ImmunoPrecise Antibodies Ltd.
Q4 2021 Earnings Call Transcript

Published: 1 Aug 2021

[Operator:]

Good afternoon ladies and gentlemen and thank you for standing by. Welcome to ImmunoPrecise Antibodies Financial Results and Business Highlights Earnings Call for the Full Fiscal Year 2021. At this time, all participants are in a listen-only mode. Following the presentation, we will answer pre-submitted questions. I would like to remind everyone that this conference call is being recorded today, Wednesday, July 28, 2021, at 4

[John Mullaly:]

Thank you and welcome. Dr. Jennifer Bath, President and Chief Executive Officer of ImmunoPrecise Antibodies and Ms. Lisa Helbling, Chief Financial Officer will be the speakers on today's call. A Q&A period answering pre-submitted questions will follow their earnings report followed by closing remarks.

[Jennifer Bath:]

Great. Thank you, John and good afternoon, everyone. I offer a warm welcome and I thank you for participating in IPA's inaugural annual earnings call today. We're excited to be on this call, which is another major step forward in the accelerated evolution of IPA's identity, which has solidified in the last couple of years. Before we begin with routine updates, I would like to take a step back and provide some runway, so everyone on the call can get a sense of where we've been, what we have accomplished, and what our future goals are. So, for those who are joining, who I may not have had the pleasure to meet, my name is Dr. Jennifer Bath. I am the President and CEO of ImmunoPrecise Antibodies. I joined IPA about three and a half years ago. My formal training is in cellular and molecular biology with an emphasis on immunology and infectious disease. I spent the science part of my professional career in the discovery, development, formulation, and also preclinical testing of therapeutic antibodies and vaccines. I also have about 15 years of management experience including a decade working in the CRL, CMO, and CDMO industry space that stands for contract research, contract manufacturing, and contract development and manufacturing organization. And the latter of which represents clinical manufacturing primarily.

[Lisa Helbling:]

