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$17.86 anteris technologies ltd

Answers from WP - a good read, page-292

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ChillyDog

733 Posts.

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12/08/17

18:01

Post #: 26460000
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Originally posted by dgoynich ↑

Hi Everybody

Wayne has responded to questions below. Very interesting and mostly positive answers. Will put a few issues to bed once and for all. He was on the road to Adelaide when this email exchange was completed (ie Adelaide hospital so the speculators among the group can speculate what that means ) as always - DYOR and GLTAH. I'm not going to post any opinions other than my sentiment below which remains stronger than ever.

A selection of questions mainly from myself and the Hotcopper community. It hasn't been the best 6 months in terms of share price. Costs still seem very high. Share price has retreated slightly even with release of new products. A lot of mum and dad and long term investors now hurting? Hence it would be appreciated if you could answer / address some, if not all of these questions during the upcoming webinar. Hi David - thanks for the questions and apologies for the delay. I sincerely appreciate the commitment and confidence of our investors and understand where folks are coming from. They have been staunch with support but their patience has not yet been rewarded (as we would all like it to be). I am definitely tuned into the sentiments you have mentioned. Turning around a company that was in such serious trouble and getting it firing on all cylinders is not a quick fix but we are definitely on the right track now building a bankable business for the longer-term.

See my answers to your questions below:

Most investors saw the HSV2 vaccine presentation and results as below expectations yet management of AHZ appears to see the results differently - so there appears to be a disconnect. Is it possible to get an explanation and dialogue as to what Ian Frazer believes the results indicate and what it means for the success of future vaccine developments such as HPV. For example an average result on HSV2 -> does it imply the technology doesn't behave as expected and can be it fine tuned? How? What can be improved? How long from here until commercialisation? Is it as simple as increasing dosage and doing both arms or does it require a "formula" change. There is a lot to unpack here and there are three main points I want to make:

1) The reality check – the trial was always a small Phase IIa study that was not statistically powered and was designed to prove (or test) several key concepts, primarily safety and delivery. In the drug industry, this type of trial is routinely done to ensure that the drug is safe enough to proceed on a bigger scale. Unfortunately, this was not understood by some brokers who brought in their clients ignorant of the fact that any drug development process is a 10 year and 1 billion dollar process with low probability of success (up to 90% of early stage development programs fail). Such brokers did not ensure that their clients understand there is no ‘get rich quick’ approach which early-stage drug development simply cannot provide.

2) I am committed as is Professor Fraser and the team to developing this product until we cannot (i.e. success or failure). It will take many years from now to get a marketable product but the Phase IIa trial has given us a lot of information as to what we can improve upon. This does (as you suggested) include dosage adjustments as well as the interesting observations around delivery sites. This needs to be understood so that we can write a new clinical trial protocol for a Phase IIb. The structure of any future trials does not occur overnight and will take many months before we can come to conclusions as to what the next trial should look like. The bio statisticians also need to do a lot of work to help us understand the numbers required to achieve statistical significance. We are reviewing alternate funding models at the moment and I will inform the market as soon as I am able.

3) Our HPV and RNA projects are a different situation to the HSV study and thus moving on a separate course. We do have a collaboration agreement with a third-party company originating with Shire pharmaceuticals that I was set to announce when Shire sold this division to a Boston-based company (and this has caused delays outside of our control). The company that purchased the RNA assets from Shire (Translate Bio) is undergoing their own review of all of their assets (not just the AHZ ones) and we are stuck until I get further feedback from them on next steps. I am bullish on the RNA assets, particularly in the oncology arena (head and neck cancer combination with a check point inhibitor).

2.
Note a growing proportion of investors think AHZ would be more profitable by spinning off the vaccine division to focus limited funds on making money now? Has the management team considered this option? I did raise this the day I joined the board – it was obvious that we could not fund this properly (the drag on the balance sheet was already significant). I stopped funding the Immunotherapies division immediately after ‘Code Red’. As they are a separate company, I believe they need to be self-funded (and we are active in helping them on this path). I am chairman of the Immunotherapies board, representing our (AHZ) 72% holding in that company. My focus has been on profit from day 1 – it’s unrelenting and I am not flexible on achieving our commitments to the market in the time prescribed.

