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Edited Transcript of BIO.DE earnings conference call or presentation 14-Nov-19 9:00am GMT

Nine Months 2019 Biotest AG Earnings Call

Dreieich Dec 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Biotest AG earnings conference call or presentation Thursday, November 14, 2019 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Michael Ramroth

Biotest Aktiengesellschaft - Chairman of the Management Board, CEO & CFO

* Monika Buttkereit

Biotest Aktiengesellschaft - Head of IR

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Conference Call Participants

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* Dennis Berzhanin

Pareto Securities, Research Division - Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen. Welcome to the Biotest AG conference call. (Operator Instructions)

Let me now turn the floor over to Monika Buttkereit, Head of Investor Relations.

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Monika Buttkereit, Biotest Aktiengesellschaft - Head of IR [2]

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Good morning, everyone. Welcome to the Biotest 9 Months Results Call. I'm here with Michael Ramroth, the CEO of Biotech AG, who will -- to whom I will hand over now.

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Michael Ramroth, Biotest Aktiengesellschaft - Chairman of the Management Board, CEO & CFO [3]

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Thank you very much. And good morning to everybody. And thank you very much that you have decided to listening into Biotest's call this morning.

We know that a lot of other companies are also reporting numbers today. So we are really happy and glad that you made it and are listening to.

What we have to tell you, and what we are going to tell you are, of course, the numbers of the first 9 months of 2019. We will give you an update on the status of our development projects, keyword here is broadening our product portfolio. And then also status of the ongoing commissioning of our Biotest Next Level facility, keyword of a headline would be here doubling capacity.

So let me start with the figures. And before I really get into the details, I should mention that we have a presentation. You can find it on our home page under Investor Relations. So if you have a chance to click into this presentation, it might be easier for you to follow my numbers.

To summarize the reiteration at the end of the third quarter, we can confirm our guidance. We can report that sales of our business went up by 1.8% compared to the same period in 2018, that the EBIT was at minus EUR 8.2 million worse than in these previous year's periods. But that was due to the fact that we invested heavily and more heavily in Biotest Next Level and in our R&D project, but I will come to that.

We added 2 new plasma collection centers, up to now, one in Germany and one in Hungary, with total number today as 21 centers.

And then we have also, as a summary, a pleasant news to spread, that is that the inspection -- the first inspection of the Regional Council here with regard to our Biotest Next Level facility took successfully raised and was finished all in November 8.

Let me now turn to Page 5 of the presentation, Slide 5 of the presentation, showing our income statement. And you can see there that, as I said, sales simulated to EUR 294.9 million versus EUR 289.6 million, and that's from 1.8% compared to last year. If we deduct our operating costs and expenses, we end up with an earnings before interest and tax and operating profit of minus EUR 8.2 million compared to a plus EUR 5.1 million.

Financial results will be positive in the first 9 months, with 5.9 -- sorry, EUR 5.3 million so that the earnings after tax of the continuing operations amounts to minus EUR 2.9 million.

If you'll listen to the operating profit of minus EUR 8.2%, you should keep in mind that this loss is, of course, caused by our heavy investment in the future, in the doubling of capacity, in our Biotest Next Level facility project as well as in the development of 3 new products.

And we have listed, therefore, what we are -- have spent for both facility and development project, and that amounted to EUR 49.7 million, which is EUR 12 million higher than in the same period in 2018. And that explains the switch of the EBIT results in the division.

We have spent, also in the last 9 months, EUR 1.1 million for the monoclonal antibodies business, which we are exiting, as you all know.

So that brings us to, as we call it, adjusted operating income, that means that the income we are already earning from our normal business therapy and our manufacturing business, and that amounts to EUR 42.6 million.

Maybe it's worthwhile to explain a little bit the almost EUR 50 million we spent for Biotest Next Level, our growth next year to double the capacity but also to broaden our product portfolio.

The facility costs amounted to EUR 21 million. Those costs have been spent for energy, building costs, security, depreciation. We have, of course, already more than 150 people clearly designated for commissioning and ramping up the facility.

And then, of course, we have the project administration, which costs also some money in the last 9 months.

