Edited Transcript of LIO1.DE earnings conference call or presentation 13-Aug-20 1:00pm GMT

Edited Transcript of LIO1.DE earnings conference call or presentation 13-Aug-20 1:00pm GMT

Heidelberg Aug 14, 2020 (Thomson StreetEvents) — Edited Transcript of 4Basebio AG earnings conference call or presentation Thursday, August 13, 2020 at 1:00:00pm GMT

Equity Strategies Ltd. – MD

Heikki Lanckriet, 4basebio AG – CEO, Chief Scientific Officer & Member of Management Board [1]

Thank you very much, Haley, and good afternoon, everybody, and thanks for joining us on the H1 update call. As always, I have to start with the usual disclaimer so I’ll just give you a few moments to familiarize yourself as the slide move forward.

Okay, thank you. All right. I guess, not a huge amount has changed since the AGM in late June, so to some extent, today I’ll reiterate on some of the points made then. And there’s a few updates here and there as well, so you’ll note that we continue to make good progress. And then at the back end of the presentation, David will provide some more insights on the H1 financials. Again, not a huge amount of surprises there as everything is pretty much developing in line to our expectations and in line of what we’ve communicated previously.

Anyway, so we’ll start off with the company overview. So for those of you who are joining us for the first time, because I did notice a few new names on the list, today on the call, we’ve got David, our CFO. You can see a picture there and myself. And so perhaps it’s worth explaining maybe a little bit more about the company’s recent history as we have gone through some quite fundamental changes in the past 12 months. So up until the end of 2019, the company’s main economic thrust was the manufacture and the sale of these proprietary consumable reagents, which were targeting life sciences research and in particular, proteomics and immunology-based research. However, that business was sold to Abcam on 1st of January of this year, enabling the company to focus its resources now on the retained genomics technology assets and that high-growth opportunity in supply of clinical-grade DNA for gene therapies and some gene vaccines that we had identified.

So with that in mind, moving on to the next slide. We can see the impact of the disposal of the proteomics assets to Abcam. Essentially, the group has slimmed down substantially from over 100 employees to currently around 20 employees. And as part of that kind of operational reorg, we’ve also closed down our operations in San Diego as that was essentially predominantly sold to Abcam, and what was left over there was noncore to the business.

Additionally, we’ve been recruiting some scientific staff in our Madrid facilities. And whilst we’ve been going through COVID, we’ve been able to keep our facilities open there pretty much the entire time by implementing shift work. So we’re pretty pleased that despite the COVID kind of situation, we’ve been able to continue work at our facility in Spain. And we’re now ready to also start expanding this into setting up a process development group and a scaling group, which we will set up in the U.K. So we’ve made some good progress there. And we’ve been — we’ve recruited the head of the team that will lead that effort. And he’s due to join us on the 1st of September when we will also take back possession of our lab facilities in Cambridge. So we’re well positioned and we’re poised to accelerate the process development and the scaling from our U.K. base. And all of that kind of work will then, of course, feed into our GMP readiness program for 2021. So from an operational point of view, that’s all looking pretty good.

So on the next slide, which is — yes, actually, the next slide, Slide 8, you can see this is more of a recap on the markets that we’re addressing. So the main — the company’s main focus is obviously to become a significant supplier in that kind of rapid growth market for regenerative medicine and in advanced therapies. And this slide shows, we believe, that this market segment then is able to provide us with a long-term sustained growth opportunity. On the right-hand side here, you can see the large amount of clinical trials that are currently ongoing in that space. You can see there’s still a huge amount of trials into Phase I or Phase II and that there’s constantly more trials really being started up as there’s a huge drive into new trials being engaged. And as these feed through from Phase I into Phase III, the FDA expects by 2025 to be approving around 10 to 20 cell or gene therapy products per annum. So that’s a phenomenal amount of growth opportunity that will be available to us.

Now you can see that this will lead to an increasing demand for oligonucleotide products. Not all of this, of course, is DNA and there’s RNA in this subject as well. Our initial core focus obviously is DNA, but there is nothing that stops us from making mRNA or RNA products as well. And that’s something that we probably will move into eventually. But for the time being, our core focus remains on DNA. And with current global production capacity already strained, it’s obvious that this drive in clinical trials and the continued advancement of these clinical trials will lead to further opportunity. And then we see a huge amount of value that we can create and then by feeding into this supply and demand gap that exists, then it’s only going to get worse.

