U.S. Markets open in 7 hrs

Edited Transcript of CLIN.L earnings conference call or presentation 25-Feb-20 9:30am GMT

Half Year 2020 Clinigen Group PLC Earnings Call

Staffordshire Mar 10, 2020 (Thomson StreetEvents) -- Edited Transcript of Clinigen Group PLC earnings conference call or presentation Tuesday, February 25, 2020 at 9:30:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* David Bryant

Clinigen Group plc - Director of Corporate Development

* Nicholas P. Keher

Clinigen Group plc - CFO & Executive Director

* Shaun Edward Chilton

Clinigen Group plc - CEO & Executive Director

================================================================================

Conference Call Participants

================================================================================

* Andrew Mark Whitney

Investec Bank plc, Research Division - Analyst

* Charles Robert Weston

RBC Capital Markets, Research Division - Analyst

* Christian Glennie

Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst

* Graham Doyle

Liberum Capital Limited, Research Division - Research Analyst

* Max Stephen Herrmann

Stifel, Nicolaus & Company, Incorporated, Research Division - Head of European Healthcare Equity Research & MD

* Stefan John Hamill

Numis Securities Limited, Research Division - Director of Equity Research

================================================================================

Presentation

--------------------------------------------------------------------------------

Shaun Edward Chilton, Clinigen Group plc - CEO & Executive Director [1]

--------------------------------------------------------------------------------

Welcome to Clinigen's interim results or, as I'd like to call it, the two -- one of the two times of the year I wear a tie. Thank you for your time. I will open, and then I will hand over to Nick, who will review the 6 months and cover the financial highlights. There's probably a couple of aspects of the financials that people want to dig into. And then I will talk more about the future, look ahead to the second half but also beyond that.

So I'd like to suggest that, at the 6 months to the end of the year, we have delivered on the strategy, and we've also delivered what we're very convinced will be sustainable growth. So in overview, quite a lot to like, I think, in the first half. Having seen a lot of the commentary this morning, I think everybody agrees on one thing, it's a strong set of results.

From a financial perspective, pretty much every financial metric has gone up significantly, including net debt. So we will cover that. Nick will cover that in some detail because, plainly, it's going to be a line of questioning, and we understand entirely why. It's a point in time, and Nick will go through the detail of that and quite happy to answer any questions.

But the interesting thing is, for me, this is now starting to validate the strategy, this creation of a platform, the synergistic effect that we follow the molecules and follow the relationships through the 3 divisions of Clinigen, generating long-term revenue and profit. We have now put the ERP platform in place. And we're coming out of the back of that slightly painful process. Anybody who's been through it will realize it is slightly painful, but everybody has to go through it.

And there's a reason why we have to put a step in place to drive the overall digital strategy and make us much more ready for continued growth in the future. But I think, again, probably one of the differences is we guided on where we would be, from an organic GP growth perspective, Nick K. has trademarked the corridor of growth. And we were bang on where we said we were going to be. And I think there's lots to look forward to in the future. And I will talk about what those things are as we go through the more strategic aspects.

But I will now hand over to Nick to cover the financial thesis.

--------------------------------------------------------------------------------

Nicholas P. Keher, Clinigen Group plc - CFO & Executive Director [2]

--------------------------------------------------------------------------------

Thank you, and good morning. So just to run through the statement here. So in terms of the financial metrics in the P&L, as discussed and highlighted, it has been a very solid performance. Reported growth, net revenue, up 24%; gross profit, 35%; and EBITDA, 42%. But even at the organic line, solid performance here. So positive 6% on net revenue, positive 9% on gross profit and operational leverage, a small piece to the EBITDA of 10%.

Against previous years, that's a very strong performance of the group and demonstrates really here the UL2L strategy coming through, but actually a solid performance and across Commercial Medicines. And as we sit here today with positive indicators within our service-focused businesses, we are confident on the second half outlook as well and reiterate that upper end of 5% to 10% gross profit growth for the year.

In terms of earnings per share, 34% growth. So another year of solid double-digit growth for the company. The one metric on here that we aren't happy with, and that we are going to talk to, is the operating cash flow performance, which was negative versus historic levels for Clinigen. But it is worth bearing in mind that the group has seen this before at interims, where it has seen a working capital outflow, given payments on CTS, in particular, and MA, which have led to a lower operating cash flow performance.

So if we turn directly to that one now, and how to talk through and where to talk through on it. Over the last year, we've essentially seen net debt increase because of deferred payments going out on acquisitions and the acquisitions themselves, but also working capital outflow in the first half of the period to December.

And there are 3 key reasons behind this: so Proleukin, taking that product on and the payment terms involved with our 3 key distributors in the U.S., but also with the Iovance contract in place and taking on stock; the second point is on ClinigenOne and the ERP system going live, the issues we faced at go launch, and then also that we've resolved since but are still working through; and the third is just from growth from the AAA region and timing of payments across the group as well.

What we're trying to indicate here is that the working capital outflow we see won't normalize fully during the year, and that's because the investment in working capital behind Proleukin will continue, but it will come down over time thereafter. Our net debt will increase in the second half of the year. We have $105 million worth of deferred payments going out: $75 million on CSM because the performance of the acquisition has gone ahead of expectations when it was originally acquired; and $30 million reflecting a further deferred payment on Proleukin, that will be then be it.

The free cash flow for the year will not be spoken for by deferred payments, and will go towards paying down debt. So next year, all things being equal, we should see our net debt leverage come down to that 1 to 2x target range, as indicated previously. And this will just be a moment in time for the working capital piece. So for working capital, if we had an April year-end, we wouldn't be here discussing this right now. It is literally a time in this edge, that time to stand where we draw on the line.

For Proleukin, we talked about 90-day payment terms that, by March, we'd have all of that cash in. By the end of the year, we have another shipment going up for Iovance, in May, which means that we won't have -- we will still see a working capital outflow for that product and also the 90-day payment terms for 3 key distributors.