3.
Was the resulting share price plummet a result of people not understanding the intent of the phase 2A trial. See point 1 response – I can’t speak for our 8,000+ shareholders collectively, but I do believe there was a lack of understanding as to what resources are required to get a drug to market as well as the early-stage nature of the trial.

4.
What's the science or thinking behind "looking at other intra-dermal delivery methods”?
As with any delivery method, two things are key: 1) ease of delivery for the patient and improving patient compliance (injections typically are avoided where possible); 2) the impact of route of administration on serum blood levels and ability to get to the required site.

5.
As investors – is it possible to participate in the next phase of the HSV2 trial? As patients? I cannot answer that as it is not up to me. Patients have to posses certain inclusion criteria to be eligible and would need to go through the appropriate centres.

6.
How is the Stem Cell R&D going? Has there been any progress. When do you think it will be a marketable product and if not why not? What is the size of the potential market? No work happening here – I am not sure what we had in the past, but we don’t have the resources to cope with what we already have - let alone going down this path.

7.
There have been a lot of personnel changes within AHZ and most appear to be international based. How do you see the team - the strengths - the weaknesses - and what further additions do you need to meet 20/20 and beyond. 1) The Team: easy answer, they are experienced and hungry, they appreciate the opportunity (and the hard work we have in front of us). The strengths are that they are experienced and can sell the clinical superiority of the product range. 2) Further additions will depend on sales. We have a hybrid model in the US which is low cost (distributor reps who are only paid commission) but this has limitations which could be considered a weakness – obviously the best reps will always be in-house. However, we need to get the numbers up before I consider further investments. We have scaled up to the minimum headcount required at this point post-Code Red (we are still very much understaffed given the global scale of our operations). As for resources beyond 20/20, I really see a very different company. ADAPT is but one part of the company; by 20/20 we should have another four products on market as well as progress on TAVR and others which will drive revenue. It’s possible by that stage we will have identified an M&A target that will be synergistic with our existing businesses. I am personally very excited by the sheer scale of our commercial opportunities with regards to the different projects in front of us. The tissue business is certainly competitive, but we will dominate the space as the snowball picks up momentum due to our clinical superiority and unique products such as CardioCel 3D.

8.
Are we on track to beat 20/20? Have you got a revised estimate a year later with more accurate data or is 20/20 a thumb suck logo? 20/20 exists so that we have a rallying point as a company – it is a commercial / revenue focussed strategy (the logo exists to ensure the company maintains its focus on the next three years). We will be a significantly larger company by 20/20. We are on track to achieve it – we did beat our forecast after a major restructure so we are moving in the right direction.

9.
What happened with R&D spend (TAVR, 3D) for June 30 4C – why the sudden jump. Seemed in check in April’s webinar. This number will fluctuate based on the project phasing – sometimes the timing of deliverables and costs will vary from the plan. The key metric I track is the overall project cost during the life of the project. At the moment, these investments are relatively small and will only scale up with the probability of achieving a successful outcome.  

10.
Is the company planning to list on a foreign exchange? Do you see any benefit considering the larger than previous international management team? We are constantly reviewing our capital structure and shareholder base. We will always maintain our Australian identity but it’s a fact that valuations are much higher on the NASDAQ for companies like ours and the investment pool is much ‘deeper’. I served on a NASDAQ board in Silicon Valley for a molecular diagnostics company and as such the path to a NASDAQ listing is well known to me and the BOD. As for the management team, we have global-grade talent with International experience (as with the BOD). If we are to be successful as an International company, we need a team who has this experience (and proven success in international markets).

11.
At what point will AHZ NOT have enough capacity in its Malaga factory to support production of Adapt? Are there any plans to build a new factory? If so, where / when / how much? Manufacturing is at the heart of our profitability and is performing very well since the restructure. We do have additional capacity that will take us through the next 2-3 years depending on our new product launch cycle. There are no plans to add additional capacity at this point.