I mean, putting some numbers to this, it’s always somewhat anecdotal, I guess, but I was recently talking to a company involved in the manufacture of AAVs. And they, like so many people I’ve spoken to, were complaining about the availability and the cost of the GMP-grade plasmid that they need for the production of their AAVs. So their plasmid DNA manufacturer have given them production lead times for a Phase I clinical trial with a bit about 30 patients of around 9 to 12 months and a price tag around EUR 1 million. So you can see it’s a very expensive game that works at about EUR 30,000 per patient for Phase I with huge time delays on this as well. So there’s a substantial problem to solve there, and with our technology and opportunity and capabilities, we feel we can feed into this.

So time is, of course, of the essence with all of this so we need to focus and make sure that we keep developing technology well. And we need to keep progressing towards GMP production so that we stay ahead of the curve. Because as you can see, it’s a lucrative opportunity in there and that the other players will want to enter into this market as well. So we want to make sure that we always keep one head — one step ahead of the competition.

Okay. So moving on now to Slide 9. Supplying the DNA into therapeutics and the therapeutic market segment for gene and cell therapies is obviously the main focus. And that’s where we think the real value creation for our shareholders will come from. But evidently, the enzymes have other possibilities and other application areas as well. So — yes, and so the numbers essentially are at the center of the DNA production process is right. So for those of you who are not familiar with this, the DNA manufacturing process is an enzymatic process, and these enzymes are proprietary enzymes that we manufacture. So we see also some commercial value in deploying these in diagnostic applications as that has — the market for diagnostic tests, frankly, for infectious diseases is a pretty substantial market.

And there’s some large and lucrative opportunities in these applications that also do not require GMP products. So from a manufacturing point of view, that becomes somewhat more straightforward, and from a value creation point of view, there’s a lot of opportunity there. So we will invest into closing some opportunities in that space. But like I said before, we expect some modest revenue generation from that segment, but our main focus is and remains to supply oligonucleotide products and technology in the gene therapy and gene vaccine space, where we think that the largest value creation opportunity lies for our shareholders.

The last point on this slide is the enzymes as research tools space. This is a market segment that historically for Expedeon, as we were then called, was a core focus, but for 4basebio is really not central to our strategic objectives and that’s not something that we’re trying to get into.

Okay. On the next slide, Slide 10, you can kind of see what we’ve done there with the enzyme business. So we’ve set up a separate website to — commercially-minded website to enable people to get information about the website and order samples or order products on the website, really focusing on bulk opportunities rather than research applications for these enzymes. And that’s all going okay. I think on that market segment, we can expect sales to be more lumpy. So we’re going to have good quarters, we’re going to have pauses there. But there’s not huge amounts of activity and that’s mainly driven by the customer profile and what we do. So typically, it will be fewer customers with much larger POs compared to — if you have folks more on the research application, you tend to have smaller peers but a lot more customers and a more smooth kind of revenue generation profile.

Perhaps on this slide as well, I should touch on this COVID-19 test project that we’re supporting. Over the last quarter, we received a few queries from shareholders that were asking us how this test was developing. And again, I’d like to reiterate that it’s not 4basebio developing this test. We’re merely supplying enzymes and expertise on the use of these enzymes and how to effectively use them into this project, but we’re not directly involved in developing the test as such. Should this become a commercial opportunity, we’ll, of course, then support this group with the commercialization of that project, but the development of the test itself is not our responsibility.

Okay. So from an operational point of view, on Slide 12, you can see a comparison between the conventional kind of approach, which is plasmid DNA and the 4basebio approach, which is hp — hairpin-DNA. So the current source of GMP is pretty much all plasmid and dried DNA. And plasmid is made through bacterial fermentation, followed by an extensive cleanup procedure to obtain the desired DNA. And this whole process is pretty inflexible and not particularly quick. And there’s a lot of upfront work that you need to do in terms of optimizing the cell bank and the fermentation conditions for each plasmid you want to produce. So there’s a huge amount of work that goes into it before you can have a production kind of process.