For the ClinigenOne, go live on ERP was, essentially, when we went live, we had issues. We had issues with shipping, with processing payments and then also invoicing clients. We had a backlog of essentially invoices to work through on CTS, in particular, after a what was a reasonably strong December. We had almost 2 months' worth of payments to actually get through -- sorry, invoicing to get to clients, which we have now worked through.

We haven't fully solved all of the issues that we had with the ERP at go live, but we're approaching that point of business as usual. And at that point, by the year-end, we're hoping to resolve that fully. Now we're guiding to the market that, not to have any material inflow, the ClinigenOne being resolved, but we're hoping to do better.

On the growth from the AAA region, again, this is a time-of-day marker in the sand because of the outflow related to buying products for the BMS contract as we took our control. We do think leverage will increase from the 2.4x here, as guided to, but then it will fall quite considerably thereafter because there's been no change to the dynamic scene of the company from a cash flow perspective, with that 75% target, what we will be hitting next year.

Turning now to Clinical Services and the operational performance of that division. Growth of 57%, gross profit, but organically down 4% due to the lumpiness within CTS. If you back out these numbers, we're talking less than GBP 1 million essentially on gross profit, in terms of CTS from one period to the other. More like GBP 600,000, not a significant number in size of the group, but obviously, it's held back this division.

17% growth for CSM as a whole demonstrated a good performance there. And a key thing here is that, actually, for CTS post period-end, we won a major contract. This is the largest contractor division that, and actually, the group has won before, is multiyear in length. It will help underpin our numbers for this division that we're hoping to build on for the coming period. I know Shaun would talk to in detail as -- if asked.

Within CSM, we're now starting to see contracts come through that are meaningful in size, that combine both packaging and labeling and those comparator pieces of CTS and our capability there. These are with bigger customers than CSM historically has worked with as well. If we can start to land some of these, then the synergy of combining these 2 businesses is going to be very apparent.

In terms of key operating strategic progress, otherwise, I'd highlight here the sheer number of customers we're working with, 458, and the majority of the projects we're working on being across Phase I and Phase II. The key thing here is this division will feed our Unlicensed Medicines division in terms of opportunities, to do a Managed Access program or launch the product as a Global Access product. We've already made 14 introductions to the Unlicensed business. We're hoping to report further on that in the coming year.

Turning to a Unlicensed Medicines, our second biggest division. Organic and reported growth matched at negative 5%. Essentially, here, we've got to tell 2 stories. Managed Access, as everybody knows, who's followed the company for long enough, this is a -- this has been a cyclical business as bigger contracts come off and are replaced by new pipeline wins. We've essentially gone through that in the half after a stellar performance last year of 10% growth for the division -- for that business as a whole. For the second half, we have a number of pipeline wins that have come through, and we've seen pipeline wins post the period-end as well that are supporting the outlook for the second half and for the 12 months after that.

Within Global Access, 57 exclusive programs under management and actually an excellent performance in the on-demand space, particularly from drug shortages in the AAA region and now Europe. We're talking about 30% organic growth for that business.

For the aseptics piece of U.K. Specials, which has been a -- the U.K. Specials as a whole came from the Quantum acquisition and essentially has 2 businesses within it: small molecule compounding and then aseptics, which is more akin to large molecule compounding. Now that business has been a drag on growth, and it was in the period. It was down about 20% from a gross profit perspective. But we've invested in that business capacity for aseptics, and we have removed cost, which now means that the EBITDA line, we believe, this year would be -- should be the bottom before actually we start to see growth thereafter, representing a turnaround for that business as well.

Key operational and strategic progress, and this will link into some of the further slides on strategy, one of the key things here is the MSLs force we have in Europe, as per the iQone acquisition, and how that is now linking into the Unlicensed Medicines business. For our Managed Access contracts with key players and key people we have contracts with, they are now leveraging that MSL capability in Europe. So whether they need to educate a physician on how to use that product, we can do that for them.

There's a broadening of our service offering. It's a strategic moat against that new competition threat we see out there. But actually, it should be a link into the Commercial Medicines division for product launches as well. From a digital perspective, Clinigen Direct, over 150 countries now, over 2,500 products; and with Cliniport, our Managed Access offering, nearly 17,000 users now. So continued growth, with the majority of our business in Managed Access going through that platform.

Now one of the reasons for the decline within our Specials business as well was the fact that we take opportunities of small molecule compounded products, and we develop products to launch in our Commercial Medicines division. For Commercial Medicines, our largest division overall, we delivered 30% organic growth, with under half of that benefit coming from that UL2L synergy that we see. We have 15 more products in the pipeline to come through here as well, but this is a big reason of that link between Unlicensed-to-Licensed and what's delivered growth for the group as a whole on that division.

Within this division, we have 3 lines of business, if you like: the Acquired Products, all besides Foscavir saw growth. And on Foscavir itself, we've now started to see a stabilization and a return to growth for that product in key markets, post the term-of the-year impact that we highlighted last year. The product was down circa GBP 2 million in gross profit terms, half-on-half. But actually, from here, the outlook actually looks more positive.

In the Licensed space, more contract extensions and a broadening of offering, with particularly CHEPLAPHARMA (sic) [CHEPLAPHARM]. But actually, in this area, we see a potential for further growth with a number of licensing opportunities we are evaluating at the moment. In the Developed space, it's that Glyco and Melatonin, where we developed those products, launched, and they're driving growth to the division as a whole. And for Glyco, in particular, we see an opportunity to internationalize this product, perhaps greater than we saw previously.

Otherwise, on Proleukin, first step on revitalization, with the contract win or the supply agreement in place now with Iovance. Worth bearing in mind that, in May last year, we benefited from supplying Iovance. We've now formalized that arrangement into a multiyear contract. It's benefited the P&L. It's impacted our cash flow. But this is the time and day by -- essentially, March, we'd have all of that cash in. And by August, the second half, we'll have had the rest of it.