We spent EUR 29 million for 3 products developments. We are currently -- have in different clinical phases. So we have 2 Phase III studies ongoing IgG Next Generation. So it's not a miracle that we spend most of those R&D costs for IgG Next Generation, EUR 13.2 million in the last 9 months, followed by EUR 8.3 million we spent for Trimodulin, the IgM Concentrate, and then also EUR 7.2 million were necessary to conduct the 2 Phase I/III studies for fibrinogen.

Overall, as I said, EUR 49.7 million in the future of Biotest for doubling the capacity and broadening our product portfolio.

If you look a little deeper into the sales structure -- structure of our sales, you will see that the therapy sales went up by 5 plus -- 5.3%, with EUR 266 million, that being EUR 14 million higher than in the first 3 months in 2018.

But we have reduced our store manufacturing volume in the first 9 months in order to have more of our own products, for our own distribution available for the weeks and months to come.

As you can see, we have grown in all the areas, and in our Intercontinental business went up by EUR 7 million. East and South Europe, it was a slight increase of EUR 4 million. And Central Europe, you have seen or we have seen, an increase by EUR 8 million in sales compared to the previous year's period.

Only in Middle East, Africa and France, we see a reduction by EUR 14 million, 1-4 in sales. That's due to the fact that their store manufacturing services have been reduced in this area.

Those of you who are following Biotest very closely know that end of June or the beginning of July, we have signed a new loan agreement, giving us the possibility to draw up to EUR 240 million within the next years in order to pay for the ramp-up and the buildup of working capital in the new facilities, with the new products. And we have already drawn EUR 50 million as of today from this EUR 240 million facility, which is shown in this balance sheet picture on Slide number 9 together with a slight increase, of course, at total assets and total equity and liabilities amount. But also very, very nice, the solid equity ratio was 45.1% as of end of September.

So having said and reported those ongoing numbers of our business, we can confirm that our guidance, which we have given in March of this year, is still valid. We will see, at the end of the year, growths of sales by a mid-single-digit percentage. And our earnings before interest and tax will be, as we have outlined in March, heavily influenced, of course, by the amount, which we spent for Biotest Next Level.

And please recall that in the first 9 months, we spent already EUR 50 million for the facility and the P&L development projects.

We still have, in Middle East, Syria, Iran and other countries in the Middle East, some difficult political situations, which have, of course, also an effect on the business, and still continue to have an impact on our business.

And then a very big portion of the determinants of our earnings before interest and tax is the potential execution of a partnering agreement. You may recall that we always said that we are looking for partners, helping us on the one hand side, to the security products in the future in the United States and/or also helping us to develop such products like IgG Next Generation or IgM Concentrate. And discussions are ongoing.

And depending on the outcome of those discussions, our earnings before interest and tax might be heavily influenced by milestones, which we would expect from such a partner. So that's the reason why we said that our guidance, with such partnering agreement, would lead us to an earnings before interest and tax, between minus EUR 5 million and plus EUR 5 million. If we can't achieve a partnering agreement this year, we might end up with lots of -- EUR 15 million to EUR 35 million at the end of the year.

Now if you allow me to give you short glimpse on what's going on in the markets and how our development projects are developing, let me start with confirming the very nice outlook for our immunoglobulins. We expect that the global market volume will increase -- will continue to increase over the next years. In the years from 2010 to 2018, we have an increase in tons of immunoglobulins used in the markets by 90 tons.

And in the next 8 years from 2018 to 2026, we expect that not only we but the independent Marketing Research Board -- Bureau expect to increase by 140 tons.

So to supply such huge amounts of immunoglobulins in the future, each and everybody in our industry is expanding the production capacity, as we are doing it with Biotest Next Level project.

It has led already, in some countries, to a tight IgG supply situation. You may have seen that the FDA had issued some kind of warning letter for the United States. And therefore, we have got even more incentivized to accelerate our development of IgG Next Generation, which is designed, also to be sold in the United States.

But of course, to produce such immunoglobulins and sell those immunoglobulins in the worldwide market, you need to have plasma for that. And therefore, we see an increase in plasma collection with all our companies in the industry.

We also continue to expand our network of plasma collection centers in Europe. We have bought one in Germany in Hanover and we opened up a new one in Hungary, in Budapest, in this year. And within the next days, we will have another new center in the Czech Republic, so that at the end of the year, Biotest will own and operate 22 centers -- plasma collection centers, in Europe.