And then these fermentation yields aren’t particularly exciting either. So all of that leads to really large fermentation volumes to obtain a meaningful amount of DNA. Now when you start off with a large fermentation volume, these volumes then, of course, exacerbate the purification cost as well because you’ve got a pretty complex and large volume batch in processing train that you’ve got to feed into. And then that, of course, creates huge waste streams as well that become problematic as well. So all that is essentially driving high production costs and long lead times, as I mentioned earlier.

Now the 4basebio process is fundamentally different. There’s no fermentation involved in the process. It’s fully synthetic and it’s driven by proprietary enzymes that we manufacture. And as a result of that, we can make DNA at about 100x higher concentration compared to what you do in a plasmid fermentation. And that — and the product that we make, we call that hp-DNA, and that refers both to the structure of the DNA and the hairpin kind of structure that we make and also to the high-performance properties that the product that we make has compared to plasmid DNA.

So if you look at hairpin-DNA, what is it? It’s essentially a double-stranded piece of linear DNA and this is fundamentally different to plasmid DNA, which is a circular double-stranded piece of DNA. And that linear piece of DNA that we make has open ends, and to stabilize this, we need to close those open ends with loops. And those are single-stranded pieces of DNA for those who know a little bit about this. And essentially that way, you can stabilize the product and create a DNA product that is a high performant. Now these loops give us some stability but they also give us an opportunity to introduce additional functionality to enhance, for instance, DNA packaging into the different delivery systems that you may want to use to get the DNA into the target cell. Anyway…

So as you can see in the way that we make DNA, it means that we’ve substantially reduced space, equipment and downstream processing requirements. We also generate far less waste compared to conventional approaches. And that makes the whole process a lot more cost effective but also a lot more scalable so we should be able to respond to fast increasing demands of product much more readily compared to what our competitors can do who rely on making plasmid DNA. So we also don’t have these long lead times because all that kind of cell work and all that fermentation optimization isn’t required. And essentially, we believe that we’ll be able to turn projects around in a matter of weeks compared to the months that it requires to get plasmid DNA out to the customer.

Okay. So on Slide 13, you can see that the type of DNA — and in all honesty, the pictures here on the right-hand side, and they’re not particularly helpful to try and understand hairpin-DNA because we kind of depict it here as a circle. But really, it isn’t a circle. It’s a linear piece of DNA. So perhaps we should get our marketing team on this and make some different pictures. So — but what you can see is that the product that we make is higher performant. So essentially 1 gram of DNA will contain much more expression vector compared to plasmid DNA. And if you look on the right-hand side, the bit that people are really interested in is the purple piece of DNA. So that’s the expression vector. That’s the piece of DNA that will create a protein of interest that people want to make sure that the cell is making.

Now on the classical approach, the plasmid DNA requires a lot of DNA there to assist with the production of the plasmid itself. So it has bacterial-select antibiotic-resistant genes in there to enable selection of the right bacterial cells. It will also have all the replication genes in there, the vacuole replication genes in there to enable the plasma to multiply within the bacterial cell. So there’s a lot of waste DNA in there that really isn’t helpful when it goes in the cell. And in fact, it’s actually undesirable because it’s bacterial DNA, it’s immunogenic, it has antibiotic-resistant genes in there. So none of that really you want to push into a patient.

With the 4basebio approach, you’re going to see that the DNA vector is essentially predominantly the target DNA. Like I said, we closed the end with these hairpin loops. So that’s the only piece of DNA that isn’t the target DNA. So you can see, typically, we’d expect well over 95% of the DNA to be the DNA of interest, whereas with plasmid DNA, half of it can easily be bacterial sequences. Hence, 1 gram of DNA will, in our case, be twice as performant as 1 gram of plasmid DNA.

Okay. So in summary, I think we believe that there’s a very exciting growth opportunity in the large-scale DNA manufacturing for these clinical applications in advanced therapies. And whilst we’ve developed these critical proprietary enzymes and processes, we do realize that building scale and production capabilities and getting GMP-ready is essential now for us to enable our products to be used in a clinical setting. And that’s been our main focus in 2022 to really make good strides in that scaling and that GMP readiness whilst also, of course, building a network of partnerships that will help us validate our products in these wide range of delivery mechanisms that people are using across all the different application areas that people have an interest for these oligonucleotide products as well. And all of that, of course, with the view to make sure that we deliver our revenue and growth objectives for 2022.

