Proteome Sciences (LSE:PRM) — Half Year Results

0:01 Good morning, and welcome to the PROTEOME SCIENCES PLC Half Year 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 in 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 or receives 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.

0:32 And I would now like to hand you over to CEO, Maria Lassongen. Good morning to you. Good morning, everybody, and a very warm welcome to the presentation of PROTEOME SCIENCES Interim Results for the First Six Months of twenty twenty three. My name is Mahiola Zungen, and I'm the CEO of PROTEOME SCIENCES. I'm joined by my colleagues, Abdel Omari, CFO Ian Pike, CSO and Richard Dennis, CCO. So let's get started with the presentation. The disclaimer is basically basically to inform you that we'll be making forward looking statements. And this presentation is not to be seen as an investment advice. All the contents is provided for information purposes only.

1:22 Good. Let's start with a short introduction to our company and some highlights. So as many of you will know, we are a leading provider of contract research services for the identification, validation and application of protein biomarkers. So basically, our business consists of two business areas. One is the tech business, and the other one is the service business. Now what I've just read to you is hinting very much to the service area, where we are providing, well, information about our identification of biomarkers to our clients. And to facilitate this, we are using certain tags. So what are tags?

2:09 Tags are chemical substances that facilitate the identification of proteins. So very briefly, such chemical substances would bind to proteins, and then you could detect them in the mass spectrometry or with mass spectrometry analytical methods. Now we are an established business with a good brand name, obviously. We are revenue and profit generating. So this gives us a very good standing when compared to many of our competitors. We hold the IP, so the patents, and we also manufacture TMT and TMT PRO. And this is hinting to our tech business. So TMT stands for tandem mass techs.

2:58 And we have here a really leading position worldwide with regards to these techs. And they are currently a major revenue generator for the group. And these products are also high margin. And the patents which are covering them are running through until the mid-2030s. So as much as this is not exactly just around the corner, we are already working on the life cycle management of these techs, and we will come to that in a couple of minutes. Now so far to the tech business and with regards to our services that we are offering to our clients, we can proudly say that our methods match or exceed performance of others in terms of PROTEOME coverage.

3:51 So many of our competitors, obviously, are also looking into the PROTEOME. But with our text that we are using plus the methodology that we are applying, we can also see, for example, protein variants. And that is quite an important finding because when you when you just find a protein, it could well be that's an inactive protein or an active protein. You will probably only find out when you look into the variants, and many other methodologies can't do that. Now with the services and with this protein biomarker detection, we generate really tons of data that need to be evaluated.

4:41 And for this, we have our proprietary bioinformatics methodology and a whole team here on the ground in Frankfurt, who not only evaluate this data, but they also, and it is nearly more important, deliver the biological insights. So what do these data really mean? What is the value and the answers that our customers are expecting? And this is all meant to drive their research projects, for example, in drug development or looking into certain medical areas, evaluating disease progression, etcetera, etcetera. With regards to our service business, we are obviously also looking in new and innovative ways forward. And as such, we are expecting to launch a new service called single cell proteomics later this year, and we will be one of the first providers to offer this to the market.

5:43 So very exciting development and a high need in the market. And as I said earlier, with regard to our tech business, we're obviously also looking into extending the life cycle of these techs, and our chemistry group continues to innovate and expand the portfolio. And it's on the isobaric side, which is basically techs that are falling into the TMT, TMT PRO family, more or less, as well as on the isotopic mass techs. So that is an area that opens really new markets and hints at DIA technology for those of you who might be familiar with the matter. So there are new application areas on the horizon. Last but not least, we are expanding into The U. S.

6:32 So in previous reports that we have issued and published, you will have read that we are looking into internationalization efforts, and this is what was meant with it. We moved into our San Diego facility just last month.