In terms of outlook from here, piecing it all together, and the key -- this is the reiteration of a slide we put out in the September results, preliminary results. We see this platform now as being able to deliver 5% to 10% organic growth. That is because of the synergies between the divisions, from supplying unlicensed opportunities from the Clinical Services piece; good underlying growth of the Clinical Services market overall; UL2L; and actually benefiting from the platform that we have -- now have within Commercial Medicines, with the European and U.S. infrastructure in place to launch products from as well.

This does not include anything for Proleukin revitalization into new therapy areas, new indications, which I just want to make clear for everybody in the room. That will be extra and on top. That is not part of our guidance. We do believe operational leverage will increase further from FY '20 because we have invested in the platform. And once the ERP system is live, we see further benefits to come through, particularly from the second half when we start to make it -- linked with our front end, as Shaun will talk through shortly.

In terms of operational technical guidance as well, this slide is almost exactly the same as we showed in September. The key points here, just on the CapEx and deferred consideration. Proleukin and CSM in the second half, we've said this before and we'll say it again, $105 million is what we have earmarked to go out in the second half in April. Cash flow and net debt, we have banking facilities of GBP 430 million of headroom. We have ample headroom against our covenants and from a debt perspective to pay all deferred considerations as they fall due. And then on foreign exchange, we do have a small headwind building because the -- because of the euro essentially devaluing against sterling. That would impact FY '21 once the hedges we have in place start to fall away. Otherwise, no change to where we are today.

And with that, I'll hand back to Shaun.

--------------------------------------------------------------------------------

Shaun Edward Chilton, Clinigen Group plc - CEO & Executive Director [3]

--------------------------------------------------------------------------------

I'll try and work this gadget so I can actually move the slides forward properly. Okay. So we talked about our platform, and we have put this slide up before, and both notably at the year-end last. So what? What's the point? Why are we very excited about the future, building on the results that you've just seen for the first 6 months?

If you want to simplify it down, Clinigen is a bridge between 2 parts of an equation. On the left-hand side, you've got the people who own the products, pharmaceutical and biotechnology companies. The unmet need for them is trying to get products to market faster and more cost effectively, and then create as much access and awareness to those products to get to peak sales. But just as importantly, frankly, manage that life cycle and extend it and expand it.

It is absolutely playing out what we said before, which is companies of all shapes and sizes, not just the often one example I give, which is in Iovance, a West Coast biotech, where they've got U.S. infrastructure but nothing else. That's not just about those companies. But it's very much playing out to the fact that they want to partner, with as few partners as possible, to commercialize throughout the rest of the world. And bear in mind that the world is divided up into 2 types of market, licensed or unlicensed, and we are still the only company that can manage both.

But we had to put a platform in place to bridge the 2 where the demand comes from, which is global, which is from the right-hand side, which is health care professionals. In Clinigen [speak] hospital physicians, predominantly hospital pharmacists because they're often the ones doing the donkey work, if I could use that expression on behalf of the physicians, to find these medicines. If you're a hospital pharmacist or a physician, you are spending, on average, a day, a week, a whole day a week trying to find difficult-to-access medicines. So our proposition is simple, face-to-face or on the phone or by e-mail or increasingly online, you just have to ask Clinigen the question and tell us what you want.

So what underpins that is the statistics below. So we've got a -- we pretty much work with virtually everybody in pharmaceutical and biotechnology. Exclusivity, the ability to control the supply and manage the supply of that drug, is what underpins the model, what drives the ability to keep it as lean as possible and make it profitable. 160 exclusive agreements, which continues to go up every year. And then as a segue, we have the ability to convert from Unlicensed-to-Licensed. We use this acronym UL2L, capital U, capital L, number 2, L. That's really what it means, is converting an Unlicensed situation into Licensed. But essentially, that's what the platform is.

What does that mean in practice? It means -- and if you followed the company, 4 years ago, there were a lot fewer dots. There were probably 3. But we decided, we've strategically looked at where you can have hubs to manage the supply chain, but just as importantly, regulatory expertise and a mixture of medical science liaison, or where you can have peer-to-peer conversations with the physician and the pharmacist and key account-type management. So that's actually where we see a lot of the growth.

If you look at Africa, Southeast Asia, even Europe, which, for lots of companies in pharma, is a more mature market. For us, it's still green space. We're starting to penetrate, as Nick alluded to, with our Global Access offering, in particular, but also we've now got the platform to drop more licensed products into it. We've made the statement before that we are, if you like, underweight with the products that we now put with -- we need to put to the platform. We've built it, and we are now going to license more products in, and you will see those in the future.

So importantly, for me, the left-hand side, we have more people, significantly more people outside the U.K. than inside the U.K., which is important, because most of our business is done globally and outside the U.K. And the reason why the head count by role is important is because this is neither sales-driven nor operationally driven. There is a balance to be struck. Fundamentally, regulatory and supply chain, customer services, that type of expertise, is really what drives the business. So we have the right people in the right place. It's now a platform.

So this is -- this slide is really talking about how we've created our own pipeline, which is a slightly different theme, if you like, than the overall synergistic effect to the business. We're going to look at one part for a minute. When we bought Idis in 2015 and became the market leader in Unlicensed Medicines, particularly in Managed Access, if you look at the flow across the top of this graph, that's essentially what we used to do.

A pharmaceutical company wanted to enable access, was getting a lot of incoming requests for early access, so we would be hired. We would start managing those products in this Managed Access business. The pharmaceutical company, again, predominantly U.S.-based, would be focusing very much on the U.S. launch. We would roll out the Managed Access program 2 or 3 years, and then essentially give the product back and walk away and say, "There you go. We'll just move on to the next." The cyclical piece that Nick talked about.