So on the next slide, I think there’s a little bit of a progress kind of slide. So overall, I’m really pleased with the technical kind of progress we’ve made so far in 2022. From a scaling point of view, we’ve been able to scale our enzyme production capabilities really well. That’s worked really well and have all been done in Spain. And we’re well on track to get our enzyme production up and running to enable us to do multi-gram DNA production in 2021. So that’s all looking pretty good and we’re very happy with that. But like I said, the kind of scaling of the DNA manufacturing itself is going quite well. And we’re now ready to go to the next level in a new facility in the U.K., where we will take it from really kind of milligram quantity scale to high milligram, low gram kind of quantity production capabilities.

And then, of course, the work we do in the U.K. there as well will be critical in terms of the transfer of that process into a GMP setting as well. And we’ve already identified partners who can support us with that transfer of that process into a GMP environment. And yes, at this stage, I think we’re still very optimistic that we can have a GMP product available at some point in 2021.

Okay. So like I said, the technology side is very important and that’s developing very well. But also on the commercial side and the commercial validation side, we’ve been working hard establishing partnerships with a whole wide range of people to enable the validation of our products across the range of delivery systems and applications that we think are exciting. And in Q2, we did a really big outreach into mainly Spain, Germany and U.K., where we have our bases to identify potential collaborators. And honestly, it’s been a phenomenal success, resulting in a huge amount of opportunities, collaboration opportunities with different academic groups and companies.

So now we’re sifting through the projects and the opportunities to identify where we can see the lowest-hanging fruit and really focusing again on that validation and the different delivery mechanisms. So we’ll be running projects in viruses like — well, virus-like particles such as a adenovirus-like (inaudible) antivirus. But there’s definitely a lot of work that we’re going to do in that delivery mechanism. But we see also quite a few cell-based delivery mechanisms and non-viral-based delivery mechanisms that we think have a lot of opportunity, and there’s good collaborations to be had in those areas too.

The application areas are pretty wide ranging, too. So we’re looking at projects that can feed into strategies for cancer therapy, gene replacement, gene editing and also gene vaccine. So we’re pretty much covering the entire range of the gene therapy, gene vaccine space through that outreach, which has been a great success.

The buy-and-build, however, has been somewhat more difficult and I think COVID has really not helped us here. On the one hand, COVID has made it hard to have face-to-face interactions with potential acquisition targets. So building up those relationships has been a little harder and also diving into due diligence has become a little harder on the back of that. But as I think even more importantly, I think the valuation spectrum seems — feels somewhat out of touch with guards at this stage for both opportunities where there is a COVID angle to it or opportunities where there is no COVID angle to it. So those with COVID angles have really crazy value expectations, whereas the ones with non-COVID angles haven’t really reassessed the valuation expectations on the basis of the new kind of economic reality. So rather than jumping into transactions that we feel might not be fairly priced, we’re pacing ourselves somewhat and taking the time to let the market settle out over the next few quarters before we make any kind of real strides forward in that space. So with that said, I think that’s it for me. I’ll hand over to David, who will take you through the rest of the presentation.


David Roth, 4basebio AG – CFO & Member of Management Board [2]


Thank you, Heikki, and welcome, everybody, to this call. Just in terms of — to start up my turn in financial terms, the first half of the year has really been a combination of 3 factors. Clearly, there’s the effect of the Abcam transaction, where we reported a very significant net profit. In addition to that, there’s clearly the ongoing investment in validation and scaling around DNA for use in gene therapies and vaccines. And so we continue to invest in that as Heikki has described. And then also the third point, the February share buyback program where we applied about EUR 9.7 million of the Abcam proceeds to the buyback of 10% of the company’s shares, and that was at the price of EUR 1.85. So really, those have been the 3 themes of H1.

And in particular, Q1, we reported a very significant profit from the Abcam transaction. And in Q2, with the Abcam transaction, having by then flowed through Q2, is really about the ongoing operations. So we indicated at the end of last year that as a result of the Abcam transaction, the business going forward would be much smaller, and we would incur losses as we rebuild and refocus. And that’s really the case.

