ImmunoPrecise Antibodies Ltd. (NASDAQ:IPA) Q2 2023 Earnings Call Transcript

ImmunoPrecise Antibodies Ltd. (NASDAQ:IPA) Q2 2023 Earnings Call Transcript December 15, 2022

ImmunoPrecise Antibodies Ltd. misses on earnings expectations. Reported EPS is $-0.3 EPS, expectations were $-0.19.

Operator: Good morning and thank your standing by. Welcome to ImmunoPrecise Antibody’s Second Quarter Fiscal Year 2023 Earnings Conference Call. Also on the call with us today are Jennifer Bath, Chief Executive Officer; Brad McConn, Chief Financial Officer; Ilse Roodink, Chief Scientific Officer; and Barry Duplantis, Vice President of Client Relations. Before we get started, remember some statements we make today may be considered forward-looking statements for the purposes of applicable United States and Canadian securities laws. IPA cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward-looking statements. Additional information about these risks and uncertainties is included in our SEC filings.

IPA undertakes no obligation to update these forward-looking statements except as required by law. On today’s call, non-GAAP financial measures may be used to help investors and analysts understand IPA’s business performance. We refer current and potential investors to the forward-looking information section of its Management’s Discussion and Analysis issued today at www.sedar.com and on EDGAR at www.sec.gov. With that I’ll turn the call over to Dr. Bath.

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Jennifer Bath: Thank you, Dennis. Good morning everyone. I’m glad that you are able to join us today. We’re excited to share with you IPA’s second quarter updates and our progress toward achieving our strategic goals for the fiscal year, including the steady growth of our revenue driven by our expanding client relations team, as well as milestone achievements with our in silico platforms from our newest subsidiary, BioStrand. With several goals in mind, the company recently announced its voluntary delisting from the TSX Venture. These goals include creating a central market for its common shares on the NASDAQ, enhancing long-term liquidity and shareholder value, lowering administrative and legal costs, saving time, and harmonizing reporting requirements.

Finally, we believe that de-listing from this exchange makes it easier to reach institutional investors who are prohibited by compliance from investing in such exchanges. IPA is considering a shift in its corporate offices as a compliment to its recent delisting from the TSX Venture. While the exact potential location has not yet been selected for shareholder approval at a future special meeting of shareholders, some of the key location characteristics being considered include a U.S. location with access to high-performing workforce with relatively low average wages, a region with expanding technology-based businesses that is complimented by numerous business incentives and easy access to government officials, highly competitive cost of business operations, and a highly educated workforce.

This quarter, we look forward to keeping you informed of any developments relating to this particular update. As we approach the end of this calendar year we are focusing on accelerated revenue growth and sales integration of our in silico capabilities. This year we are also reflecting on market conditions and our historical performance as we strive to maximize shareholder value in 2023. This graph compares IPA’s year-to-date share price change to that of independently selected competitors as reported by NASDAQ with these figures as of Tuesday, December 13. While we have maintained shareholder value in a difficult market, especially as compared to our peers, we are far from satisfied. With regard to shareholder value and corporate growth we have set immense goals and we are committed to working tirelessly until those are executed.

We are not intimidated by the current market conditions, but rather energized and inspired by the opportunity to significantly outperform them. Elaborating on our most recent press release, the emergence of Meta’s ESM Fold 2 and DeepMind’s AlphaFold AI-driven predictive platform recently opened the door to the world of structures and their impact on drug discovery. Irrespective of their precision, these platforms provided us with a novel visual representation of sequences and their uniqueness. Having fully integrated these two platforms into our end-to-end in silico discovery workflow, we have saved an appreciable amount of development time and cost. The timing of these platforms was fortuitous, having recently launched our structural HYFTs, which will help explore formal and explicit biologically relevant and hidden knowledge drawing upon our HYFT technology, which cannot not only connect sequence to structure and function, but also link those sequences to structure and structure to many types of textual information such as scientific papers and also medical records.

These multi-omic, multi structural capabilities are unparalleled and have the potential to greatly speed up drugs discovery. From a commercial perspective, we started integrating BioStrand’s cutting-edge AI technology into our global fee-for-service offerings this quarter, creating unique in silico capabilities to expand our platforms for next-generation antibody discovery and development. These in silico services show quick turnaround times that result in faster revenue recognition, excellent profit margins, and a competitive edge, thanks to our unmatched data outputs. One of the examples in the new in silico offerings is the recent client access to our in silico immunogenicity screening service, which enables clients to quickly and affordably predict which lead candidates may be immunogenic when administered to patients.