The point of building the platform and the point of gaining expertise and people and operations in the likes of Africa, Europe, the U.S. is to be able to commercialize the drug for the pharmaceutical company. So again, there is no getting away from the fact that most companies have a U.S. standpoint and most are launching in the U.S. first. Outside of that, there are varying degrees of infrastructure and focus that they have. It still chose to stay that, even the biggest pharmaceutical companies are only focusing on 20, 25 markets, which leaves an awful lot of other markets and lots of those are unlicensed.

So our offer now -- and we are now looking at so many more opportunities to license in medicines, both from that Managed Access pipeline as the products move through, but also opportunities that we would have had to walk away from or not even be considered for in the likes of Europe. And you will see those come through in the future. So this really is another way of stressing, a, the power of the platform because we feed our own pipeline, but it is also fundamentally because we manage licensed and unlicensed markets. And that's our differentiator. And then at some point, this will play out over time because it will take time. We'll either hand back the asset because if that's the situation we're in, or we'll acquire it.

But those things are playing out already. How do we know that? Because if you look at the left-hand side, that just reinforces this equation. More and more pharmaceutical companies, and certainly more and more health care professionals that we're interacting with, predominantly online, that's the driver. Like every other business that wants to compete globally, digital has to make the business more efficient, stickier and create more and more intimacy with the clients or the customers. I call pharmaceutical, biotech companies, clients; health care professionals, customers.

On the right-hand side, we've introduced this KPI before, how many of the top 25 pharmaceutical companies that we're working with. One, it's arguably relatively straightforward. But it becomes progressively more difficult to work with 2 and 3, but that is increasing. I think you're not necessarily going to see that across 3 operations increase exponentially every year. That is not the expectation we're setting, but it will increase because it actually is quite a difficult thing to do.

You will see, certainly, why it's very difficult to go -- to get much more than 22, because the 3 that we don't work with, 1 does all their business in-house, still does. And 2 are largely generics-oriented houses. So the reality is, to a certain extent, I think the better marker, and we'll show this in the future, is really top 50, maybe even top 100 pharma. Because, going back to the point, if we've got 500-odd pharmaceutical companies, the KPI really is increasingly how many of those do we work with.

But if you look at the top 50 and use that middle bucket of 2 or more operations, which I think is a good proxy, we're working with about 33 of the top 50. So I'd suggest, and some people will doubt it and be skeptical and that's fine because we just have to show the results, that 6, 12, 18, 24 months ago, you could argue some of this was serendipity. This is not serendipity. This is the platform working. This is companies that we're following through the divisions of Clinigen.

Digital. This is where sometimes it gets a little confusing. So the ERP platform, project named ClinigenOne, why is that important? Because if we want to offer this end-to-end digital solution to make ourselves more efficient, to allow us to complete (sic) [compete] more globally to drive growth and to make a much more holistic experience for the client or the customer, then you have to have an ERP that sits behind it all. So we've gone through that process. And as Nick says, we've gone through the pain. We're coming out of the pain, back to business as usual, but it was a necessary step.

What we then need to do is -- well, the functionality that we have developed, both the Managed Access setting, Cliniport, which is a password-protected site, where physicians and pharmaceutical companies can interact; and Clinigen Direct, which, you'll remember last year, we introduced. Because the Global Access piece, the on-demand, more opportunistic, drug shortage-type Unlicensed Medicine solution needs a slightly different online treatment, it's a slightly different online experience, hence why Clinigen Direct. It isn't password-protected. You guys can go on after this, if you want. You can't order anything because you still have to be a pharmacist or physician, but you can get a sense of how it works.

So we weld the functionality of both those things together into ClinigenOne, and then you've got some serious power. But you have to do it in a step-wise fashion. In the meantime, if you're a customer, if you're a physician or a pharmacist, you don't see the join. If you go into a Clinigen Direct and something that you need is a Managed Access program, you get through an inter-Clinigen -- inter-Cliniport to follow the regulatory process. If you go to Cliniport and you want broader unlicensed product requests, you get through an inter-Clinigen Direct for the customers and where you see the join.

But for us, the power is, ultimately, that what this is all about, unsurprisingly, is on the left-hand side, exclusivity. Because our online platform is no different to, my learned friend on the right, who coined the phrase, "the Amazon of Unlicensed Medicines", which is sort of where all this goes, if you like. But just like Amazon, this content is stuff -- products. Same for us, the content is product and, ideally, exclusivity. So people have to come to you, which is why we stress that and why their model is geared towards that.

It's all about the experience. People want to operate in their own time, particularly time-poor pharmacists, and often their own language. But essentially, what will this drive is data. What that'll drive will be an audience that we can do some really interesting things. For instance, we will probably, in the very near future, be able to predict drug shortage and where it's going to happen next because of the amount of data we'll generate.

Are we making progress? I think we are. Cliniport, Nick's already said, the number of users goes up exponentially. The Clinigen Direct piece has been successful in terms of being a shopwindow: 150-odd countries; thousands of page views; and certain things that we're already starting to embed, a shortages tracker in the U.K., which we're looking to roll out further than the U.K.; multilanguage is part of it. And as I say, integration of all this into ClinigenOne will happen this calendar year. So we will be in a situation very shortly where the promise of the digital piece will absolutely be there and will drive further growth.

That's the same slide that was put up at the end of the year. So I don't necessarily want to go into all of that. David Bryant, Chief Business Officer, is here. So when we get to Q&A, if there are questions around Proleukin, as I assume there will be, then we can dig into some of that. But I think it's enough to say, look, on the 6 months, what have we done?

So we've done some short-term things, which I guess are more traditional Clinigen-type sensible housekeeping of a product. So managing access for use in clinical studies because we've got a clinical trial supply business. We know how to do it. We've basically applied that to Proleukin. We have or continue to assess where Proleukin is being used by lots of other companies and make sure that we supply that appropriately and in the right way.

The interesting thing about Proleukin, I suppose, when you simplify it, is there is a high-dose setting for Proleukin, where the immune system is upregulated or amplified because that's useful in oncology. And also in a low-dose setting, where it's downregulated or suppressed because that's useful in autoimmune disease. That's what makes it an interesting product, is the fact that there are, if you like, 2 versions, a high-dose version, which you currently got, and a potentially low-dose version, which we might well reformulate or formulate.