6:51 2023 is, for us, really a year of investment. We have not only added internal capacity and are obviously also always upgrading our instrumentation, But The U. S. Lab that we are setting up, we are setting up from our cash flow. So it's no dilution to shareholders, and I think that must really be stressed that we tried to be here as diligent as possible. We have also funded the development of this new servicing at Cell Proteomics as well as the new reagents and all internal improvement processes ourselves from our own cash flow. And last but not least, we have repaid part of our loans to improve our balance sheet, and Abtel will later comment in the financial part of this presentation.

7:46 So these measures, you can imagine, all increase the costs, but they provide the foundations to prepare our company for the future. And not only adding new services, but also internally improving what we are doing is meant to remain competitive and build the basis for further growth.

8:11 2023, a year of investment, but also a year of progress, of course. So I've mentioned the expansion in The US. The lab is situated in San Diego. And you might wonder why did we really choose, first of all, The US and second, why this location? There are obviously rationales for this. The majority of our clients is U. S.-based, and there is quite a number of clients we saw over the last couple of years that had concerns over shipping costs of samples, time delays due to customs, etcetera. So that has really prevented to unfold more potential in The U. S.

8:57 Market. And San Diego, West Coast in general, but San Diego is really a hub for biotech and pharma. And so we see there, basically, just in the same quarter where we are just across the street, that there are so many clients of us existing or future clients, that this is really an ideal location to be. So all in all, for us, a strategically very important decision and, obviously, also an investment. Now the launch of Siskuan single cell proteomics, the final preparations are underway. There have been quite a number of technological challenges that needed to be addressed.

9:44 We have done this successfully, and now we are really in the final preparations to set up the service. And here, also, we see a lot of potential to generate new business and, obviously, then also revenues in the future. So that is the innovation on the service side and the new tech development. Also here, good progress has been made on both in both areas, the isobaric as well as the non isobaric techs. And, there is quite good interest in the market, parties to, partner these new techs with us.

10:24 And I mentioned the internal improvement processes. So we always strive to offer innovative solutions to our clients and also, obviously, to, well, increase our margins by this innovation. Now other proteomics providers are there, our competitors. So what is our USP? First of all, I would say it's really very high on the list, is the unbiased detection of known but also of unknown proteins. So many of our competitors have to work with biased detection. So they are looking for what is known already.

11:07 Then using mass spectrometry provides for high resolution and offers the capability to identify new and novel, including modified biomarkers. So that was what I was alluding to earlier. You detect a protein, but it makes a very big difference whether this protein is, for example, phosphorylated or otherwise chemically modified. So that can really define whether a protein is an active protein or an inactive protein. So if you only find the protein, you don't have the full answer. And with our high resolution methods, we are able to, provide this answer.

11:52 And that translates into a greater depth and precision of protein detection and, together with multiple platforms for targeted protein measurements. We work according to high standards. So it's according to ISO as well as GCLP, and that shows the quality of our work. And now also with, The US base, we offer US and EU based services, and we'll be able with a new lab to serve our clients even better, as we have done before. And the innovative services, single cell and the newer techs have been mentioned. So all this, translates into a more focused and targeted drug development and better decision making, on the side of our clients.

12:50 So the first half year summary from the operational and commercial side, and then we'll switch to the financials, is that the service business revenues showed good growth compared to the same period in the last year. The planned opening of The U. S. Lab has been very well received by US clients, and many have approached us very proactively initiating new discussions. Some clients we know from the past, but now that we have a, yeah, a lab on the ground in The US, they are even more interested to work with us. Then the interest in single cell proteomics is strong.

13:39 There aren't many, if at all, providers that offer that service. Obviously, there is a possibility to work with academia. But commercial entities are still haven't really entered the market. So for us, it's being one of the first is very important. And we arrive we expect orders to arrive now very swiftly as we will be informing the market about the commercial launch in the near future. The TMT revenues in the first half were 8% lower, in line with the reduction of the royalties.