It offers insights into which patients, specifically based on their genetic background, are most likely to experience an adverse event and determine which lead candidates are most likely to be safe in the majority of the population. In order to prevent unfavorable side effects this information may also help drug sponsors decide which patient population should be selected in a clinical or commercial context for a particular therapy. This and other new AI services have not only been launched, but have also been chosen by select clients as extensions to their current programs and will soon be available for all to view on our updated website. With that, I will turn the call over to our Vice President of Client Relations, Dr. Barry Duplantis.

Barry Duplantis: Thank you, Jennifer. This quarter IPA grew its sales team in key geographic areas. I am pleased to report that a new Director of Client Relations started with us shortly before the end of Q2. This new addition is covering CRO service sales in the San Francisco and Pacific Northwest region and brings with her years of experience serving clients from past antibody service sales and project management roles. In addition, IPA has received a signed commitment from an East coast-based Senior Director of Client Relations set to join the team in early calendar year 2023. This individual has an impressive background in antibody discovery, while also possessing firsthand knowledge of client needs and expectations. The San Francisco and Boston regional markets have always offered significant market potential for IPA and we look forward to the impact that these two key hires can bring IPA in the future.

Last quarter we spoke of a significant increase in Q-over-Q sales orders. Those sales orders have helped drive a 9.8% increase in revenue of Q2 over last year. They have also yielded record quarters at both IPA Canada and the Utrecht sites. The Canadian site also posted a single monthly revenue record reporting over $844,000 in October, and we’re optimistic for continued growth with strong revenue trends continuing through November. These results are primarily driven by a continued and growing interest in IPA’s memory B cell selection workflows, particularly IPA’s rabbit B cell platform, while the Utrecht site is beginning to take advantage of their increased capacity following a seamless move to their new facility, which Jennifer will expand on later.

We’ve also recently announced that IPA’s BioStrand subsidiary has signed a research collaboration and licensed agreement with the clinical stage bio company, BriaCell. The research collaboration is based on BioStrand’s ability to develop clinically relevant antibodies using its multifaceted, in silico HYFT based platform. Due the unique nature of BioStrand’s therapeutic discovery potential, we’re happy to announce this is the first non-fee-for-service based discovery program run by a service-based IPA subsidiary. While the fee-for-service models have served IPA’s traditional wet-lab services very well, the fiscal benefits of using an in silico discovery workflow, asset ownership retention until certain contractual requirements have been met and the potential backend value of the program make for an incredibly attractive business model available to BioStrand’s technology.

Lastly, we would like to turn our attention to the growing market of Wnt proteins where IPA Europe’s Utrecht campus is occupying a rapidly growing niche with an exclusive product arrangement in IP protection. An organoid is an in vitro three-dimensional replica of an organ that has been scaled down and simplified to display accurate microanatomy, and they’re increasingly valuable model systems for human biology. Wnt surrogate is a protein that is required as an organoid growth factor. IPA has seen an uptick with our Wnt surrogate production and sales at our Utrecht site, which is consistent with our views that the organoids market is rapidly growing and demand for growth factors continues to increase. According to a Vision’s research reports, the global organoids market is valued at over US$2 billion in 2021 and is predicted to reach well over US$12 million by 2030, at a CAGR of 21.58% during that timeframe.

With UPE’s move to the new accelerator building, the company is well equipped to meet the rapidly growing demand. I will now turn the quarterly updates over to Dr. Ilse Roodink for IPA’s Chief Scientific Officer.

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Ilse Roodink: Yes, thank you, Barry and good morning all. As recently announced, IPA subsidiary Talem Therapeutics entered into a strategic collaboration with Ligand Pharmaceuticals’ new subsidiary OmniAb, expanded the ongoing relationship by further developing three antibody programs with validated immune oncology targets. Under this agreement, Talem will lead to the progression to clinically suitable molecules by combining the expertise with IPA’s LENSai in silico technology to advance out-licensing and commercialization of these three human antibody therapeutics. Immuno app and Talem will share certain research costs of each program and are eligible to receive shared downstream economics upon potential out-licensing or commercialization of each program.