In terms of a brief summary then on Slide 19 and just to give an overview, for the first half of the year, we reported revenues of EUR 507,000. Total operating expenses, which includes an element of cost of goods of EUR 2.7 million and a net result for the period being a profit of EUR 63.9 million, clearly fundamentally influenced by the Abcam transaction. If we compare some of those numbers against 2019, really, that’s the influence on some of those numbers on the ongoing operations is what’s going on in the U.S., and Heikki alluded to the fact that we have effectively shut down operations in the U.S. as at the end of Q2. But we also — in the lead-up to that, there were some interruptions in the U.S. with COVID, disruptions in production and sales. And so that’s had an impact on where the revenue fell versus 2019.

And also, our operating expenses have increased as a consequence of the U.S. because we’ve incurred around EUR 615,000 of onetime expenses in relation to inventory write-downs and staff terminations having made the decision to close the business. And in terms of our operating expenses, alongside that expenditure in the U.S., as again, as Heikki alluded to, we are investing in Spain. And then going forward, we will be investing further in the U.K.

Moving to the balance sheet. We closed H1 with total assets of EUR 104.5 million. The bulk of this was really the cash that you see there, so EUR 85.1 million of cash as well as the Abcam escrow. That Abcam escrow of EUR 14.4 million is due to return or due to be available to us on the 2nd of January 2022. And in addition to that, we’re also holding about EUR 700,000 of cash as security against Spanish soft loans, so that our overall total equity balances are around EUR 100 million at the end of H1.

Our net equity, as you can see on the right of the slide is down to EUR 101.4 million, which is 97% of assets. Our financial liabilities that’s during — points during 2018 or ’19 were relatively substantial as a consequence of various acquisitions and arrangements. They really now simply comprise the tail end of Spanish government soft loans and they run over a period from now up to 2028. Cash flow for the half year, we show net inflow of EUR 81.4 million. This again reflects the Abcam transaction but also the share buyback of EUR 9.7 million.

And a key KPI for us, as I think Heikki alluded to in our management report for the full year 2019, a key indication for us is operating cash burn before interest and tax and also the effects of the Abcam transaction. And for the half year, that stood at EUR 1.7 million, which again is pretty much unexpected and consistent with our full year guidance. So briefly, at the bottom of the slide, we’ve highlighted the market guidance we issued at the time of the publication of the full year 2019 report. And we reaffirm that guidance. So again, we expect revenues to be between EUR 0.5 million to EUR 1 million, which unfortunately isn’t that exciting. But I guess more importantly, our operating cash burn, we expect to end between EUR 2.5 million and EUR 3.5 million, excluding the effects of the Abcam transaction.

So turning to Slide 20. We’ve again just presented briefly the shareholder structure. And this is largely unchanged from where we were at the end of 2019 and also from where we were at 31 March when we reported our Q1. And we’re showing now a market cap of EUR 100 million, which essentially reflects the liquid resources that we held at the end of the half year. Our next publication following the H1 of today will follow on the 12th of November with our Q3 results. And again, we would like to think that, that will be in line with our expectation and market guidance that we issued in April and again reaffirmed today.

On Slide 21, we thought it’d be appropriate to touch on the Sparta offer from 27th of July. And really just this very brief recap and synopsis. The Sparta — Sparta AG announced a voluntary public takeover, and we expect that to be a price of EUR 2 per share or certainly that was what was indicated on the 27th of July. And we understand that Sparta AG has formed a voting pool with other shareholders being DELPHI, Deutsche Balaton and Latonba, and that voting pool holds around 28% of the voting rights of 4basebio AG.

In terms of the timetable for what’s going to happen next and how things will proceed, Sparta AG has or had 4 weeks from the 27th of July to file the offer document with the German regulator, BaFin, for review. BaFin, in turn, have 2 weeks to review it. At which point, we expect the offer to go live. So in terms of 4basebio and our position on the matter, I mean, really, we are awaiting the details of the offer. Until we’ve had the headlines, there’s nothing more. And once we are aware of the contents of the offer document, then the Management Board and Supervisory Board of the company proposes to issue a statement. And until that — until that offer’s live, there’s very little for us to be able to comment on over above what I’ve just said now.