14:26 We have informed you and the market that the first TMT patent in The U. S. Had expired last year. That was associated with a slight decrease of the royalty rate. Overall, sales of the TMT products were steady, and we expect full year TMT revenues, and this, of course, excludes the milestone that we have received last year, to be close to 2022, with a return to growth in 2024 once the effect of the royalty reduction is fully realized. So this is our expectation how the TMT business will develop. We have also to state that, in general, and we hear this across really our client and partner base, in general, the macroeconomic situation has impacted the market, particularly with regard to our clients and partners.

15:25 And we have to inform you that this could possibly continue in the second half of twenty twenty three. And with advance of the year, we expect the potential of single cell proteomics and the revenues from The U. S. Lab to unfold and deliver first meaningful revenues in 2024.

15:50 Operational and commercial summary, I would like to hand over to Abteil Omari, our CFO. Thank you, Mariola. Good morning, everyone. I will now give you an overview about the key financials for the first half of this year and compare this to the first half of last year.

16:11 So let's look at the key financials summarized on this slide, and then we can look into more details on the following slides. Total revenues were GBP 3,210,000 compared to GBP 3,240,000, so basically flat year over year compared to the first half of last year. The service revenues were up 19% to 1,010,000, whereas, as Marjona has just mentioned, TMT sales and royalties were down 8% compared to the first half of last year, and that's mainly due to patent expiry of the earliest TMT patents.

16:59 As Marjole has also mentioned, this year, we see as a year of investment. So cost of sales and admin expenses are up to CHF 3,370,000 compared to CHF 2,980,000 in the prior year period. And we're showing an adjusted EBITDA of EUR 270,000 compared to EUR 640,000 in the prior year period. We were cash flow positive, so we generated EUR 920,000 from operating activities, which we have mainly used to also repay the Valpar's loan in an amount of EUR 820,000. The cash position is good. Cash reserves at the end of June were EUR 3,790,000 as compared to EUR 3,200,000 twelve months before.

17:55 Now looking at this in more detail. What you see here are the TMT revenues. At the top, you see the long term development from twenty eighteen to twenty two, where we have seen very good growth. The five year compounded growth was 17%.

18:18 The patent term is until 2035. So there are many years to come with this revenue stream to continue. Now looking at the development in the first half of this year. Revenues from TMT sales and royalties were €2,200,000 versus €2,390,000 a decline of 8%.

18:45 Looking into more details, the sales of tax remained level with 1,450,000, but the royalties declined 20% due to an adjustment in royalty rate after the expiration of the earliest TMT patent. As I've just said, the ongoing patents are until 2035 in respect of the TMT PRO reagents, and we do not expect any further reduction in royalty rate on these products.

19:16 Now looking at the Service business. Again, on the top, you see the five year development of the Service revenues. So really, very strong growth, compounded growth over the five years of 38%. And the business was running at 100% capacity. And now looking at the first half of this year, the service revenues are up 19% to 1,010,000 compared to CHF 850,000, reflecting the strong order book and banked samples we carried forward from 2022.

20:00 The opening of the lab in The U. S. And also single cell proteomics have not yet contributed to the revenue development in the Service business. So here, you see the total revenue development, again, over the five year period, where we're coming from around CHF 3,000,000 in 2018 to close to CHF 8,000,000 in 2022. And then looking at the bottom, if we compare just the first half of this year with the first half of last year, revenues were basically flat with CHF 3,200,000. And the details I've already described to you, so I will not repeat it at this stage. Now let's have a look at the profitability.

20:55 So what you see here, we've chosen adjusted EBITDA, but the picture for net profit is similar. Basically, what you see at the top is the company turned profitable in 2019 with growing adjusted EBITDA since then. And if we now look at the first half of this year and compare it with the prior year period, we see that the adjusted EBITDA has decreased from EUR 640,000 to EUR 270,000, and that is primarily due to flat revenues and higher costs. The cost of sales and admin expenses went up 13% to EUR 3,370,000 versus EUR 2,980,000, and that's mainly due to the investments in capacity expansion, including setting up The U. S. Lab as well as new products like single cell proteomics and the development of new techs. So it's really an investment into the future of the company.