So we're doing the necessary planning for that because we think it's something that we can do. This isn't Phase III R&D. This isn't multimillions of spend. It's much more focused and less onerous than that. But it's something that we think is quite exciting. And when you look at some of the data that's being produced by the investigators, there's some interesting stuff going on. But essentially, we've done quite a lot in -- since we've owned it. And I think people are right to be skeptical in one sense because it's useful. But I think there are starting to be some interesting evidence to suggest that what we bought, as Nick says, we haven't put upside in our forward guidance, which I think is appropriate. But other people, other commentators have spoken about the potential of it. So I don't think you can argue with that. Yes, we still need to deliver on it, but we're doing all the right things to prepare for it.

So what have we done? We have executed the strategy, and we have delivered organic growth, which is one of the things that was almost an albatross around our neck. But we have delivered on it, except the fact this half time, and we're in the change of -- I mean our oranges. But we continue to guide, as Nick has said, for the second half. And we're currently, a couple of months in, are bang in line with that.

CSM has done very well but the earn-out is finished. The shackles are off. And we can now very quickly fully integrate that business, which will, as Nick said, strategically be quite important. Because while we talked about the slide about the pipeline for Managed Access fee and everything else, like every good service business, go earlier than that. And that's what Clinical Services does early, more senior relationships, which will feed Unlicensed, which is already starting to happen.

We talked about ERP, has to be done -- had to be done to then -- to turn us into a much more fully digitized business. We will look at other products. We assess them all the time. We're actively looking a lot. But you will see more in-licensed products into the likes of Europe because we're a great partner. We've got a much more appropriate footprint now, and we're very confident that will happen. So all in all, a strong half, a lot to be excited about in the future. Q&A.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Charles Robert Weston, RBC Capital Markets, Research Division - Analyst [1]

--------------------------------------------------------------------------------

Charles Weston from RBC. A few questions, please. First of all, the statement goes through a number of drivers for the first half and some headwinds. Most of those headwinds seem to be rolling off the way it's described or even returning to growth, which would imply that H2 could be potentially stronger than H1. Is there anything that you're concerned about in H2 that we might not have already seen in H1?

--------------------------------------------------------------------------------

Nicholas P. Keher, Clinigen Group plc - CFO & Executive Director [2]

--------------------------------------------------------------------------------

So within our forward guidance, we always assume that we will see generics of our Developed portfolio. And at the moment, we see the generic to the Melatonin tabs but nothing else. So actually, that would be a key risk if it turned up, but in our guidance, we've assumed it. On Glyco, we haven't still not seen the generic in the market. Within the products, otherwise, it's been quite solid growth actually across the portfolio. And with Foscavir returning to growth, particularly in the U.S., for a volume perspective, it looks positive there as well.

Within CTS, that's always a tough one because of the -- if the clinical trial fails, your contract disappears. But actually, as we sit here today, post that major contract win, it's a lot more independent than it's been historically.

And then within Unlicensed, the Global Access has had a really strong half, it's continued; Managed Access, as the pipeline wins coming through. And then it's all about those pipeline wins actually converting to the size we hope they can be. But as we sit here today, the second half looks well independent.

--------------------------------------------------------------------------------

Shaun Edward Chilton, Clinigen Group plc - CEO & Executive Director [3]

--------------------------------------------------------------------------------

And as you all know, we're an H2-weighted business. So that's not a surprise to anybody or shouldn't be. So...

--------------------------------------------------------------------------------

Charles Robert Weston, RBC Capital Markets, Research Division - Analyst [4]

--------------------------------------------------------------------------------

My second question on the low-dose Proleukin form. Obviously, there are a number of clinical studies looking at Proleukin used chronically in that low dose. What's the sort of timing potentially for getting the regulatory approvals or new devices that might help support that?

--------------------------------------------------------------------------------

David Bryant, Clinigen Group plc - Director of Corporate Development [5]

--------------------------------------------------------------------------------

First quarter 2023 would be the soonest you could get a licensed product to market. And that's based on technical development of the actual low-dose presentation. So I think one of the issues that we would face and, as you say, I mean lot of these treatments are chronic. So in some of the indications, it's daily subcut dosing. So having a line or vial probably isn't the best presentation to come to market with. So you'll need to try and do something that that will make the product more usable.

Having said that, in certain indications that the product is being studied in, in the low-dose setting, we think that even if you created a low-dose vial, the market would find a way of administering because the level of unmet need is so high. But I think you've got the other 2 parts. You've got the technical development of the low-dose presentation, which is going to take a couple of years. And then alongside that, you've got the studies that that will -- I guess, will form the basis of any potential filing. The -- we're probably looking at data coming out the middle of next year, where we'll get an indication on the one area. And I think that that will be kind of key decision points. So kind of mid, back end of 2021.

And again, I mean we -- when we put that slide up and we told you about Proleukin and all the indications, all that is really just statement of fact, is that it's being used in some way in all of those studies. And I think we're not naive enough to believe that you're going to bring a product to market in all of those. It's not going to happen. But there are -- and you do need -- and in a way, it was only when we bought the product, and we properly started talking to the investigators and understood the way in which they'd structure their studies and some of the end points.

I think if you look at some of the studies, they are called Phase II, actually, they're effectively Phase III studies. The way -- the size of them and the way in which they're constructed, the end points they have in place, and the way in which they're collecting the data, they're pretty robust studies. So we believe that there's a strong chance that we'll be able to take that and create a package to put in front of the regulators. But when we've mapped it out, the earliest you would get a marketing authorization would be kind of early 2023.

--------------------------------------------------------------------------------

Charles Robert Weston, RBC Capital Markets, Research Division - Analyst [6]

--------------------------------------------------------------------------------

Just one last question, if I may. You talked about opportunities for licensing coming from unlicensed into commercial and used the word licensing a lot. So what sort of form might that take? Would there be upfronts and milestones and royalties? Or would you also consider distribution agreements as well? How do you think about those?

