim analysis of of the the partner trial data, we await the results of that with interest as I described in the previous slide. And we are also continuing with the board to look at other potential opportunities for growth As and when those are identified and and we feel that they're sufficiently tangible and likely, we will bring those back to you guys and and provide an update. Okay. So I will move on to the questions unless Yeah. No. Absolutely, Jim. Absolutely. Thank you very much firstly for your presentation, but let me just give you a few moments to to have a look at those questions. So ladies and gentlemen, please do continue to submit your questions using the q and a tab. Situated on the right hand corner of your screen, just simply type in your question and press send. But just while Jim takes a few moments to review the questions submitted already along with obviously those pre submitted ones, I'd like to remind you that a recording of this presentation along with a copy of slides and the published Q and A can be accessed via your investor meet company dashboard. Jim, as you quite rightly highlighted, you did see significant interest and questions from investors ahead of today's call. So if I may just hand back to you and ask you to read out the questions, both presubmitted and those that come in through the live meeting, and I'll pick up from you at the end.

18:21 Great. Thank you very much. Okay. So I will work through and answer as many of these questions as as I have time to and and feel in a position to. Some of them you know, there are some that are quite similar to one another, and and I I will those together where I can. So I'm just gonna start at the top and work my way through. So there are quite a few questions about, you know, whether the directors might buy shares. Why can't we buy shares? I mean, that's always a tricky question. It's it's down to individual directors to decide whether they want to do that. I guess just looking back at the history of of the company, we we have not generally been a company where where directors have have, you know, used shares in that way as buy or sell signals. So the first thing I would say is that I would not interpret our purchasing shares or failing to purchase shares in your view as a as a as any particular sort of a signal. I think it's more just a reflection of of who we are as individuals and and how we approach working in small companies.

19:25 What we are, however, is a company that that, you know, controls its costs carefully, pays its employees and its directors, you know, very reasonable modest salaries, especially compared with the AIM average, and a company where myself, my fellow board directors, and all of our employees are working extremely hard to try and keep our numbers moving in the right direction, to try and make the forecast that are put out there for us and and create long term value in the company. That that's all I'm gonna be able to say on that point. There are a couple of questions about significant shareholders. And, again, you know, it's I'm probably not gonna be able to give you a fully satisfying answer. I mean, you know that obligations in regard to notification are individual responsibilities of shareholders. So these t r one forms, you know, it's the shareholders that have to complete those, submit them to the FCA, and and send them to the company as well.

20:29 All I can do is assure you that whenever we receive those forms, we then issue them as an RNS, you know, within a very short period of time. So everything we have, you have. You know, unfortunately, I I cannot police whether or not individual shareholders, you know, accidentally or deliberately, you know, miss tier one notifications. What we do as a company every approximately every six months is ask our registrar to do a beneficial ownership search and, you know, publish the result of that on our website. We cannot do that. You know? I I don't think it's appropriate for us to do that more frequently than we do it at the moment because it has a not insignificant cost associated with it. And I would prefer to spend that money on on growing the company rather than than, you know, than than repeatedly and and frequently updating that information.

21:26 The other thing to say is that that beneficial search is is, you know, is is simply a it may it or may not be accurate in the the way it works as I'm sure you know is that the registrar writes to all of the private client brokers and asks them for information. It they're meant to reply. Generally, they do, but but that information may not be perfect as it is not coming directly from the shareholders concerned. So if any of our, you know, significant shareholders are listening into this, obviously, I would encourage you to comply with your obligations and and report any, you know, threshold changes to the market and to us. But but that's, you know, that that's all we can do about it as a company. Next question related to our pipeline.

22:11 And do we still believe we have a strong pipeline? Was Servier the big cup excuse me. Was Servier the large pharma company that that we spoke about? I think I tackled the second half of that question already. Yes. Servier was is the large pharmaceutical company that that we spoke about before. In terms of the pipeline, you know, we still believe it is strong. I mean, a little bit of it is is like an iceberg. So, you know, some of it is not visible to you. What what's visible to you is is significant client wins that that are announceable or where we, you know, we agree with the client that we can announce them if they're smaller. But what is building beneath the surface is is, you know, layers of of potential new clients from those where we've just had first contact through to those where we've had a dialogue, to those where, you know, we're in active discussions about a project through to those where a specific proposal is under discussion.

23:09 And, you know, bringing on board a professional and and dedicated head of business development really helped accelerate that that formalization and and and put in place some process and structure around around business development that that we didn't simply have the resources to do before. Next question was about DNA damage repair work, and are Merck happy with the outcome of the project? Are there more projects coming? Again, you know, it's hard to be specific here. I I would would say that we have a very strong relationship with Merck, that we're in a constant dialogue with them over the course of the year around the commissioning of new projects. As we've said in the past, we have gradually moved away with Merck from everything in sort of November, December time to more of a rolling procurement where projects are commissioned and and delivered over the course of the year.

24:07 However, you know, I can say with my hand on my heart that the total value of Merck projects for each each of of the, you know, the last financial years has at least met or or sometimes exceeded the the original target that that was announced back in 2017. So we we feel like, you know, that relationship is is is strong and still going well. Let me just pick up on some questions that I haven't already covered in my presentation. There's a question about whether or not we can apply for a patent on on any digital assets that come out of the the NIH funded personalized dosing program. You know, we we keep this under constant review. I think those of you who, you know, who have maybe are invested in other companies with with software will know that that, you know, traditional patent protection on software is not always possible or or cost effective.