Finishing then on Slide 22 and just to touch on the share buyback in February and also the recent AGM. We completed the share buyback in February ’20, as you know, and those shares were then subsequently canceled in April of this year. And following that, we took the opportunity at the AGM on the 17th of June to seek authorization from the shareholders for a buyback of up to another 10% of our issued capital. That was approved and so we’re in a position to do that. Having said that, there are no immediate plans to execute a further buyback at this time.

So really, from a financial and equity position, by way of a brief summary, I think we’re very pleased and satisfied with how the first 6 months of the year have gone. In terms of our ongoing operations, we continue to expand in line with our plans as we set out, firstly, at our AGM in December 2019 and then subsequently during the conference calls and the reports that we’ve made since then. And I think, overall, we’re extremely well placed to exploit the opportunities arising to us, first and foremost, as a consequence of the cash funds available from the Abcam transaction but then also because of the progress we’re making in terms of our DNA and the development of that DNA.

And we are very clear that in terms of our overall performance for the year, we expect to perform in terms of the market guidance that we issued. In terms of the next interaction, I expect that will be by way of some form of feedback and response on the Sparta AG offer as and when that becomes a live activity.

So from our perspective, from Heikki and my perspective, that concludes the presentation. I think we’d like to thank you very much for listening, and we’d be very pleased to take any questions you may have. So at this junction, I will hand back to the operator.


Questions and Answers


Operator [1]


(Operator Instructions) And the first question is from the line of Christian Orquera of First Berlin.


Christian Orquera, First Berlin Equity Research GmbH – Analyst [2]


Yes. I have a few questions, if I may. The first question regarded to the information you just, in general, delivered about the progress you’ve achieved so far. Is my understanding correct that at this point of time, you are already able to produce hp-DNA in small scale, like, for example, for research and preclinical applications? And the steps that you’re taking now are to scale up this process? So what you informed about expanding the production capacity in U.K., for example, would be these measures? Is this understanding correct?

The second one is regarding to GMP partners. You mentioned that you are taking some steps on this direction for process development support. Can you give a bit more light on this? What type of potential partners are these? Are you talking about consulting companies? Or what is a rough description of potential profile of these companies?

The third question is related to collaboration that you mentioned for the purpose of evaluating projects on hp-DNA. Is — when you’re talking about that, is that about academia? Is it about — also about companies? Are we talking about — are we talking here about potential companies or academia that are already conducting some preclinical research that may have potential projects and you may run potential pilots on this issue? This is the main questions on this side.

And probably one for David with regard to the offer to buy the stock from Sparta. Is my interpretation also correct that this proposal came also with surprising to you, so it was not something that you saw coming? And what would be your — yes, how you took this offer so far? And I understand that you are waiting for the final offer but just to have an understanding about the background that could have led to this offer.


Heikki Lanckriet, 4basebio AG – CEO, Chief Scientific Officer & Member of Management Board [3]


Christian, yes, thanks for the question. So on the first question, yes, of course, we can already make small scale amounts of linear-closed DNA, our hp-DNA, as we referred to it. And that can feed into these initial projects that we are looking to start up with. You’ve got to bear in mind though that, that is not GMP so that would not be able to go into a Phase I clinical trial. So to get into the clinic, we need the GMP product. And that’s why we’re pushing really hard to get that done so that we can feed into some of these projects that we think could go into Phase I fairly quickly. So now it’s about timing out some of these projects and making sure that our own internal development develops them alongside the projects that we are going to fund. And that’s where it’s important for us to pick the right project to some extent. So that explains that.

On the GMP partner. So I mean, we’ve got 2 approaches to make GMP products. On the one hand, we can develop our own GMP facility. Then in terms of the size of facility, we don’t need thousands and thousands of square feet of GMP facilities. That’s — it’d be quite modest in sizes then, the modest facility that we would need to get multi-gram quantities of DNA output from those facilities. So in terms of cost, that’s perfectly possible. But in terms of time line, that’s always going to be quite difficult to get this done quickly because it just requires a lot of time to get facilities certified, get your people in place, get your procedures certain certified and validated. And so the quicker approach is to work with CDMOs who already have certain GMP capabilities and have got the facilities and the people and the systems in place to enable GMP manufacturing of products.