Thank you, Jennifer, and good afternoon, everyone. I'm Lisa Helbling. I'm IPAs, CFO. And unless otherwise noted, all numbers referred to in this presentation are in Canadian dollars. The company achieved revenues of $17.9 million during the fiscal year 2021 compared to $14.1 million in 2020. A $3.9 million, or 27% increase another record high. The company's CRO business increased $2.7 million or 19%. And we recorded a sale through Talem of internally generated therapeutic antibodies for $1.2 million. As Jennifer noted Talem and the assets in its portfolio are an important part of IPA strategy. And this transaction mark Talem's first notable sale. The company's CRO business continues to grow both in the number of projects and the financial side, as Jennifer mentioned, due to our expanding breadth of services and the technologies offered we're attracting new partners and retaining our existing business partners. The company's gross profit was $11.5 million with a 64% gross profit margin compared to $8.8 million and a 57% profit margin in 2020, a $3.5 million increase. This increase is due in part to the Talem antibodies sale. The cost associated with developing these antibodies were expensed research and development in prior years. so the sale had a 100% profit margin. Accounting rules generally do not allow a company capitalize these types of research and development costs. The company’s operating expenses for the fiscal year were $19.1 million compared to $12.6 million in 2020, an increase of $6.5 million. The report expenses that primarily make up the increase. As you know, the company became dual listed in NASDAQ in December of 2020, the cost associated with uplifting were approximately $1.8 million. These costs are spread across many expense categories, such as office and general, professional fees and insurance and includes expenses such as our advisors, our directors and officers insurance and filing fees. The company invested $2 million in research compared to $400,000 in 2020 for COVID-19 and other research projects. Salaries and benefits increased $1 million due to an increase in headcount, merit pay increases, incentive compensation and providing Directors with cash compensation. Share based payments increased $2 million. Stock options are awarded to employees and certain advisors to align their interests with the goals of the company and shareholders. Stock options are expensed over the vesting period. In our other income and expense category. I mentioned that the company had invested $2 million in research and development, while the company also recorded $1.9 million in grants to support its research efforts. In addition, the company received subsidies of $844,000 from Canadian and US government’s COVID related programs to retain employees and to subsidize rent. One last thing off note in the other income and expense -- spend section, the company recorded $1.1 million in unrealized foreign exchange losses due to cash held in the US dollars from our capital raise. This is an unrealized loss and its non-cash. The company recorded a net loss of $7.3 million for the year compared to $5 million in 2020. The increased loss can be summarized as a result of our higher gross profit and grant and subsidy income offset by the NASDAQ uplift costs in our investments in research and development, higher salaries and benefits and share based payments. Before I touch upon adjusted EBITDA, I must caution the investor that adjusted EBITDA is a non-IRS measure, do not place undue reliance on adjusted EBITDA. I urge you to read all of the IFRS accounting disclosures presented in our consolidated financial statements for the year ended August 30th, 2021 and 2020. Adjusted EBITDA is management's view of our operating earnings. For the year ended 2021, the company's adjusted EBITDA was $2.3 million compared to $52000 in 2020. The significant improvement in adjusted EBITDA is primarily the result of our increased gross profits. The awards of government research grants and subsidies related to COVID-19, partially offset by our higher research costs, our salaries and benefits, and expenses related to NASDAQ uplist. I will touch briefly on the company's quarterly results. The themes for the quarter are very similar to IPS fiscal year 2021. The company achieved its highest quarterly revenues during fourth quarter of $4.9 million, continuing the upward trend over the past eight quarters. This revenue growth is primarily from the company’s CRO business, which is noted before is due to our expanded service offerings, resulting in an increase in the number and size of projects. The company achieved gross profits of 2.8 million compared to 1.9 million in 2020, an increase of over $800,000. The company's gross margin was 57% in the fourth quarter compared to 47% in the prior year. The increase in gross profit is a result of historical year-end accounting entries to allocate overhead expenses to cost of sales. With the implementation of the new ERP system, overhead allocations are now being done monthly and we anticipate seeing a more consistent growth profit in the future. Regarding the quarterly operating expenses, other income and expenses and losses, the Q4 noteworthy comments are very similar to what we had on an annual basis. So, I will not take time here to review those, but I'll refer you to the MD&A. However, the company received an investor -- or couple of investor questions related to Q3, and that's the period ended January 31. The questions were what happened in Q3 causing a depth in the CRO revenue. And with the company’s focused on talent, why was there so -- why was there no research and development expense recorded in Q3. Two years ago, the company began a major effort to implement an Enterprise Resource Planning system to support management in the board in exercising their oversight across the company. The ERP system is comprehensive supporting a wide range of activities, such as customer relationship management, tracking of our pipeline, and of course, accounting and financial reporting. The ERP system was implemented May 1, 2020. So while the system was used across the company in 2021, the final implementation steps were complicated by travel restrictions due to COVID-19 in addition to the system, the company implemented new processes and procedures, and transition most of the accounting and financial reporting to its shared service centre here in Fargo, North Dakota. At the same time, the three labs began doing significant intercompany research and development projects for talent. For consolidated financial reporting, all intercompany transactions must be eliminated. During Q1 and Q2 of fiscal 21, the company miscalculated the intercompany eliminations, which was corrected in the third quarter. The pro forma effect of the corrections can be found in the MD&A. The impact to our public financial statements was immaterial overstatement of revenue in Q1 and Q2, but a noticeable understatement in Q3. The correction also impacted gross profit and our research and development expense, as all of the intercompany profits need to be removed from research and development expense. So, for those of you that have a visual, you can see on the chart, the impact of the actually reported revenue and the pro forma. And for those without a visual, the pro forma is showing an upward slope line in the pro forma versus a slight dip in Q3, as reported. I would be remiss, if I didn't touch on IPAs balance sheet. At a very high level, you will note that IPA liabilities have been reduced by approximately $2 million. During the year and subsequent to the year-end, the company satisfied all its deferred acquisition obligations. On the asset side of the balance sheet, the company increased its assets by approximately $40 million. As of April 30, 2021, the company held $41.8 million, as compared to $2.7 million, as of April 30, 2020. We have working capital of $42.8 million. The increase in cash is primarily due to the public offering of the company stock and proceeds from the exercise of warrants and stock options. From my finance perspective, during the fiscal year 2021, IPA has many accomplishments. The company earned $17.9 million in revenue, another record high from its growth in the CRO business, plus recording our first notable sale through Talem. The company continued to invest in its future through research and development, and it’s people, both of which are needed to support our strategies. The company achieved a major milestone with its NASDAQ uplift and a capital raise that growth proceeds at US$25 million. The company completed the third and final deferred acquisition obligations for past two acquisitions. And the company completed its significant ERP system implementation with as many benefits for the board, management, investors and employees across the companies. The benefits have yet to be fully realized but from my perspective, we've already realized improved visibility and financial reporting. And with that, I will turn the call back over to John and Jennifer to address some questions-and-answers.