We believe that the application of our in silico analysis has the potential to greatly enhance the quality and value of these programs as it does for any discovery pre-clinical or clinical program. During our last earnings call, we announce the maintained efficacy of PolyTope, Talem’s first-generation four antibody combination therapy against the SARS-CoV-2 variants, B8.5 and B8.275. We are very delighted that NIAID has agreed to include our product in their regular neutralization screenings of clinical and antibody therapies towards emerging variants. This demonstrates NIAIDs recognition of the exceptional resilience of PolyTope in maintaining effectiveness against variants. To-date, we have also had ongoing conversation with NIAID on clinical trial support through mechanisms facilitated by NIAID.

We are pushing for the first patient doses of PolyTope in the spring of calendar year 2023 and accordingly, we have engaged a global clinical trial CRO, named the cells to support us with clinical development of PolyTope, was selected based on the experience and constructive interactions as well as the results of an independent audit at IPA’s request. is involved in the finalization of the study protocol to evaluate the performance of PolyTope in humans and will prepare other documents require such as manuals, patient information and patient informed consent. will on behalf of us, be responsible for clinical site monitoring, regulatory safety and data management and logistical aspects, transferring the drug product and clinical samples. To-date, we are pleased to state that the production of the final drug substance having completed and the filing of the drug product and placebo are in the final stage.

This slide summarizes our part and ongoing task towards regulatory submission for clinical trial approval. With the continuum mutation of SARS-CoV-2 resulting highly politicized dropout authorized therapies. There’s a growing need and interest for more sustainable and broadly efficacious product. This unmet need has been recognized by health and regulatory authorities as well. As such, the FDA and EMA organized a joint workshop that takes place a day. IPA was invited along with a handful of leading pharmaceutical companies who previously had effective anti-SARS commercial therapy that have lost regulatory support to join an additional working group leading up to the final workshop. The aim of the working group is to identify alternative strategies to expedite testing of effective antibody therapies, targeting new SARS-CoV-2 variants to align our perspective regarding possible regulatory relaxations for clinical development and to prepare a joint presentation to the EMA and FDA at the workshop.

readiness of our drug product while others are back in the development phase, as well as very favorable earning potential of infectious disease assets in general put Tyler in a good position for partnering and outlicensing discussions for PolyTope, in particular with human safety data on the horizon. From an intellectual property perspective, we are pleased to share that we have received very promising feedback from the examiner regarding our U.S. national patents for PolyTope and expect that its granting is close. As discussed during the last quarterly update, Talem has combined lead candidates from two oncology programs into a bispecific therapy to create a potential best-in-class T cell engager that has now been proven to recruit and activate T cells in vitro.

Of interest, it was noted that T cell activation by our bi-specific candidates differs from that of a chosen benchmark, commercial benchmark. We believe that it’s differentiating properties open avenues to develop safer and potentially more effective oncology therapies and underscore the first and best-in-class potential of these candidates. We have filed professional patents for each of these programs, including T cell engagers. Having established priority days for these programs allows us to create more visibility for these assets publicly, greatly benefiting our ongoing partnership discussions. With this, I would like to turn the call over to Jennifer to discuss updates on our facilities.

Jennifer Bath: Great. Thank you, Ilse. As a result of meticulous relocation planning, IPA’s Utrecht team executed an extremely smooth transition to the new accelerator facility in October and quickly ramped up production to seamlessly serve clients. Lab for floor space has doubled and new equipment and staff additions are in place to support the increase in production capacity afforded by this move. The new facility will also allow the Utrecht team to add new services, including the expansion of offered biophysical characterization assays. In fact, even in the short period of time since the expansion, we have witnessed an appreciable revenue gain from the new facility offerings as will be highlighted next by Brad McConn.

Brad McConn: Thank you, Jennifer, and good morning everyone. I will provide an overview of our financial results for the second quarter before touching on our financial position as of the end of the period. As a reminder, all numbers I reference are in Canadian dollars unless otherwise noted. Before we dive into commentary on the financial results, I briefly want to touch on a change that we made to the organization of operating expenses on our comprehensive income statement. We’ve updated the classification of our expenses to be organized by function as opposed to our previous presentation by nature. The four functions you’ll see this quarter and moving forward are research and development, sales and marketing, general and administrative and amortization of intangible assets.