Now of course, the products need to be as relevant as possible to what we make because GMP is a pretty broad term and making an antibody GMP is very different to making a polymer GMP. And again, making some — an enzymatic process GMP is again somewhat different there. So identifying the right GMP partner who has the skill sets as close as possible to the manufacturing capabilities that we are going to need is important. And we’ve been able to identify a few partners where we think we have a good chance that we can work together and get our process GMP-certified within their facilities at a pretty — at a much better time line compared to what we would be able to achieve should we build our own facilities. And that’s really what it comes down to.

Now alongside that, of course, we also need consulting support in terms of the regulatory support we’re going to need and somebody helping us pulling that CMC package together. Now that the GMP manufacturer can help with that, to some extent, but we’ll need our own — we’ll need additional support from consultants to facilitate that. So in terms of the partners we’re looking at, it’s both manufacturers and CDMOs with capabilities but also additional consulting experts who are very familiar with the type of product that we make and the certification, the GMP certification, and the regulatory kind of package that is required for those type of products. Okay.

And then your final question in terms of — well, at least your final question for me in terms of the companies that we — or the partners that we’re looking for, it’s a spread between both academia and companies. So we’re looking for — when we did the outreach, our main focus was to look at delivery mechanisms and find new and innovative delivery mechanisms that can get DNA into specific cell types. That popped up a lot of academic groups who have patented technology in certain areas that we can look at implementing our DNA into that technology, but it also led to a lot of opportunity with certain companies who have capabilities but have issues with plasmid DNA supply and who are looking for alternative supplies of DNA and need to validate their systems with these new sources of DNA. So it’s a mix of both companies and academic groups.

Now with the academic groups, it’s, of course, a little earlier in terms of the development phase. So you’re looking at — some of them are pretty early stage. Others already have a nice kind of in vitro or mouse data with certain things, but there are some limiting factors that they need to get across in terms of the delivery system, and there’s some opportunities that we can assist them and some value-add that we can deliver. Hence, it’s a win-win for both parties. But — and this is kind of what we see as happening. We’re looking at a lot of delivery systems, but we see also a lot of opportunities alongside that, where it’s on specific indications where people have done some exciting work, but they’re kind of stuck and they need someone to help them unblock some technical problems where we can then feed into and help take some projects forward. So in all likelihood, it could lead to a pipeline of potential opportunities that we can then take forward into Phase I kind of opportunities.

So — and then — go on.


David Roth, 4basebio AG – CFO & Member of Management Board [4]


Christian, so in terms of the Sparta offer and process, I think really, if you look at, I guess the last 12 months or so, you can see that Sparta and its associated companies have increased their position overall within 4basebio. That has, as far as management is concerned, been a vote of confidence in, A, what we achieved and managed to do in, as it was Expedeon, and now as 4basebio.

In terms of the offer itself, I have to say we haven’t dwelt on it particularly. We were cognizant that they were near the threshold based on the recent notification. But clearly, in terms of any investment strategy that Sparta may have and whether they choose to move above that 30% threshold or not really, we didn’t have an expectation one way or the other. So again, just to reiterate from our perspective, we need to see what the detail of the offer is and then we can offer a more formal response. But really, in terms of the process to date, I think we’re fairly sanguine about it.


Operator [5]


(Operator Instructions) And there appears to be no further questions at this time. We have a question from Leon Boros.


Leon Boros, Equity Strategies Ltd. – MD [6]


Sorry, I had it on mute. Can you just explain to us the characteristics of the instruments that Mr. Zours owns, so I think — or his connected parties. I think they own about 6%, slightly more than that, in other instruments, not ordinary shares.


