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Edited Transcript of PA8.DE earnings conference call or presentation 7-Aug-19 12:00pm GMT

Half Year 2019 Paion AG Earnings Call

Aachen Aug 17, 2019 (Thomson StreetEvents) -- Edited Transcript of Paion AG earnings conference call or presentation Wednesday, August 7, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Abdelghani Omari

Paion AG - CFO & Member of Management Board

* Ralf Penner

Paion AG - VP of IR & Public Relations

* Wolfgang Söhngen

Paion AG - Founder, Chairman of Management Board & CEO

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Conference Call Participants

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* Simon Scholes

First Berlin Equity Research GmbH - Senior Analyst of Technology, Biotech, Medtech, and Resource

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen, and welcome to PAION AG Conference Call on the Financial Results of the First Half of 2019 hosted by Dr. Wolfgang Söhngen and Abdelghani Omari. (Operator Instructions)

I will now hand you over to your host, Ralf Penner, to begin today's conference. Please go ahead.

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Ralf Penner, Paion AG - VP of IR & Public Relations [2]

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Thank you very much for your kind introduction. And dear, ladies and gentlemen, thank you very much for joining us for PAION's earnings call on the financial results of the first half of 2019. My name is Ralf Penner. I am PAION's Vice President, Investor Relations, and I'll be moderating today's call. I'm joined by Wolfgang Söhngen, PAION CEO as well as Abdelghani Omari, our Chief Financial Officer.

Within the next half hour, we are going to highlight some of the H1 2019 achievements, give details on the financial results, highlight the most important events and provide a pipeline and strategy update and financial outlook. After this initial presentation, we'll be happy to take questions. I would like to point out that the slides for the presentation can be accessed by webcast in parallel to this conference call. The webcast details have been posted on our website and were also given in today's press release. If you have not already opened the webcast link, you may want to do so now. This conference call is being recorded. And then our new recording will be available later today and will be posted on our website.

Before we get started, I would like to remind you that today's call may include forward-looking statements and that actual results may vary from PAION's current anticipation. I would also like to refer to the disclaimer included in the presentation slides. (foreign language)

After these initial remarks, I believe that we should start right on now with the presentation. Wolfgang, please go ahead.

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Wolfgang Söhngen, Paion AG - Founder, Chairman of Management Board & CEO [3]

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Thank you very much, Ralf. I'd like to start actually with stating that the first half year was very successful for PAION. We now have made significant progress compared to same time of last year. Three filings are underway. We even have a PDUFA date of April 2020 for the U.S. Our partners are making good progress. And we also made good progress with the part that we have to contribute.

For those who are not familiar with the company, I would like to start with a brief overview. We are a specialty pharma with a focus on anesthesia products and want to expand into acute and critical care in the future. Remimazolam is in the final stage of development with 3 filings, but we still have 1 indication that we need to redevelop. We already have 8 regional partnerships, ranging from the U.S. [over] China, South Korea, Canada, Russia, Turkey, MENA region and Japan. We have slightly increased our [enhancement] power in order to manage also the future plans of supply and entering the market in Europe. We had EUR 90 million cash at the end of the half year, and our market cap fluctuates around EUR 150 million right now. In the Supervisory Board, we had a change with -- since the last AGM. John Dawson, who I want to thank on this end for his contribution over the years, has been followed by Dr. Markus Leyck Dieken, who is now having a position in the [Geomatik] in Germany, dealing with artificial intelligence and health care. The management team consists of Abdelghani, who will talk after me; Jürgen Beck, who is the Chief Development Officer; and myself. We are listed on the Frankfurt Stock Exchange since 2005. Market cap, as I said, fluctuating around EUR 150 million. Liquidity is quite okay for a German-listed biotech company. We have 64 million shares outstanding, and we have good support by our analysts.

Remimazolam, our one and only product, has potentially 3 different indications. The lead indication historically is different between the regions. German anesthesia was the lead indication in Japan and is the lead -- and used to be the lead indication in Europe. Procedural sedation is the lead indication for the U.S. In ICU sedation, we have completed a Phase II study in Japan, and there is an indication that we want to take in the near future.