22:04 Now looking at cash and debt. So what you see here is that we are showing a debt of CHF 10,800,000 on the balance sheet as of end of June, and we have a cash position of CHF 3,800,000. So that gives net debt of CHF 7,000,000. Developers loan no longer shows up on the balance sheet. So we repaid this loan in May this year. So all the remaining debt is held by Christopher Pearce, our Chairman and a significant shareholder, who is committed to the company's success. So there is no pressure to repay the loans in the short term.

22:52 There is an annual covenant to not seek repayment for the twelve month period when we sign the accounts. And as is described in detail in our financial statements, 5,000,000 of this debt is convertible, 1,000,000 is nonconvertible and then the rest is accrued interest. Now looking at cash flow. You see that we have generated cash flow of EUR 900,000 from operating activities. As I've just mentioned, we repaid €800,000 to Valpers, but we have also used the cash flow and cash at hand to invest in single cell proteomics, the new techs and also The U. S. Lab. So that is all financed internally without tapping into the market and diluting shareholders.

23:50 The cash position is strong, was €3,800,000 at the end of June. And we will diligently look at how deal with this cash in terms of further investment into growth, but also potential repayment of debt is something that we will look into. I think this concludes the financials. And with this, I hand back to you, Mariola. Thank you very much, Abdel, for the presentation. Well, this is actually the end of our presentation, and we are now happy to answer your questions. Perfect. Mariola, Abdel, thank you very much indeed for your presentation this morning. Ladies and gentlemen, please continue to submit your questions using the Q and A tab situated on the top right 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 your investor dashboard.

24:50 Mariola, Abdul, Ian, as you can see, we have received a number of questions throughout today's presentation. And if I may now hand back to you, Ian, to chair the Q and A, read out the questions where appropriate to do so, and I will pick up from you at the end. Okay. Thank you very much. Again, I hope everyone can hear me okay. And let me just sort out. I've got some background noise here. No. Get rid of that. Yes. Thank you very much. As said, we have received a number of presubmitted questions, and I see a couple of questions to start starting to roll in. So we'll start with one of the presubmitted questions, which is around the setting up and staffing for The US office.

25:44 So the the first question is to ask, can we describe the process for that? So I will happily address that by saying we've used a range of tools for recruitment based around specialist recruiting companies in the biotech sector. Obviously, being the fastest growing biotech hub in The US, it attracts a lot of talent. There's quite a lot of turnover of staff as well, so it means that a pool available at any given time. And, of course, specialist recruiters. So we've been very successful through that route, but also we've used networks like LinkedIn, and we're able to recruit one of our people through through LinkedIn. That involved both sort of Zoom based interviews initially and then face to face interviews during trips over to California in May and June.

26:45 So that's very much the process that we've gone through. We're starting with a team of of three to address one of the submitted questions that's just come in, And we expect the lab to be operational by the end of the year. As with all things around new labs and equipment supplies and stuff, it's dependent on lead times and availability of kit. We're doing well on that front, and so we are optimistic that we will be generating revenue more significantly in 2024, but we'll be working on customer projects this year, all things continuing as we expect them to. The team are currently reporting to myself, and, we will be growing, both the size of the organization and the range of services available, through The US Lab, in response to market demand.

27:46 But initially, we as Marietta said earlier, we have seen a very positive response from both existing and new customer contacts who are seeking a local provider of proteomic services. So we think we'll we'll not suffer for getting contracts in relatively quickly. Another question that was submitted around The US Lab was, does our presence there make explaining and selling the platforms we have easier. Inherently, it does. And one of our staff recruited has business development experience from his time working in an academic core lab where he was also out promoting the searches of that through the University of California at San Diego and more widely in the biotech community. So that's an extra asset that we have to to bring contacts in, and indeed, we we've already received a number of contacts through that route.