[Operator:]

[A - John Mullaly:]

Thank you, Lisa. Before Jennifer adds any closing remarks, I'd like to spend a little time asking some questions that were received from both analysts and investors. So the first question reads as follows. Can you please provide us with an update on any GMP manufacturing plants?

[Jennifer Bath:]

Sure. Thanks, John. So earlier this year, we launched a campaign to – was actually significantly early in fiscal year 2021 to design a cGMP certified CHO based protein manufacturing facility. This was to meet the downstream needs of our clients. And I think we discussed this several times in our written MD&A and articulating our strategies for the future. And when we recognize that GMP manufacturing was obviously a natural extension of our workflow, and also a very high profit margin area and very compatible, not only with our current offerings but also with the expertise of our management team. We completed an in depth engineering study and budgets, and we began working with investment groups. Then, really interesting phenomenon occurred in the CDMO and therapeutics market. After years of uncertainty and hurdles around regulatory approval for the use of messenger RNA as a direct injectable in patients, so rapid approval during the pandemic regulatory landscape led to a broad acceptance of RNA in a clinical setting, which generally had otherwise, previously faced regulatory delays, and in the eyes of some still lacked sufficient safety and toxicity data. This is and was an unprecedented change in the landscape for the manufacturing of clinical products. In a market where downstream applications, such as DNA and RNA vaccines and therapies, cell and gene therapy, gene editing, and viral vector production are all converging. And almost overnight transformation of the industry changed the way that researchers and physicians look at vaccine and therapeutic drug administration. This has led to a paradigm shift, in how we approach clinical manufacturing of these products, and also led to the rapid acquisition of nucleic acids CDMO leaders in the field, such as AbCellera and also recently Lake Pharma. This is in part due not only to the strong forecasted DNA and RNA based therapeutic and vaccine markets, but a global strain also on capacity. So in true fashion, despite the work we put into protein based manufacturing, ImmunoPrecise pivoted rapidly. We engaged engineers, specialists, investment groups and industry leaders to help position our plan for the future of therapeutics and vaccines. For the past many months, we've employed a well known respected expert on the design of a 6,204 square meter in-house, high capacity manufacturing facility, capable of processing 50 CGMP batches of plasma DNA per year. DNA can be used in many applications such as the delivery of therapeutics and vaccines, in a fraction of the time, when utilizing protein, gene therapies, cell based therapies and viral vector production, and it's also the starting material for in-vitro messenger RNA production. The facility design, include the dedicated messenger RNA manufacturing suite for RNA based therapeutics and vaccine development. We've completed the engineering plans and the budget and we're in the process of applying for regional and federal funding, which if received, we expect with catalyze our plans into action this fiscal year.

[John Mullaly:]

Thanks, Jennifer. I'll proceed to the next question, is as follows. Has there been any progression towards a commercialized vaccine with the light backs partnership? Can you provide any further updates?

[Jennifer Bath:]

Yes, yes, we can. There has been progress there. And we're happy to share this because we do consider this a non material update. Quite recently, we were informed that TRANSVAC2, the EU vaccine and R&D infrastructure approved after many months of analysis to determine recipients to award a second round of funding to ImmunoPrecise in LiteVax. The funds cover the further evaluation for the potential of our SARS-CoV-2 low single dose vaccine candidates. This will include an immunogenicity study in swine using a slightly fine tuned version of the vaccine to enhance functional immunogenicity and also reduce mutagenic escapes. In the event that that data further indicates the induction of functional immunogenicity, trends back to has also committed to funding a follow on vaccination challenge study in Syrian hamsters to accelerate proof of concept to support further development.