Remimazolam is in the space of sedation and anesthesia. And I would like to remind the auditorium that sedation is in a kind of fluctuating state where you move from sometimes light sedation to deep sedation and general anesthesia. Propofol is mainly used for the deeper sedation part and the [creation]. Midazolam, historically, is more used for the lighter part of the sedation. And it is our belief that remimazolam can substitute on both ends. So our competitors are midazolam and propofol, which are both generic, but we think that we have a valid value proposition to substitute both. What is important to consider when you talk about, specifically, general anesthesia is that it's usually -- and also in sedation -- procedural sedation, frequently, it's usually a combination of the analgesia drug, mostly opioids and hypnosis. So remimazolam is relevant for the hypnosis part and remifentanil, for example, is usually given these days for -- during general anesthesia, also in combination with propofol [of] gas. And in some indications -- in some situations, you also want the patient to be completely unable to move. Then so-called neuromuscular blockers are added. [In] all these 3 drugs have some interactions, which are very important and need to be recognized and reported in clinical trials.

What we have heard from [TOS] over time, specifically in the procedural sedation part, is that remimazolam represents the best of both worlds because it is as safe as benzodiazepine and as quick as propofol. So as I said before, we believe that we have the opportunity to substitute both midazolam and propofol in a very attractive and growing market setting.

And I would now like to hand over to Abdel to guide you through the financials.

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Abdelghani Omari, Paion AG - CFO & Member of Management Board [4]

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Thank you, Wolfgang. Good afternoon, everyone. I will now guide you through the financial key figures for the first half year compared with the prior year period, and I will also give an outlook for the full year 2019.

First of all, I would like to give you an overview of the financing agreement with the European Investment Bank that we signed in June this year. The unsecured loan of up to EUR 20 million in total can be drawn in 3 tranches and is available until June 2021. For each drawdown, certain conditions, as for example, operational milestones, need to be fulfilled. Each tranche has a term of 5 years and will be amortized starting in the fourth year after drawdown. The cost of capital is in line with market terms for venture debt and includes 3 components: cash interest, deferred interest and the performance-related component. We plan to draw down the first tranche of EUR 5 million through this year.

Now let's move to the P&L. Revenues amounted to EUR 7.5 million and resulted from the milestone payment from Cosmo in connection with the submission of the dossier for remimazolam and procedural sedation in the U.S. Revenues of EUR 0.5 million in the prior year period resulted from the license agreement for Japan with Mundipharma.

On the upper right-hand side, you can see that research and development expenses slightly decreased from EUR 6.5 million in the first half year 2018 to EUR 6.2 million in the first half of this year. The R&D expense is mainly related to the ongoing Phase III study in general anesthesia.

Compared to the first half 2018, general, administrative and selling expenses increased by EUR 0.6 million to EUR 2.3 million in the first half of this year. The increase is mainly related to higher selling expenses, particularly in connection with the setup of our supply chain for remimazolam. In total, we show a net income of EUR 0.6 million compared to a net loss of EUR 6.2 million in the prior year period. The net income includes income from R&D tax credit in the amount of EUR 1.2 million.

Now I would like to move to the selected balance sheet items and an overview of headcount. Total assets increased by EUR 1.3 million compared to the end of 2018. This mainly results from a decrease of trade receivables by EUR 1.5 million due to the receipt of milestone payments in connection with the filing in Japan on the one hand and an increase of the tax credit claim by EUR 1.1 million for the first half year 2019 as well as an increase of cash and cash equivalents on the other hand.

As you can see on the upper right-hand side, cash increased by EUR 2 million compared to end of 2018 and amounted to EUR 19.2 million as of the end of June. This increase essentially comes from positive cash flows from operating activity in the amount of EUR 2 million.

As you can see on the lower left-hand side, equity increased by EUR 0.6 million to EUR 21.4 million, mainly as a result from the net income for the first half year. The equity ratio was 83.3% as of end of June.

The staff development is illustrated on the lower right-hand side compared to an average number of 39 employees in 2018. We had staff of 44 employees on average in the first half of this year.

Finally, I would like to give an outlook for full year 2019. For the first point of comparison, you can see the actual figures for 2018 in the left column. For the rest of the year, our main focus remains on the development program in Europe, the ongoing global regulatory processes as well as the manufacture and supply chain for remimazolam. Regarding revenues, we expect this to amount to approximately EUR 8 million, [thereof] EUR 7.5 million in connection with the NDA filing in the U.S. already realized and EUR 0.5 million are related to the transfer of the Japanese-filing dossier or transfer of the U.S.-filing dossier to our partner, R-Pharm.

Given the ongoing development activities, including the European Phase III study, we will continue to incur significant R&D expenses, which we estimate to be in the range of about EUR 13 million to EUR 15 million. SG&A expenses will increase to approximately EUR 4 million to EUR 5 million, mainly because of pre-commercial activities. Based on the estimate for the R&D expenses, we expect tax income from R&D tax credit in the amount of approximately EUR 2 million. In total, we expect a net loss in the amount of approximately EUR 7 million to EUR 10 million.