28:45 So, yeah, The US plans are going as we expect them more or less at the moment, and we we do expect to have customer projects running before the end of the year. Okay. I don't know if any other colleagues want to say anymore on The US lab situation. I think that was really sufficient. A lot of information. Thank you. Okay. There was another question submitted about the the single cell proteomics workflows that's scheduled to be released this year. Mario has already addressed that, but, yes, we do anticipate launching the service this year, and we would hope to have first projects completed this year as well.

29:35 And next question, can we provide some idea of when we will be releasing our new isotopic Plex DIA reagents? Would it be this year? Mario, I don't know if you want to provide some comments to that. Please go ahead, Ian. Very well. So as Mario mentioned in the main presentation, we are currently reviewing our commercialization options. We have a degree of interest out there as Mario described it. You know, there there's strong interest in these tags. People see multiplexing of DIA as a way to gain some of the benefits that you have with with TMT.

30:22 We can't really give any further guideline at the moment, but we will provide updates once we've completed that commercialization planning. We hope that we'll provide those updates before the end of the year. As you can imagine, it's it's a somewhat complex process as as you start engaging with third parties. But the technical evaluation has proceeded well with the tag, so we're quite happy with that. Okay. The next question I have submitted, I'll just check for for any new ones, was around the CASAVA SCIENCES SABA DX product.

31:08 Someone asking that since CASAVA have announced PRMITIUM SCIENCES involvement with their new SABA DX diagnostic with their new drug. Can we provide shareholders with a statement about this arrangement? Well, I haven't seen any statement from Kasava saying they're working with PROTEOME SCIENCES. They referenced that they're working with third parties. And as as is common with all contract service organizations, we are not at liberty to disclose any information relating to our customers without their approval. And as far as we're able to determine, cassava have not disclosed who they're working with, and we have no comment to make beyond what cassava put out against their business.

32:02 Okay. Question next question. In fact, there were two somewhat related questions around existing IP, around Alzheimer's disease, biomarkers, and the c k one d families. And the questions are basically as these patents are now being granted, can we comment on the prospects of new license agreements for their use? Well, I can't say that we have anything imminent that we can talk about. The patenting process is long, and it's taken prolonged period for these to go through the examination and prosecution process.

32:49 And now that we have patents granting for most of these families, it certainly adds weight to our sort of commercial activities around around these patents. And should we attract licensing interest, then we'll certainly be updating shareholders with that information as soon as we're able to do so. Marilla, do you have anything else to add on that? No. Thank you, Ian. Okay. Excellent. So that's those two dealt with. Next, we were asked about the TMT 32 plex reagents and and their release dates.

33:41 It's gonna sound a bit like a broken record, but we can't we can't be clear at this stage exactly when they're gonna come into the market. That's obviously something we're working with our commercial partner, Thermo Scientific, to determine. As you can imagine, there's a degree of work that needs to go into the synthesis and then the initial testing of these tags. So towards the end of that process, everything's looking really good. We will expect to have the tags available for our service business before they're out in the general marketplace. And I think that's also a useful thing because it shows some existing customers the benefits of the higher flexing rates and will also allow third party users who want to start accessing 32 plex DMT to see some of the data that's coming ahead of those studies.

34:37 So we're optimistic they'll be in our hands early in 2024, and they will be on the market, I'm sure, at some point next year. But exactly when, we can't say at this stage. Okay. A question that's probably going to be best addressed by Richard is asking about the, size of contracts and the type of work, we're envisaging from our San Diego facility. Richard, maybe you have some comments on that. Yeah. Thank you very much, Ian. I think, the San Diego lab is really going to mimic, a lot of the types of projects that we receive in Frankfurt at the moment. Of course, you know, we've said previously that most of our business or a good proportion of our business comes from The US, and a degree of that, of course, will come from the biotech labs in San Diego.