--------------------------------------------------------------------------------

Shaun Edward Chilton, Clinigen Group plc - CEO & Executive Director [7]

--------------------------------------------------------------------------------

Both, frankly. I mean I think it's -- the beauty of the platform is, look, we're not going to stop looking for opportunities to acquire. But if you look at our track record, what is it, 7 in 7 years or so. The point of having the platform is to get involved earlier. And as I say, it's a natural feed over from the Managed Access piece. So we're currently looking at agreements that span all those things that essentially are, if you like, distribution agreements and then more sort of formal licensing-type deals.

So it's difficult to be specific but, frankly, we'll still be disciplined about whatever upfront there is in the first place. And we're not going to be fast and loose with those things and just licensing things. Because we have walked away from them already because they still don't fit the criteria that drives the model. So it's an extension of what we do. It's not necessarily that we're changing the criteria around which we assess it -- an asset -- assess a product.

--------------------------------------------------------------------------------

Nicholas P. Keher, Clinigen Group plc - CFO & Executive Director [8]

--------------------------------------------------------------------------------

I can add to that as well. I mean the good thing is the platform has been set. It's been built, particularly in Europe and the U.S., where we're already really promoting a handful of products and now have actually capacity to take on more. So if we can land one of these products as well, with the platform now built, the operational leverage is quite significant. And that is why we are looking in that area in particular.

--------------------------------------------------------------------------------

Stefan John Hamill, Numis Securities Limited, Research Division - Director of Equity Research [9]

--------------------------------------------------------------------------------

Stefan Hamill from Numis. I've got 4 questions, 2 on Proleukin -- 2 on Proleukin, which is essentially 1 extended, starting with that. So Proleukin is obviously quite a big acquisition as a percentage of your gross profit. Do you think you overegged that in terms of product concentration? And I guess, you've got a larger gross profit base now to acquire from. So would you go that size again? Or do you think you'd -- from an absolute perspective, go that size but bring it down as a percentage of gross profit?

--------------------------------------------------------------------------------

David Bryant, Clinigen Group plc - Director of Corporate Development [10]

--------------------------------------------------------------------------------

I think if we came across another Proleukin, yes, we would go for it. I think there's -- I mean for us, fundamentally, if nothing happened in the low-dose setting, it makes sense for us. I think if Iovance failed, the product makes sense for us because I think that there's a good core base to that business. And so I think there's no reason why we wouldn't do anything like that. Again, the reality is they don't come very often.

--------------------------------------------------------------------------------

Stefan John Hamill, Numis Securities Limited, Research Division - Director of Equity Research [11]

--------------------------------------------------------------------------------

Sure. And what's -- what if you overegged it? About the -- just, I mean -- it's obviously become frontline, a concern in both directions, I guess.

--------------------------------------------------------------------------------

Shaun Edward Chilton, Clinigen Group plc - CEO & Executive Director [12]

--------------------------------------------------------------------------------

Proleukin, when you look at it, is the same criteria for pretty much every other drug we've acquired, with the difference the fact that it's got some longevity because it's a biologic, and because of the breadth of interest in IL-2 in general. But I think people sometimes forget that the criteria that we apply in acquiring an asset still hold up for Proleukin. It's bigger, but we did think long and hard about, I mean Dave has been looking at it for 6 years, you'll remember.

So it's not as if something just appeared. We've been working towards it. We acquired the rest of world rights first. We had a very good idea of what we thought the upside and the downsides where and how to protect that. So I know, again, this continued skepticism, and we understand why. And to a certain extent, the only way we can answer that skepticism is deliver.

But I think there's enough in there that we haven't commentated on, other people have, to say that we haven't put any of the upside in the guidance. And we've taken some sensible steps to try and look at maximizing the opportunity. So I don't think it's necessarily about the size of how much it costs you, it's what are the qualities of the asset and what can we do with it. So bigger is attractive. Of course, it is. But in some ways, we're sort of fairly agnostic about its size, it's can we grow it.

--------------------------------------------------------------------------------

Stefan John Hamill, Numis Securities Limited, Research Division - Director of Equity Research [13]

--------------------------------------------------------------------------------

One more, I think I'll leave the other 2. Just there is an awful lot going on within the cell therapy area, both over TILs and CAR-Ts. I'm just wondering are some of those indications available -- is orphan protection potentially available for Proleukin in some of those new indications for the product?

--------------------------------------------------------------------------------

David Bryant, Clinigen Group plc - Director of Corporate Development [14]

--------------------------------------------------------------------------------

In the high-dose setting for in the kind of solid tumors, where they're being used, and the kind of hematology, I don't think so not for Proleukin. I think in the low-dose setting, definitely, yes. I mean we're at the point of filing for certain kind of indications that that would come with orphan protection if they come to market.

--------------------------------------------------------------------------------

Max Stephen Herrmann, Stifel, Nicolaus & Company, Incorporated, Research Division - Head of European Healthcare Equity Research & MD [15]

--------------------------------------------------------------------------------

It's Max Herrmann from Stifel's. Three questions, if I may. Firstly, just -- I know when you acquired the Quantum Pharma business, you mentioned about the excitement, I think, the AAA region had about the Lamda business and how the opportunity to take some programs and get registered. I wondered if you had an update on whether anything had come out of that?

--------------------------------------------------------------------------------

Shaun Edward Chilton, Clinigen Group plc - CEO & Executive Director [16]

--------------------------------------------------------------------------------

So with Glycopyrronium, we are starting to supply that in a small way internationally. I mean some of stuff takes some time. And undoubtedly, the new business development process, there are opportunities being fed in from around the AAA, all parts of the AAA, into that process. I mean it's not -- as we talked about, this is reformulation. It's not heavy-duty R&D, but it still takes a little bit of time to work through that process. But I don't change my view that there are lots of international opportunities that you can feed through that process and, ultimately, Lamda drives the formulation of those things. So you will see those come through over the next 2 or 3 years, yes.