Regarding our liquidity, cash at hand plus expected tax credit secure a cash reach into the second half of 2020 based on current planning. Until filing for market approval in general anesthesia in Europe, further funds of about EUR 10 million will be required based on current planning. This funding requirement could partially or completely be covered by the financing agreement with the European Investment Bank. Thank you, [so far].

Now I hand back to you, Wolfgang.

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Wolfgang Söhngen, Paion AG - Founder, Chairman of Management Board & CEO [5]

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Thank you very much, Abdel. Just a few highlights on why we believe that remimazolam is a great opportunity and why we believe in the success in the long term. When you talk about sedation and anesthesia, the big discussion hinges around safety. And here, remimazolam has significant offerings compared to the existing drugs. I would like to highlight the improved hemodynamic stability which makes it better suited for the aging population as the most important ones, and we come to that specifically when we discuss general anesthesia. Efficiency is as good as the current drugs because you cannot be better than 100%. Patient experience is very positive based on feedback that we had during the procedural sedation trials. We assume that we offer cost savings to [executions by exchange] in the current drugs, with remimazolam. Remimazolam belongs to the class of benzodiazepine, but it's the first one that's really very short-acting, which is very important. We have significant market protection with IP in the different region -- in the major markets. We have shown very good safety and efficacy in more than 200 -- 500 patients now on drugs. As I have said before, we have 3 different indications, 2 of which are in filing and ICU sedation, which we still have to develop. We believe that the overall market opportunity is something like EUR 500 million globally per indication, and so far, we are very happy with the results that we have achieved.

Let me now briefly touch upon the U.S. market because it's significantly different from what we are used to in Europe. The U.S. market has a specificity [in] so far as colonoscopy screening is the highest in the world, which has led to a reduction in the occurrence of cancer -- colon cancer. So therefore, this screening is growing over time. This is a growing market. And there are more than 20 million colon screenings per year, so this is a significant individual market which is not available in other territories [of] the world. And this was also part of the reason why the lead indication of the U.S. was procedural sedation.

On the next slide, you can see the highlights of the results of the Phase III program that was discussed [in degree] for the FDA. There were 3 trials, one in bronchoscopy patients, one in essentially healthy screening patients and one safety study in very sick patients. And if you look -- if you compare the blue bars with the light blue and orange bars, you see that the results across the 3 trials are comparable. The midazolam results are probably regarded as very low. If you look at this, but this is due to the specific response definition in the end, all of the people participating in the trials received a colonoscopy. But the question was how soon can you start a procedure, and can you start it with a predefined dosing regimen? And here, remimazolam clearly show a significant improvement. And this is -- and part of this is relating to the onset time, which is significantly shorter than it does on -- at the dose, the label dose in the U.S., and it is also a significant quicker wake-up time, which makes it nothing like a propofol situation.

So we gain -- we have gained approximately 22 minutes per procedural [and] colonoscopy, which lets physicians do significantly more procedures per day per bed than with midazolam. We were told by our investigators that this drug -- that with this drug, they can do the same amount of patients as they can do with propofol.

So while we are in the process, the -- currently, the NDA is under review. So we -- our partner [customer] receives questions, and then we answer those questions to the FDA jointly. And we accept that market approval may be coming in April 2020 according to plan. We have significant new situation in Europe because the marketing authorization application for Europe can hopefully still happen this year. Based on feedback from the EMA, we have started to work on the dossier already, and we will be able to submit a marketing authorization based on the U.S. dossier. And the thing that we still need to see, is whether we can get agreement on the pediatric plan in due course with the agency because this is a precondition to filing. But the team is already working towards the -- on getting ready to file towards the end of the year.

In general anesthesia, the current problem is that with the aging population, the known hypotension that goes along with the existing drugs is causing problems, and it has been now repeatedly reported that this leads to increased mortality, morbidity. Although these patients survive the operation and the surgery and the anesthesia, the effects of hypotension during the intervention leads to cardiac problems, problems like stroke and kidney damage, and this is all due to significant hypotension. And we have data from our Japanese trials and our trial in cardiac surgery showing that remimazolam has significantly less hypotensive events. And therefore, we believe we have a very interesting value proposition in general anesthesia. And our trial in Europe, which I will describe later, is designed to exactly show and deliver those data.

The next 2 slides are just for reading, but they highlight the current discussion. It is -- previously, there was a belief that the injury in the heart only occurs during bypass surgery. Now it has become clear that these mentioned hypotensive events also have significant negative impact on normal patients, which are not undergoing cardiac surgery but other surgery. Imagine someone with a cancer who has already compromised [in their] health. Having significant hypotension leads and adds to the damage and mortality. And it is -- the independent studies reporting the same and discussions at meetings [of a lot] circle around how to prevent hypotension and during the surgery, and remimazolam is discussed as being one of the upcoming alternatives.