[John Mullaly:]

Thanks, Jennifer. The next question reads as follows. Do you think there's still a large opportunity for therapeutic antibodies in the broader COVID treatment landscape?

[Jennifer Bath:]

Yeah, so we get this question a lot. And resoundingly, my answer is, yes. Absolutely. We feel very comfortable in saying that the scientific community in general, and the experts that were in communication work with and work with, believe it will take more than a vaccine to gain an edge against COVID. As vaccine immune responses, as many of you know, they are largely variable, some individuals are ineligible to receive them. We're witnessing breakthrough cases more frequently than previously, which are speculated to rise due to the reduced efficacy of the vaccine against variants. And there are highly impacted countries, which also tend to be the ones that see higher rates of variants spread and lower vaccine distribution. It's unfortunately a perfect storm that in some ways may perpetuate itself. Many now call into question, the eventual herd immunity for SARS-CoV-2 in particular. As of May 2021, the availability of therapeutics for affected patients was still limited, with so far only one product remdesivir, not a therapeutic, authorized for emergency use. The main reason for that is the antibodies that had been authorized for use did not stand up to the variants that emerged. So in response to your question, yes, we believe there is not only still a need for a sustainable antibody therapeutic, but that given the current trajectory of the disease and higher infectivity of variants, compounded by the lack of availability of vaccines in certain regions, and the knowledge that vaccines are losing efficacy, we think the need is greater than ever. For those of you who are not familiar with how our TATX-03 therapy was designed specifically to address SARS-CoV-2 variants of concern and remain sustainable during variant emergence, please refer to the reference materials on our website or our recent publication as previously mentioned.

[John Mullaly:]

Thanks, Jennifer. I'll read the next question. It reads as follows. What is the status of the PolyTope program for outlicensing, funding and potential clinical trial work at IPA?

[Jennifer Bath:]

All Right. So a lot of information here, there’s kind of a lot of multiple parts of this question. But in the past year, we've built, first and foremost, an exceptional team, consisting of clinical study experts, actually several, CMC and regulatory consultants, clinical consultants, a strategic advisory board and also KOLs. And these individuals have worked closely with our Chief Scientific Officer to lay out our SARS-CoV-2 clinical roadmap, while taking into account ongoing discussions with prospective partners, including partners that have their own clinical manufacturing facilities. We continuously clean the path, moving TATX-03 toward the clinic, reserving optionality for partners and IPA. Clinical development of this product includes planned upcoming pharmacokinetic and toxicology studies to reveal the safety profile that we expect to be available to us in Q4. But please keep in mind that we cannot control the timing of outsourced work entirely. This work can be conducted in parallel with clinical manufacturing, if we do elect to do so. If the program does move forward to the clinic, we have worked on a potential combined Phase 1 and 2 clinical trial design, intended to determine the safety and efficacy with respect to transmission prevention and also the reduction of disease in humans. These guidelines may be used by IPA or by prospective partners of IPA if that program is out licensed.

[John Mullaly:]

Thanks, Jennifer. Next question. Are there any acquisition targets in sight? If so, what sort of technologies or space is IPA looking at?

[Jennifer Bath:]

Yes, thanks. That's another question that we get fairly frequently and it's a great topic. Unfortunately, we do not believe we can discuss the type of technology or expertise, as our market is, what we would call, a big-little market where everyone knows everyone else. And tipping our hand strategically or toward which technology sectors are under review, could result in the loss of a competitive advantage for IPA. As a result, if and when we have information to publicly disclose, we'll certainly do so.

[John Mullaly:]

The next question is on the CRO. Is the CRO back on track? Was the last quarter just a one-off? Is the pharma industry post-COVID down in terms of delays and are, back-to-full speed like, pre-COVID times?