I want to touch specifically on the research and development function and note that it includes compensation expense related to research, including share-based compensation, research, supplies and materials, service contracts for research projects and allocated depreciation. We feel this organization provides increased visibility into the cost structure of the company and much improved comparability to our publicly listed peers. Turning to the financial results. IPA recorded total revenue of $5.2 million during the second quarter, a 9.8% increase from $4.7 million during the second quarter of fiscal 2022. Barry previously mentioned record quarters at both Victoria and Utrecht, and both achieved greater than 20% revenue growth compared to Q2 of last year.

Gross profit for the quarter totaled $2.8 million, an increase of 7.9% compared to the same period last year. Gross profit margin of 54% is a slight decrease from 55% in fiscal 2022. Our increased cost of sales is primarily attributable to increased salaries and benefits and lab supplies allocated to projects to support our increased revenue, along with some small effective inflation on the cost of supplies. Moving to our operating expenses. Research and development costs increased to $4.6 million from $3 million during the same period last year. The majority of research and development costs related to the clinical manufacturing of the PolyTope antibody combination therapy, which totaled $3.7 million during the quarter. Other notable expenses include $0.3 million in compensation expense and $0.1 million in depreciation allocated to R&D.

Sales and marketing expense totaled $0.8 million during the quarter, an increase of $0.2 million compared to fiscal 2022. This increase is attributable to additional advertising expenses, compensation expense and consulting costs. General and administrative expense was $4.3 million during the period, compared to $3.1 million in fiscal 2022. Salaries and benefits increased $0.4 million and management fees $0.3 million primarily due to the addition of staff at BioStrand and some routine pay increases. Office and general expenses allocated to G&A increased $0.1 million. Consulting fees increased $0.6 million. Lastly, share based compensation decreased $0.4 million year-over-year. Finally, amortization of intangible assets increased $0.4 million due to intangibles that we recorded for the acquisition of BioStrand.

Other income totaled $0.3 million during the second quarter of fiscal 2023 compared to a loss of $0.1 million during the same period last year. The largest variance to note is an increased in unrealized foreign exchange gain of $0.4 million compared to the second quarter of fiscal 2022. All told, IPA recorded a net loss of $7.4 million during the second quarter of fiscal 2023, compared to a net loss of $5 million during the same period last year. As previously highlighted, the major drivers of the increase in net loss include increased investment in research and development activities and increase G&A costs. Moving to the balance sheet. IPA held cash of $15.1 million as of October 31, 2022, compared to $30 million as of April 30, 2022. Cash expenditures totaled $5 million during three months ended October 31, 2022, a reduction from $10.6 million in expenditure during Q1 of fiscal 2023.

The cash used in investing activities include $0.8 million in the purchase of equipment and $0.7 million for the first deferred payment for the acquisition of BioStrand. Cash from financing activities includes an outflow of $0.6 million from lease payments offset by inflows of $0.6 million from the issuance of shares due to option exercises. With that, I’ll turn the call back over to Dennis for the Q&A session.

Q&A Session

Operator: Thank you very much. And your first question will come from the line of RK with H.C. Wainwright. Please go ahead.

Swayampakula Ramakanth: Thank you. Good morning, Jennifer and team. Thanks for taking questions and congratulations on a very successful quarter. In terms of €“ I have few questions, so I’ll just go one by one. In terms of the revenue trajectory, which we are saying, it certainly is moving in the right direction, and it’s very encouraging. In terms of the resources that you are adding in Europe, to offer increased quantity and also quality of services, what do you €“ what are your expectations in terms of the growth in the project revenue from these additions and what percentage of €“ what percent growth in project revenue would make you and the team comfortable especially going into fiscal year 2024 and beyond?

Jennifer Bath: Thank you for your question, RK. So with regard to specifically the growth and added space, we’ve taken on in Europe, and then also with regard to the additional company in Europe, I can touch on that from a couple of different perspectives here. So the first one I’ll start with is the expansion of our space in Utrecht where the majority of the expanded space, it’s actually ROI generating space. And we’re looking for a couple of areas there where we have specifically focused on for increased revenue, not only ability to take on more programs because that site has been at maximum capacity for probably about half of the previous fiscal year. But in addition to that, to be able to take on certain types of programs that we’ve had to decline historically because of needed additional footprint to be able to house some of the equipment that we now have purchased since the move.