--------------------------------------------------------------------------------

Max Stephen Herrmann, Stifel, Nicolaus & Company, Incorporated, Research Division - Head of European Healthcare Equity Research & MD [17]

--------------------------------------------------------------------------------

And then just on Proleukin. So you've obviously got the contract now with Iovance. In terms of the expectations of -- because it's such a big product, I know you don't give sales by product, but it's kind of an important one to see where is it trending this year. I know when you acquired it in April, there was a kind of a dip in sales that we get from IMS. But I'm just trying to understand where do you think it will turn out in the next sort of 12 months?

--------------------------------------------------------------------------------

Nicholas P. Keher, Clinigen Group plc - CFO & Executive Director [18]

--------------------------------------------------------------------------------

I would just flag. For the IMS data that you see in the U.S. market, in particular, that does not capture clinical trial supply. So -- and one of the objectives the company had when we acquired the product, was to actually get a grip on where that clinical trial supply was actually happening and have the direct conversations with the companies, such as in Iovance, to make sure that we actually can lock up agreements.

So -- and we look at Proleukin now as one product, not U.S. and rest of world. Because, essentially, we knew -- because there's a lot of clinical trial supply happening from the rest of world markets that, essentially, we have now formalized into agreements like you've seen. In terms of the indications that it's on, we have seen a stabilization. It's early days, but we have seen stabilization there. And that's because of the promotional support put behind the product.

And then on a gross-to-net basis, we've already made a 2% difference. But actually, we've got a bit more, we can go over there in the next 12 months. So we've done what we said we would do with the product when it was acquired to make sure the revenues of that product is stabilized. And there's a gap that you can't see and won't see because of that clinical trial supply. And the idea is that we keep that level flat for a few years, maybe a little bit of growth before we wait and see what happens with these new opportunities that come through. Would you add to that at all? No?

--------------------------------------------------------------------------------

Max Stephen Herrmann, Stifel, Nicolaus & Company, Incorporated, Research Division - Head of European Healthcare Equity Research & MD [19]

--------------------------------------------------------------------------------

Pricing differential between the U.S. and rest of the world is quite stark. I guess given the history that you've seen price rises in the U.S., but you haven't been able to achieve that. Is there any way of balancing that out over time? Or was that just it is what it is, and that will just stay like that?

--------------------------------------------------------------------------------

David Bryant, Clinigen Group plc - Director of Corporate Development [20]

--------------------------------------------------------------------------------

I think it is now and will be it is what it is, yes? I mean I think we will -- we are looking at ex U.S. pricing. So you're never going to take ex U.S. pricing to near to the U.S. But we have an unlicensed price now for Proleukin, where we supply into markets on an unlicensed basis, which -- and we'll effectively look to try and get all the licensed markets to a similar sort of price, but it's nothing like the U.S. price.

--------------------------------------------------------------------------------

Graham Doyle, Liberum Capital Limited, Research Division - Research Analyst [21]

--------------------------------------------------------------------------------

It's Graham Doyle from Liberum. Just on the CSM growth, obviously, again, stellar growth. Could you maybe give us a bit of clue to what's driving that and how sustainable that is? And then a couple of questions around, firstly, cash flow. Given you put out a number of sort of what appeared to be one-off timing factors, are these things you would expect in, say, an 18-month view to be fully recovered, and so we should expect basically supernormal cash flow now for the next 18 months? And then lastly, just that slide you pointed out in terms of taking a product from MA to Global Access, have you actually done that yet?

--------------------------------------------------------------------------------

Shaun Edward Chilton, Clinigen Group plc - CEO & Executive Director [22]

--------------------------------------------------------------------------------

In reverse order, yes, we have. So we've done that with a number of companies, BTG, Eisai, there's a bunch of companies that we have. So -- but we need to do that on a more international basis but the proof-of-concept is already there. CSM, I guess, is nothing spectacular. Their position against the big -- really big companies in this space has been based on better service, more flexibility and speed of response. So if you look at their customer base, what made it attractive to us was predominantly biotechnology, smaller companies, which was not an area of focus for Clinigen, who have predominantly focused on top 25, top 30 pharma.

And I think also the position that CSM has taken in supporting investigator-initiated trials, which is a growth area, has been able to differentiate them. So it's good, old-fashioned, excellent service delivery with a competitive edge against really big companies. The beauty of that, as Nick's highlighted, is that, for us, where it fits is there is a natural handover into the unlicensed piece. So even though the earn-out is there for a reason. CSM -- we're very focused on CSM. There were still, almost by osmosis, 15 opportunities that have been handed over to the unlicensed piece. So we know there is a synergy, which they only need to drive it properly. So cash flow, it's probably better for you to answer that.

--------------------------------------------------------------------------------

Nicholas P. Keher, Clinigen Group plc - CFO & Executive Director [23]

--------------------------------------------------------------------------------

Probably. In terms of the cash flow position for next year, you are right. So those 3 things that we've highlighted, one of them will be a sustained cash flow investment and, essentially, which is around the Proleukin product. But that will normalize, so it won't be an outflow next year. The 2 other parts from ClinigenOne and timing of payments across the group and how they fell, they should be normalized over the next 6 to 9 months. And so it leads to a better cash flow performance next year.

There are 2 caveats I want to just put into that statement, CTS and MA. So the CTS business, if we have a stellar December. There is a timing of when we buy the product and when we get our cash in, which could lead to an outflow. And it's what's been seen historically with the group. If you go over the last 7 years, you'll see that as well. And then also with the Managed Access business because of a -- any paid-for programs could be quite significant in size, and the timing of when we collect the cash from the hospitals and when it goes to the customer, the client in that instance.

And finally, just on licensing and acquisition deals, anything like that happens in the period, that can obviously have an impact on your working capital. But all being equal, all else being equal, 2 of those 3 should reverse. So yes, next year should be a better performance on cash flow.