The design of the Phase III trials in Europe that we have recruited now more than 200 patients. In the multicenter trial, we have Germany, France, Italy, Switzerland, the Netherlands. [You can resume] in the trial. And as you see in the blue box, the primary objective, of course, is to show that this is active as an anesthetic agent, but the key secondary objective is to show improved hemodynamic stability compared to propofol. And in the next couple of slides, I will show you some data on this.

So we assume that patient recruitment can be completed in the first quarter 2020. And now with a new plan to apply for approval in procedural sedation, the general anesthesia will then be the second indication, which reduces the overall time and effort and volume of the dossier so that we assume that we still will be able to file in a similar time frame that we had planned initially with general anesthesia, with the current time line. And also, we have feedback from people who understand the market that it is really very good to launch procedural sedation because it gives physicians the opportunity to get used [to run in] remimazolam, to get comfortable with it, which is easier in the procedural sedation situation compared to general anesthesia. So we have seen that the learning curve in individuals and sites of procedural sedation is much deeper than the learning curve in general anesthesia because it's a much more complicated and delicate setup and because physicians are aware of it and want to protect the patients that are very careful and considerably conservative. So this is part of the difference. And we believe that if they can be -- can get used to remimazolam in procedural sedation, this can also support getting the launch in general anesthesia with a better uptake.

On the next slide, you can see why we believe that we have a significant advantage over propofol based on the Japanese data. You see that there's a significant reduction in hypotension. And I mean below 60 millimeters mercury. It's definitely something that you do not want to have. It is now clear that both the hypotension and the duration of hypotension and also the requirement for vasopressors both contribute to damage of brain, kidney and heart, and the third one could be too deep sedation.

So how do we see the market in this indication? The overall number of surgical procedures in Europe is growing. It is now more than 70 million. All anesthesias are around 30 million-plus and general anesthesias, so not all patients received general anesthesia, it's something at 28 million. And of these are 14 million high-risk operations, which essentially represent the current situation in European hospitals. More than 50% of patients are now older than 60 years, and most of these patients have comorbidity and therefore, they are more [growing] to suffer from this hypotension. And this is how we want to position remimazolam and this is also how the current trial has been designed because we are taking on [abroad] patients, which are more sick than they used to be in the Japanese trial.

ICU sedation, we see as a large opportunity that we have not addressed at this moment in time, but part of the reason why we received the grant from PMDA are our plans that we would also address this indication. We have already exchanged ideas about this with investigators, but we have no active planning on when we will start the indication. But we do this as we focus our efforts on this as soon as the filings have been successfully complete -- not the filings but when we have the approval. I'm sorry. So again, this is a very attractive market with 14 million to 15 million patient [days] requiring sedation while they stay on the ICU, and that's the combination of the Western European markets. Again, here, hemodynamic stability is key for the survival and improved -- quick improvement of patients, and this is why investigators are asking us when we are coming with trial of ICU sedation as these have significant advantages.

I've mentioned in the beginning the activities of our partners. Let's start with Japan. Mundipharma has filed in December. And we are hopeful that market approval could be achieved still this year. In South Korea, Hana Pharm is currently to file towards the end of this year. In Russia, similar situation, filing by the end of 2019. In Turkey, we have a new situation because R-Pharm, who was to co-own our TR-Pharm, is now in charge, and we are discussing currently with them which of the dossiers they prefer to use for filing. In Canada, PAION expects Pharmascience to use the market approval for their own filing, which is the usual way Canada operates. In China, we know that remimazolam is under investigation by the Chinese authorities, but we are not able to give a clear guidance on the timing because there is no clear guiding by the agencies, like with the FDA on the PDUFA date. This is not available for China, so that is why we have no answer to this. I will visit China in September. Maybe I will learn more so that in November, we can give you a relevant update here as well.

On slide -- on the next slide is an overview of the deals that we have signed. So far, we have received EUR 44 million and it is including the milestone by Cosmo earlier this year. And there are EUR 76 million in milestones to come and attractive royalty rates, which are depending: a, on a time of -- when the deal was closed; and b, on the type of market because it's natural that in emerging market, we are not able to get the same price as in the western world.

Now people are more and more asking us on what's beyond remimazolam. Well, the answer is let's first get remimazolam over the finish line, so that is our current focus. We wait for first market approvals in Japan, China and also in the U.S. Completion of the European trial in general anesthesia is upcoming early next year. And potential market approval in the U.S., as I mentioned before, the PDUFA date is in April. So hopefully, when we are in May next year, we have 3 approvals and one more clinical -- important clinical trial completed.