With, as I said, having enough plasma is a basis for producing our products. And one of those products is a clotting factor, Factor VIII, against hemophilia A. And we just concluded a long-term study with Factor VIII is our -- that magic Factor VIII Haemoctin called.

And this is worldwide, the longest surveillance study, which was undertaken with 198 patients in all age groups. And very interesting is that 24 patients have been surveyed and followed up for more than 15 years, 1-5.

And it was a very nice outcome that we haven't seen any unexpected adverse effects on the health of the patients. And can also be stated that previously untreated hemophilia A patients, do scarcely develop antibodies against the product so the inhibitor formation is very, very low and speaks for a treatment with a plasmatic Factor VIII, especially our Haemoctin, which is a combination of Factor VIII with the von Willebrand factor.

Overall, I think that's clear and obvious for everything -- for everybody that patients benefit, of course, more from a prophylactic than from on-demand therapy, meaning if they get treated prophylactic on a constant basis, they can have a safe and secure life without thinking what might happen if sudden bleeding starts. And they would need then immediately Factor VIII to stop the bleeding.

So if they have a high level of Factor VIII in their body, they can have really a very easy life as everybody else as well.

Changing from clotting factors to IVIG. In immunoglobulin, here to our new IVIG of what we call Next Generation, it's -- they'll be produced in new and more efficient production process. And it will then be produced together with Trimodulin, the IgM Concentrate.

And we, of course, will be master product for our new Biotest Next Level production round.

Two Phase III studies are ongoing. One in Primary Immune Deficiency (PID) for Europe and the United States. The enrollment of all patients is completed and all adults have been treated -- the treatment of all adults has been also finalized.

Now the treatment of children is still ongoing in the observation period of all patients, including those children will be -- and will end in April 2020, and this study is in PID -- is also then over.

We have already successfully completed our Phase III study in ITP. As you can see on Slide 16, we've seen good safety and efficacy data after looking into the data at the end of the study. We are preparing, right now, the final study report, and we will issue then also more details.

Turning to fibrinogen, another clotting factor or special clotting factor, which is needed to treat either patients with congenital fibrinogen deficiency or an acquired fibrinogen deficiency. For instance, in need for surgery that might happen where the very sudden bleeding will occur, and this is due to a deficiency of fibrinogen.

And you see in the slide on Page 17, the increase of fibrinogen usage in U.K., Spain, France, Italy and Germany, over the last years, and is expected that this will go up further on.

And this is due to the fact that we have a bedside test in the meantime diagnostic -- diagnosis possibility to really confirm that fibrinogen is missing or is causing the bleeding -- deficiency of fibrinogen is causing the bleeding. And therefore, you can immediately treat the patient with fibrinogen. And that's the reason why demand is going up.

We, as I said, are in 2 Phase III studies, one in congenital fibrinogen deficiency and the other one in acquired fibrinogen deficiency. Both studies are ongoing. And the congenital fibrinogen deficiency will probably be finished in the course of next year.

That brings us to the next and third new product we are developing, and which shall be then manufactured in the new Biotest Next Level facility, which is an IgM enriched immunoglobulin, called Trimodulin.

This is designed to really treat patients with severe infections because it's able to neutralize multiple pathogens made by toxins and inflammation activators, and all of all, just reducing secretion of new mediators, so that it will help to really modulate the immune system.

Currently, we are coordinating with the FDA in United States as well as in the European Medicines Agency and the German Paul-Ehrlich-Institute, the design of the Phase III study. We have got green light from all 3 agencies to really come up with the same design as we had it with our Phase IIb study. In a few years, community-acquired pneumonia, that will be the indication where we have the Trimodulin studied in. And currently, we are preparing this Phase III study together with the pediatric development plan.

Trimodulin will not replace any existing treatment methods. But will be added to the causal or usual therapy we have today with antibiotics. That's together with antibiotics, neutralization of bacterial toxins shall be aim and goal of the treatment together with Trimodulin and also the neutralization of bacteria and viruses.

And that, as we have shown in the Phase IIb study, has decreased mortality in a significant way within patients with severe community-acquired pneumonia.

So these 2, 3 products, IgG Next Generation, Trimodulin and fibrinogen, will be produced in Biotest Next Level facility.

If you have the advantage of looking to our presentation, you will see on Page 21, the building in the right hand -- upper right-hand corner.