25:07 However, there are other forms of IP such as copyright, know how, and trade secret, which perhaps, you know, do apply in a more meaningful way to software. And we're looking at all of these, of course, as a way of of protecting what we're doing. There is a question question about DoseMeRx. I I know I I did mention that that we still have an active dialogue with them in terms of their, you know, their relationship and the process with Tabula Rasa that was announced back in February, I think it was. Again, you know, I have no inside information on that. So all I see is what you see. I don't think they're gonna tell me before they tell the market if if and when something happens.

25:56 As I have said before, you know, our hope and expectation is that should that, you know, disposal be completed successfully, that DoseMeRx's new owner would be, you know, a a larger company that is interested in personalized medicine and might therefore, you know, be looking to invest further in in that field. And if that were the case, then I think PHYSIOMICS would be very well positioned to take advantage of that. And that's pretty much all I can say on that front. There's a question about project optimus, which I think I perhaps mentioned in a previous presentation. Project optimus is an FDA initiative to look at and possibly even start to embed personalized dosing more in drugs as they're being developed. And and here, the distinction is that our current program is focused more on drugs which have already been approved, but the underlying technology could be be applied equally to to drugs that are in the r and d process.

27:00 You know, all I can say is that we yes. We do believe that project optimist goals are very closely aligned to our own in relation to to personalized dosing and might therefore, you know, represent some sort of a collaboration opportunity. You know, I can't see any more at this time, but, you know, as and when there are any developments on that front, then we will clearly come back to the market and announce them. Okay. I think we've covered that. Yeah. I think we've covered the pipeline question and our revenue. There's a question about, you know, the rate of growth. I mean, it it's always tricky.

27:47 And and at the risk of repeating myself, you know, you saw from the earlier slide what the situation looked like when when I arrived in the company. You know, we really had one client, which was Merck. No pipeline, and really minimal revenues that were insufficient to to, you know, to to cover even the the bulk of our costs. You know, over the course of the last four or five years, you know, myself and my colleagues have worked extremely hard to build us up to a situation where, you know, we have a nice stable of clients. We have a a a good portfolio of of potential new clients. We've got significantly more substantial revenues than we had.

28:32 You know, we are in control of our expenditure so that, you know, yes, this year, we've chosen to invest more. But, you know, there are levers we can pull in either direction to manage our costs, and we have always done so very carefully and and conservatively historically. I hope you will agree. You know, all of our effort, all of our energy is dedicated to to making this company bigger and ultimately profitable and worth more for you guys. I think I mentioned already. So I think that covers all of the questions that we received prior to the meeting that I can speak to explicitly.

29:17 Let me just have a quick look through the q and a's that have come in to see if there's anything that I haven't already addressed. Okay. So there's one here saying it's great to see new names on the client roster. How much of this is down to recent additions to the team? How much scope is there for these new client relationships to grow? And how busy are you currently at prospecting new business? Well, I think I covered this a little bit. You know, the the the the new additions to the team in particular, our head of business development has been instrumental in in closing a number of the the deals that have been announced over the last twelve months. You know, what we hope and well, let me put it more strongly. What we expect to see over the course of this current financial year is that, you know, that additional business development resource will will lead to, you know, new client wins that we would not otherwise have had without that resource.

30:15 Clearly, we will continue to seek and hopefully win repeat business with existing clients as well. But, you know, business development will be focused on on getting new clients, and and we are extremely busy and very actively doing that right now. Okay. Here's another question here. Are pharma back to normal now and focusing on pre COVID r and d, or are they still focusing on COVID related vaccines? Well, obviously, we we don't work a lot in the vaccine space. However, you know, my impression is that, you know, there were a number of companies that that did well out of COVID by getting involved in testing or in vaccines. I think the ones that were involved in testing, you know, some of those, you know, that they've kind of had their day.

31:06 And as testing is is no longer such a material thing as it used to be, they're now having to, you know, think about how they can live their lives without that extra boost of testing revenue. In terms of the vaccines, I think the larger companies that are involved in vaccine r and d, you know, will continue to do that because, you know, COVID has not gone away as you can see when you turn on the news every day. And and so, you know, there will continue to be some focus there. I think, you know, for our clients that are mainly in the oncology space, you know, we see no diminution of activity in in oncology r and d, and, you know, companies are still spending. There is another question here saying, what is your USP compared with other companies offering similar services? So I I think it's a number of things. So I think the the virtual tumor platform that we have is unique, and then no one else has that. It's very useful for looking at combination treatments of of oncology in oncology settings.

32:12 I think the fact that we focus mainly on oncology as a modeling company is is is gives us a particular specialization that clients value. And I think at the moment, while we remain, you know, relatively small, I think that the flexibility and and the nimbleness that that that enables us to to to to give to clients is is highly valued. I think that's the last question that that I have, and I'll close at that point and and wish you all the best. That's great. Jim, thank you very much indeed for your time and for updating investors this afternoon. Can I please ask investors not to close this session as we'll now automatically redirect you for the opportunity to provide your feedback in order the management team can really better understand your views and expectations? This will take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of PHYSIOMICS PLC, we'd like to thank you for attending today's presentation, and may I wish you all a very pleasant afternoon.

33:07 Thank you.