And beyond remimazolam, our focus will be on acute and critical care because there are not so many new drugs around for general anesthesia or sedation. But we will focus on inventory products that fit to this, and we plan to market in Europe, or sell, in selective markets. And we also understand that we need to get in additional products to reduce the cost of marketing for our drug alone.

And in principle, we believe that integration is a needed step to make PAION a profitable pharma company. And so we have started those activities. Supply chain is a very active topic right now. We have hired a person who is experienced, has a long history in -- within the CMO, understands the business and knows how to set up what we need in order to deliver the product to our European customers and patients.

Ralf, I hand back to you.

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Ralf Penner, Paion AG - VP of IR & Public Relations [6]

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Thank you very much, Wolfgang, and the update for the presentation. Now we would like to start the Q&A session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from the line of Simon Scholes from First Berlin.

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Simon Scholes, First Berlin Equity Research GmbH - Senior Analyst of Technology, Biotech, Medtech, and Resource [2]

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In the press release, you've talked about putting in place complementing financing measures to finance your own commercialization in selected European markets. I was wondering in view of the recent debt agreement, whether those financing agreements will necessarily involve equity or whether you could finance yourselves in the future with respect to, at least, the current product portfolio purely over debt.

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Abdelghani Omari, Paion AG - CFO & Member of Management Board [3]

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I'm looking at just other financing measures. And here, again, we are looking at the full range. So its equity is debt, but it's also a mix of equity and debt like convertible. Yes. I mean it's clear that the milestones that we are expecting from the deals we have in place are a significant source of financing. But here, it all depends on when do those milestones come in or if they are somehow moving target. And then, of course, the -- we have now the deal in place with the EIB, and then we will further define our plans and our strategy to market here in Europe. And then those 3 elements, we will then work out what exactly we will do and when.

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Simon Scholes, First Berlin Equity Research GmbH - Senior Analyst of Technology, Biotech, Medtech, and Resource [4]

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Yes. I mean just -- just to clarify about some -- in 2020, I mean you'll be getting your first revenues, both in the U.S. and Japan, and you'll be getting -- presumably, you'll be getting additional milestone revenues. So those 2 elements of income should significantly reduce the financing requirement as well and boost your equity. So one can imagine on the scenario under which, at least the current product portfolio is purely debt financed, thereby, basically eliminating any further dilution. Does that sound realistic to you?

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Abdelghani Omari, Paion AG - CFO & Member of Management Board [5]

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Yes. I think what you're saying is right. So we have significant milestones and inflection points upcoming. And then also coming along with this given significant financing that will certainly help, and then we will see what balance will be there. I don't think it will be huge. But if there is a balance, and we will work out how to close this.

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Operator [6]

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The next question comes from the line of [Christian Elmond] from [SMO Research].

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Unidentified Analyst, [7]

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Could you give us a little more detail on the process regarding the type 2 variation application with the EMA and regarding time table for the market entry in the EU?

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Wolfgang Söhngen, Paion AG - Founder, Chairman of Management Board & CEO [8]

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At this stage, this is a plan. We assume that we file procedural sedation towards the end of the year. And the -- if everything goes according to plan, this could -- should be completed by the end of next year. And then we will have our general anesthesia dossier ready based on the current planning and then assume that the overall approval time for general anesthesia could be between 3 and 6 months faster than if it would be submitted as a first indication because based on the application [and] procedural sedation, significant information [on] example, production, on supply chain, et cetera, will be available, and therefore, the overall review time will be less. That's the current plan.

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Operator [9]

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We have no questions in the queue. (Operator Instructions) There are no further questions from the English-speaking participants. So we'll hand you back to Ralf Penner. Please go ahead.

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Ralf Penner, Paion AG - VP of IR & Public Relations [10]

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Yes. Thank you very much to everybody for your questions. (foreign language)

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Operator [11]

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(foreign language)

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Ralf Penner, Paion AG - VP of IR & Public Relations [12]

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(foreign language) Thank you very much, everybody, for joining us for PAION's earnings call on the financial results of the first half of 2019. I hope that we have been able to answer your questions. But of course, please feel free to give me a call afterwards. I would like to listen -- if you would like to listen to this call again, please visit our website where the audio recording will be posted later today. For now, I say goodbye and (foreign language), and thank you very much for your continued interest in PAION.

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Operator [13]

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Thank you for joining today's conference. You may now disconnect your lines. Hosts, please stay connected.