[Jennifer Bath:]

Yeah. So I believe, we have covered this in our presentation so far. But just to be clear, our CRO actually demonstrated consistent quarter-over-quarter growth, with no debt. The temporary artifact was due to the nuances in the tracking of the R&D programs in the ERP. As covered by Lisa in the quarterly financial update, every quarter was over and above the quarter prior, showing not only year-over-year increase in revenue, but also consistent quarter-over-quarter revenue increases. In addition to fiscal year 2021, being a record year for IPA, quarter four, fiscal year 2021 was also a record quarter. For more information, one can also review the past eight quarter revenue trend and the MD&A. In terms of pharma companies being past delays, and back to full speed that depends on the pharma company of course, but clients and partners of IPAs did not express concerns in order to be see any material cumulative impact on outsourcing to ImmunoPrecise.

[John Mullaly:]

Thanks. I'll read the next question. How did the Eurofins partnership come to fruition? How exactly will they be promoting your discovery platform?

[Jennifer Bath:]

Another great question, this is something that we're really genuinely excited about. So for those of you not familiar with Eurofins, Eurofins is a globally operating group of laboratories. They offer analytical testing services. They are in about 47 countries. And they have over 50,000 employees. And they serve about actually over 2500 clients. So their annual revenue is at around US$5 billion. And previously, Eurofins did not have a dedicated Biotherapeutics department, that's not a focus of Eurofins activities specifically. And they recently decided to add one. And the leadership of this new division at Eurofins had become aware of ImmunoPrecise's capabilities and successes with multiple discovery technologies. This individual also has worked with several members of management in the past and had formed good relationships over the course of the last several years, by five or six years. And so, it was actually Eurofins that approached ImmunoPrecise to partner on the co-promotion initiative since ImmunoPrecise's discovery services perfectly complement Eurofins portfolio. Together, the two companies offer a broader spectrum of services than otherwise possible. So how it will work is the companies will use joint marketing materials such as, printed items, social media, and online presence on both companies' websites. They'll attend conferences and tradeshows together. And market both companies' comprehensive and non-overlapping services together. The activities are coordinated and regular updates call. Importantly, also ImmunoPrecise is in direct communication with the prospective and one clients and retains their details without any imposed limitations. Also, I think you know, another thing that is important and a question I've been asked, neither company has agreed to nor have been encouraged to norm plans to offer discounts or promotions regarding the co-marketing. We simply believe that, we are stronger together.

[John Mullaly:]

Great. Thank you, Jennifer. That concludes the Q&A portion of our program, but the company would like to genuinely thank you for submitting your thoughtful and concise questions today. The company hopes that they were answered either in their script or in the Q&A or in the MDA. We will move forward now to some closing remarks from Jennifer to offer some insight into this current fiscal year strategic planning. Jennifer?

[Jennifer Bath:]

Great. Thanks, John. So we look forward to a rich -- future rich and business opportunity in partnerships, in novel discoveries. We've tackled the past three years with a strong result, with ambition and with an unwavering belief in our strategic plan and in our team. We've taken active steps, which we believe will help provide continued aggressive growth in our contract research base. With our sites focused on tackling new and emerging markets, and emphasizing targeted geographies. To this end, we seek several key hires to leave this initiative working together to help actively engage and secure our share of these markets. In addition to our plans to continue to grow the CRL business, we also anticipate a number of firsts for talam , providing external validation of the scientific value of our pipeline assets. We've also placed a strong emphasis on our goal of securing early stage collaborations with well-established partners for this fiscal year, and will continue to work toward executing on this goal. We will also continue to add additional services and support including state-of-the-art equipment, as we have done each of the past three years, and look to leverage some of our existing technologies in single B Cell isolation and multiplex screening with some of our more recently refined offerings and analytical testing, such as our higher throughput bidding and mapping capabilities and our next generation sequencing adaptations. Finally, as mentioned, we anticipate an active movement towards securing a cGMP manufacturing facility to support a variety of markets, including our committed clients and partners. We're grateful to you for joining us on this journey. And we are excited to continue executing on our goals and share with you in all of our successes. Thank you.

[Operator:]

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.