So some of those include extremely high throughput small scale protein production from some of the large pharmaceutical companies in that region who have a very particular need for that and have inquired specifically about us filling that need. And the other one is exactly the opposite. It’s extremely large scale manufacturing in which we have received numerous requests over the most recent ones here to produce both proteins for outsourcing to a large companies interested in reselling those products for us. So we’re looking forward to the continued growth at that site. It’s already kind of beyond our expectations after just having moved two months ago. And we believe that revenue trend will continue there. As Brad stated, it’s already 20% year-over-year right now.

So what would we anticipate or forecast on officially going forward and expect? I would expect that to at least double in size for that particular location with regard to the particular types of activities I just mentioned. With regard to BioStrand as you know, BioStrand is still pre-revenue company. We anticipate that to change relatively quickly, as mentioned, we have put out these offerings for fee-for-service work that’s just been on a face-to-face, one to one offering with clients we’re in communication with. It’s not something that’s been wide scale offered or is available on our website at the moment. These are wet lab capabilities that are still running fee-for-service, but as I mentioned in the call, they are different than our existing wet lab services in the sense that, because they do provide results relatively quickly depending on the offering, anywhere from 12 hours to three days as opposed to several months.

We obviously anticipate much faster revenue recognition. The profit margins are also significantly higher than our existing profit margins. We definitely anticipate that site to be revenue generating in the very new future €“ in near future. What we’re really €“ what we’d really be happy with that site is to see some of the revenue generation, not just from those fee-for-service programs, but from the de novo in silico program such as the one that was just agreed to with BriaCell. We are anticipating closing several more of those this year, and so ideally, we would see some of those upfront payments rolling in which range anywhere from $500,000 up to several million dollars depending on which company would hit those milestone goals.

Swayampakula Ramakanth: Thank you very much, Jennifer, for that. Just to follow-up on your last set of comments. At a high level, those offerings within that AI-based product are €“ is basically to kind of test the market and see not only assessing your ability and successful delivery of whatever the objectives are for the client. But also kind of to tweak your product in such a way that you can offer it to all the current clients and also for to prospective clients. So for that €“ for you to get to that level, what is the sort of timeline that you’re wanting within your teams to deliver? And also I know it’s very difficult to figure out what sort of growth you’ll attend there, but for people like me who kind of think about numbers, how should we think about that? So if you can comment a little bit on the timing, whatever you can give at least qualitative statements about growth expectations.

Jennifer Bath: Absolutely. So with regard to those offerings, which I just mentioned, we actually do include expected timelines in those agreements that have been drafted for those clients. So one thing I’d like to point out is with these groups that we have gone out to specifically, we went to four groups, this is something else that or four different companies, this is something else that we have not offered on our website or been very public about. And with respect to these particular groups, what we offered were four unique packages that we anticipate will become the future standard de novo in silico offerings at Biostrand. And with regard to those, we’ve given very specific timelines for the anticipated output of in silico sequence product.

And every one of these packages on our early adopter program, as I mentioned, are slightly different. Some of these groups will be required to make an upfront payment as soon as an in silico product is generated, whereas others are based on actual validation of the product being able to do something most commonly a functional test. The anticipated timeline, I would say, average that’s been given for the in silico work is about four weeks. The anticipated timeline for follow on proof-of-concept work from the actual product produced from the in silico sequences four to six weeks. So for the majority of programs, we would anticipate that we would see some revenue generation somewhere between eight to 10 weeks after starting a program with these groups.

And that first initial payment unilaterally becomes what we’re referring to as the upfront payment to actually be able to receive the sequence and the product that’s been tested.

Swayampakula Ramakanth: Perfect. Thank you very much for that. In terms of the commentary that we heard today on the organoids business and how that could be growing quite rapidly in the R&D, certainly, we’ve seen enough in the literature. But how is that really translating into the Wnt protein sales? Because even though quarterly €“ on a quarterly basis, it’s certainly growing, but on a yearly basis, it seems like declined a bit. I’m not trying to make a big fuss about it, but I’m just trying to understand, is there some anomaly between last year and this year. And what is €“ what has changed €“ what is the expectations for this year and next year?