This is a new P&L production side of the building. We have been able to commission all the clean rooms, all media systems. We did the qualification of sterile media and passed with the inspection of the GMP provision, the regional council from the 5th to 8th November, and we passed visit inspection without any particular or major findings as well. So everything is ready for the next step.

Qualifying such a new facility is not a thing which can be done within 1 week. We give you here, on Page 23, an impression of what has to be done to really qualify the clean rooms, more than 17,000 samples and analytical tests had to be performed in order to prove that the clean rooms are really clean and are also stable, and stay clean for a longer time period.

Media, pure water, steam and all those things, has also been qualified. And here, 16 (sic) [16,000] samples have been taken. We conducted 88,000 analytical tests. And all those tests results and evaluation of those results have to be documented where you see here a huge number of files to be stored, which then had been inspected by the inspector in the last week.

And as I said, we passed the first inspection of the production plant. Two more parts of the inspection will follow during the next year. Then we start producing consistently, such as -- then again, the inspectors will come and look at the actual process of manufacturing the 3 new products.

So first milestone is successfully achieved. The first inspection of the clean rooms and media systems was successfully concluded last week. And we are looking forward now to really finalize the qualification of the other equipment parts of the Biotest Next Level facility, and then start the consistent new ones in the course of 2020.

During the trials, as mentioned, being continued, of course, with the IgG Next Generation Phase III study in ITP to be concluded in beginning of next year.

We have opened the plasma collection centers, already 2, in -- up to now in 2019, another one will follow within the next 2 weeks.

And then also, you will see further openings in 2020 because, as I said, the demand for our products is growing. And in order to supply such products in growing markets, we need plasma, and therefore, we are increasing our plasma collection center network.

I think that concludes my description of the current business. And I've given you some views about what's going on within the next months.

And now I'm happy if you have questions that I can answer, these question. Thank you very much.

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Monika Buttkereit, Biotest Aktiengesellschaft - Head of IR [4]

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And at the same time, it's helpful if you have a question, if you could mention your name and your company. We would be happy to receive questions from you.

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Questions and Answers

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Operator [1]

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(Operator Instructions). The first question is from Dennis Berzhanin of Pareto.

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Dennis Berzhanin, Pareto Securities, Research Division - Analyst [2]

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This is Dennis Berzhanin from Pareto Securities. I had a couple related to your strategic plans. The first one was -- I just wanted to hear if there's any progress in finding development partners. Have there been any advanced discussions? Anything that we could expect in the near future? And then, I believe, there was -- there were plans in further integration with the Shanghai RAAS. So I was wondering how that progress is going?

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Michael Ramroth, Biotest Aktiengesellschaft - Chairman of the Management Board, CEO & CFO [3]

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Okay. Yes, Dennis. To answer your question, yes, as I said, we are in discussions with partners about partnering our products, either with regard to distributing them in the United States or in some kind of co-development.

But for the time being, I'm not in a position to announce here when those discussions will be successfully concluded.

So we might need to continue those discussions in mid-2020. That's the reason why we still have this caveat in our guidance.

With regard to Shanghai RAAS, nothing has happened. Yes, of course, we know that our majority shareholder, Creat, has announced in the beginning that he might integrate us into Shanghai RAAS. But as you may have seen, there's another transaction on the priority list first, and that's the integration of parts of the Grifols Diagnostic Corporation into Shanghai RAAS.

Shanghai RAAS has increased its capital. And Grifols is contributing a 45 percentage of its diagnostics division into Shanghai RAAS. And this process is currently ongoing.

And the parties involved, that have been told by us by Grifols, are now waiting for all regulatory approvals they would need for such a capital increase.

And therefore, this is not concluded yet. And since this is not concluded, not effective, nothing will happen with regard to Biotest and Shanghai RAAS till this process is, as I said, ongoing.

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Operator [4]

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(Operator Instructions). There are currently no further questions in the queue.

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Monika Buttkereit, Biotest Aktiengesellschaft - Head of IR [5]

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All right. So then, I would like to say thank you very much for listening. Thank you for staying on the line, and we will have our next results for you on March 30 for the full year results 2019. Thank you very much and have a very good day.

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Michael Ramroth, Biotest Aktiengesellschaft - Chairman of the Management Board, CEO & CFO [6]

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Thank you all. Bye-bye.