Heikki Lanckriet, 4basebio AG – CEO, Chief Scientific Officer & Member of Management Board [7]


Sure. So I mean, there’s 2 instruments that they hold and they all date back to 2017. So one is a convertible note, which was debt that we received from, I think it was Deutsche Balaton or DELPHI. I can’t remember who it was. It might have been a bit of both, actually. And that was convertible into stock at a strike price of EUR 1.40. I think it was EUR 2 million at a EUR 1.40 strike price. And then we also had an option agreement for another EUR 2 million at the same strike price as well, which is part of that kind of the same transaction that we did. And I think the note carried an interest rate. David, you know this better than I do. Can’t remember what it was. It was less than 10%, wasn’t it? Something like that? Around 10%?


David Roth, 4basebio AG – CFO & Member of Management Board [8]


Yes. I’m happy to share that. So yes. So actually, both these transactions relate back to TGR because at the time, shareholders that were present then will know that by way of a placement, we part funded the TGR acquisition with the balance of the funds for that coming by way of a convertible loan note from Deutsche Balaton and DELPHI. And it’s at on the terms as described by Heikki, and it attracts an interest rate of 6.3%.


Heikki Lanckriet, 4basebio AG – CEO, Chief Scientific Officer & Member of Management Board [9]


Yes. And I think the strike price was market price at the time, so which was — yes.


Operator [10]


(Operator Instructions)

We have a question from the line of [Anthony Barkley].


Unidentified Analyst, [11]


Just to be clear, the offer is just for shares. What happens if the total then goes above 30%? Is there any requirement under German law that he then has to make a bid for the whole company, which is one of my concerns?


Heikki Lanckriet, 4basebio AG – CEO, Chief Scientific Officer & Member of Management Board [12]


All right. Heikki here. So I mean, we — I’m not a lawyer, right? So this is basically what I’ve heard from our legal counsel. My understanding of the situation is that once you cross a 30% ownership mark, you have to make a mandatory offer to all shareholders on terms which is basically dictated by law. Now if you jump the gun yourself and if you get close to 30%, if you make a voluntary offer to all shareholders which will take you over the 30%, you will then not have to make a mandatory takeover offer if, as part of that voluntary offer, you crossed the 30% mark, which is — I mean, I’m just guessing here but given the position where they’re at with their existing shareholding, you’d expect that their objective is that this voluntary offer to cross the 30% mark and have that kind of done with. So once they go over 30%, then they would never have to make an offer to shareholders again to buy their shares.


Unidentified Analyst, [13]


That’s very clear now. Thanks, Heikki.


Heikki Lanckriet, 4basebio AG – CEO, Chief Scientific Officer & Member of Management Board [14]


That doesn’t mean they can’t do it, right? So they can make another voluntary at any point in time. Anybody can. Anybody can make an offer to shareholders to buy their shares. But there will not be a mandatory requirement for them to make an offer to shareholders.


Operator [15]


(Operator Instructions) And we have a follow-up question from Christian Orquera of First Berlin.


Christian Orquera, First Berlin Equity Research GmbH – Analyst [16]


Yes. As a follow-up question on the offering, what would be the disadvantage of making later mandatory offerings? So what is the advantage of having done now a voluntary offering? Just to understand that.


Heikki Lanckriet, 4basebio AG – CEO, Chief Scientific Officer & Member of Management Board [17]


Honestly, Christian, I don’t know. But I suspect that when you do something voluntary, that you might have some more flexibility in how you structure the offer. There might be some differences in how you price the offer. I don’t know enough about German law to give you an answer on that one. Clearly, they’ve chosen to make the voluntary offer rather than go through a mandatory kind of process. And I’m sure they have good reasons for that. They must have their own internal reasoning on why this, for them, was a better approach rather than crossing the mandatory offer.


Operator [18]


And there are no more questions at this time. I hand back to Dr. Heikki Lanckriet for closing comments.


Heikki Lanckriet, 4basebio AG – CEO, Chief Scientific Officer & Member of Management Board [19]


All right. Well, thanks, guys, for all joining in. It was good to see so many people dial in and I hope you enjoyed the presentation, the progress that we’re making. Clearly, we can see that a lot of the questions are on the offer. And as David mentioned, once we have a clearer picture about what that actually entails, we will make an official statement about that in any event. But in the meantime, our focus has continued on building the business and making sure that we continue to drive forward the technology and the commercial aspects of what we’re doing. And we’ll keep you abreast of our further development. So yes, thank you all very much, and look forward to speaking to you shortly again.

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