35:40 So I don't expect any major differences over and above the fact. As Mario indicated at the beginning of the presentation, we've received some very positive comments from our current and previous customers into the convenience of having a lab in San Diego, of course, just down the road. So it makes shipping and communication much easier since we're on the time same zone and, as I said, just a few miles down the road. So but I think fundamentally, the type of business, you know, whether it be looking at the PROTEOME or post translational modifications like phosphorylation will essentially be, very similar to what we see in Frankfurt. Yeah. Thanks, Rishi. And I would say, you know, the other thing that we do expect both in Frankfurt and in San Diego is that as we start bringing the 32 flex TMT PRO reagents online, we will we will expect larger overall studies to to arrive.

36:41 It it does mean that we can use economies of scale to reduce the per sample price, but at the same time, we'll get bigger cohorts so the overall study value for the same amount of time will increase. And I think that's, you know, a a significant benefit of the higher plexing that that we can bring in. Okay. Next up. By the way, we're getting towards the end of the presubmitted and currently submitted questions. So if you do have any more, do tap them into the q and a panel. You can access in in the control setting for the for the webinar. So next question I think I can take is a question around Galaxy CCRO who have licensed our stroke biomarker patents and, as we've reported previously, are developing a point of care lateral flow test to to determine the time of onset of stroke.

37:45 So, there have been a number of delays pending contract negotiations with the trial site, but these are now completed, and the schedule is the trial is actually scheduled to start this week. But we don't have any more information than that from Galaxy, and I'm sure they'll up update their shareholders of which we are one in due course once the trial has started has been running for a couple of months and they start to get a sense of how the data's looking. So, yeah, Galaxy at last is progressing. Next question is for Mariola more is to say, you know, what are the plans for the company for the rest of the year? I think you've addressed that in the presentation, but maybe you can reiterate some of the highlights.

38:35 Sure. Sure. No. Absolutely. Thank you, Ian. Yes. A lot is on our plate, as you have heard when we went through the slides. So the US Lab is a big, big project for us. For us, it requires a lot of capacity and resources to be put in to to make it successful from the start despite the fact that we will be starting with a small team. Then the launch of single cell proteomics is also quite imminent, and we will need to, well, set this service up and attract clients and, yeah, get rolling really on it. The new techs in both areas, as we have discussed, is progressing very nicely. And this does not only require internal, like, chemistry capacity, but, also, obviously, partnering, activities both with existing but also new parties, who are, interested to, team up here and, yeah, all in all, develop the business further.

39:43 Thank you, Mario. That yep. It's certainly an action packed next four months, and, you know, we we've got plenty on, but it's it's exciting times and good progress on all fronts. Okay. I think we're down to the final question unless we get one more submitted in the meantime. But it's the perennial question of what what's our broker forecasting for pretax profits this year and next year. Abdul, maybe you want to take that one. Yes. Thank you, Ian. Currently, we don't have brokers broker issuing research notes on PROTEOME SCIENCES, so there are no broker forecasts available.

40:34 But it's clearly on our agenda to have research notes issued. We're just not there yet, but it but it's something that we would like to have, and we're working on it. Thank you, Abdul. We haven't had any more submitted questions. So at this stage, I'll hand it back over to, the IMC team and thank everyone for their attendance and their, presubmitted and, questions submitted during the session. Thank you very much. That's great. Ian, Mariola, Abdel, Richard, thank you for that. And I think you have addressed those questions you can for investors today. And, of course, the company can review all questions submitted today, and we will publish those responses on the investment company platform. But before redirecting investors to provide you with their feedback, which one is particularly important to the company, Mariela, could I please ask you for a few closing comments?

41:28 Yes. Thanks very much. So thanks to all of you for coming, your interest and your questions, particularly. We hope that the exchange we had today was helpful and adds some more flavor and information to what you know about the company. So this concludes the meeting, and we are looking very much forward to welcoming you again in the future. Thank you. Mariola, Abdul, Ian, 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 management team 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 PROTEOME SCIENCES PLC, we would like to thank you for attending today's presentation.

42:17 I'd good morning to you.