--------------------------------------------------------------------------------

Andrew Mark Whitney, Investec Bank plc, Research Division - Analyst [24]

--------------------------------------------------------------------------------

It's Andrew Whitney from Investec. Just a quick one for me. On the slide where you showed significant markers of progress, you talked about being in 22 of the 25 top pharmas. And you actually alluded to maybe the opportunity shouldn't be top 25, it should be top 100 or top 200. I was just wondering, do you think it will be easier to cross-sell service lines into a smaller company? And do those smaller companies have sufficient spending power to move the needle with you?

--------------------------------------------------------------------------------

Shaun Edward Chilton, Clinigen Group plc - CEO & Executive Director [25]

--------------------------------------------------------------------------------

Certainly, all have spending power. I mean one of the -- CTS, a classic example. There are some small companies, who I can't really name for obvious reasons, who, in a given year, can spend a lot of money on Phase III comparator drug. So even the smallest companies have still got decent budgets and they're increasingly outsourcing. So the reality is, that's why it's a viable place for us to look.

It's easy and quite glib to say common sense might tell you that the smaller the company, the easier it is to cross-sell. And I think that's always true. If you look at BMS, we've done a lot with them, and yet they are your typical big pharma company, thousands of employees, lots of bureaucracy and hierarchy and different budget holders. So I think, to a certain extent, it really depends upon the decision-maker you're talking to. But we cover both bases in that regard because this is why the top 25 are important because they have the bigger pipelines, frankly. But also that's why top 100 is quite interesting because they have an increasing need to outsource it, arguably. So I think you have to have a balance. I'm not sure. I think, in general, yes.

The principle, it's easier to cross-sell across a smaller company because you've got one or two decision-makers, I would say, holds. But that's not always the case. And I think it depends on, as I say, the level of seniority that you're involved with in a big pharma company, where the decision-maker can make broad decisions around multiple budget holders.

--------------------------------------------------------------------------------

Andrew Mark Whitney, Investec Bank plc, Research Division - Analyst [26]

--------------------------------------------------------------------------------

Just one more. So you saw a nice acceleration in the Global Access business. To what extent was that enabled by the digital platform? Or is it a sort of shortages-type effect that you saw? And when do you think that digital platform will be fully implemented?

--------------------------------------------------------------------------------

Shaun Edward Chilton, Clinigen Group plc - CEO & Executive Director [27]

--------------------------------------------------------------------------------

So it's undoubtedly a combination of things. I mean as much as I might say, look, digital needs to drive the business. There is also from a client customer service perspective, a need to have somebody on a phone but also people visiting, certainly, the bigger -- the biggest centers, to add that depth to the relationship. It's still the case that you have to have a relationship in the first place to transfer online. Jumping straight to online, I think, is okay, somewhat opportunistic. So we have to do a combination of those things. But we have to have all 3 things. So it's responsible for a lot of activity.

But even when they're all singing or dancing digital platforms there, which will be later on this year, there still will be a lot of situations where the customer, in particular, goes online, searches, finds what they want and then picks the phone up. And I think other companies like Abcam see the same thing. And they spent years and a lot of money refining their own e-commerce platform, when everybody holds it in very high regard, rightly so. But when you talk to them, there's still an awful lot of order done over the phone. So you have -- you can't just do any one. You have to do multiple of those things. But that's what we're very focused on doing.

--------------------------------------------------------------------------------

Andrew Mark Whitney, Investec Bank plc, Research Division - Analyst [28]

--------------------------------------------------------------------------------

And you said this year, is that calendar or financial year?

--------------------------------------------------------------------------------

Shaun Edward Chilton, Clinigen Group plc - CEO & Executive Director [29]

--------------------------------------------------------------------------------

Calendar.

--------------------------------------------------------------------------------

Christian Glennie, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [30]

--------------------------------------------------------------------------------

It's Christian Glennie with Stifel. Just a quick one on the CTS significant new contract you won. Just any more detail you can provide there in terms of whether that trial is now up and running? Anything in terms of phasing of obviously shipments since that trial? Would you expect a normal progression as that trial recruits or any lumpiness that might play out in terms of that trial?

--------------------------------------------------------------------------------

Shaun Edward Chilton, Clinigen Group plc - CEO & Executive Director [31]

--------------------------------------------------------------------------------

That's about 15 questions you want to say. So what I can tell you is it's indicative of what CTS is and what it brings to the business. So -- but in terms of what's driven it. So it's an existing client. So it's one of those ones that fit in the bucket of comes back to us every year. So while you don't get exclusivity on a broader basis like you do with Managed Access, for instance, you can get quasi-exclusivity by offering really good service and the right product. And it is the result of an exclusive agreement that we have on the supply side. So people forget, and actually, we haven't -- we haven't announced many for a couple of years.

But in our infancy, there were some exclusive agreements about supplying drug into trials. So we haven't -- we still do those things. And this is the result of one of those. So that just proves why we still have CTS in the business. So some people previously have said just ditch it, divest it. Well, a, it's not quite as simple as that and, b, it's still a service offering that the client wants and that we can do well out of. So I can't necessarily give you any more detail than that, but it's, as Nick says, it's the biggest single contract in Clinigen's history, and it's multiyear. Any more than that, I can't give you.

--------------------------------------------------------------------------------

Nicholas P. Keher, Clinigen Group plc - CFO & Executive Director [32]

--------------------------------------------------------------------------------

Well, we do have set dates on certain shipments that will be going in, that we're going to be hedging, given where we are with currency and whatnot. But other than that, in terms of cash flow, with the impacts, et cetera, it shouldn't have a major impact as long -- for the first year. Beyond that, it depends on the timing thereafter.

--------------------------------------------------------------------------------

Shaun Edward Chilton, Clinigen Group plc - CEO & Executive Director [33]

--------------------------------------------------------------------------------

Thank you.