12.
How many adapt products can you make out of "1 cow". Is there a practical limit to what Harvey Beef can supply? Have you planned for alternative sources of supply should something happen like a "mad cow" disease or significant sales increases? How would this impact AHZ over night if we couldn't source healthy tissue for 1-2 months? As a business risk, I would like this addressed.   Here is a model. Sack opens up to a rectangle ~ 12cm x 32cm. We can get about 26% of that rectangle into finished scaffolds ~ 100sqcm. Divide by scaffold size. 4x4 is 100/16 = 6; 5x8 is 100/40 = 2. We were at 13% pre code red. Samurai III could allow us to nearly double that 26% to close to 50%. So this means we now get 100% more product per pericardial sack than we did pre code red, and will soon double that number again.

13.
When is the Chinese market going to open? Several years ago 2018 was mentioned. Its now financial year 2018? Can you describe the remaining process / hoops AHZ has to jump through? I am unsure as to why that date was given. The Chinese market requires a local registration study before marketing approval is granted. There is no short cut to Chinese registration. We started the process immediately after Code Red (there was no work on this prior to the restructure). We have a local partnership (personally known to me from my time living there) and the process is underway. We have been working closely with the CFDA to define the registration study (TBD) size and scale - I do believe however that we will probably be able to run a smaller and faster trial (relative to Rx registration studies that I have been involved in) and hope to be in market by 2019/2020.   

14.
Who are your competitors in China? Are there any trials in China? What is your realistic sales target for China for each Adapt product for 2018, 2019, 2020. China has a very high incidence of disease in the congenital space. The current calculations show that the market could yield up to 100 million USD. The TAVR market is also very large (no number available in terms of revenue at the moment)

15.
How much capital will it take to configure Europe? Do we have enough capital? Same question for India and China? We have enough capital – and forward sales will pay for future expansion. The same is true for India and China (we have a distributor signed up for India and in discussions with one for China and Japan).

16.
As the CEO, how come you haven't bought on market or taken pay as shares? Do you see further price falls? Are you waiting for a lower low? Do you have any ethical reason not to buy on market? Do you think the company is good value at the current share price? There are several things to discuss here:  

1) The window to purchase has been closed to the BOD for many months (we are advised by our lawyers as to when it’s possible to buy) and we have been unable to buy on market for a long time due to information we hold;

2) Part of my incentive plan is made up of options, but it might surprise holders to know that both John Seaberg and I did not receive the options that were promised in our initial contract when we joined the BOD. However (and in spite of that), we stayed on and eventually restructured the board and the company. This was a massive undertaking both in terms of hours and opportunity costs, but it needed to be done so we did it.

As with most corporate executives coming from global companies the expectations are that our senior execs are issued options as a matter of course. We need to compete for our NED’s and senior management’s time and opportunity costs. This is a double-edged sword as good quality people are always being ‘hit’ by the global recruiter. AHZ is not a charitable foundation and our staff is not comprised of volunteers – they can choose to work in other places and we need to make sure the good ones stay with us. This means being competitive with the global companies who try to poach them (I have personally rejected three international board positions in the past year or so and I know others are in a similar position).

The corporate world does have a different comp structure outside of Australia where many of our staff are coming from and as such we need to be in line with that when we attract people (such as David Saint Denis) from international companies. It’s typical for NEDs and senior execs to receive options and RSU’s as part of their overall package.

3) I am unsure as to whether we will see further price falls – Nostradamus couldn’t read this one – but can safely say we are very undervalued relative to our fundamentals. The company is exceptional value at the current price. We have moved from a speculative company that had a risky balance sheet (with its focus on a drug development project that had many years and dollars ahead of it) to a safe and bankable global healthcare company with highly valuable commercial assets and clinically superior products.

We are at the beginning of an exceptional Aussie success story which will go well beyond my tenure will have generational value.

17.
What is happening in the middle east? We were expecting more of a sales jump once UAE and other markets got approval. MENA is doing very well – we continue to open new markets though our partnership with Genpharm and are looking at Egypt next (which as you are aware is a very large market). We should book at least 750k-1 million in sales in that region in 2018. We booked over 300k for the 2017 financial year in this region.

18.
What is happening with Adelaide hospital in terms of revenue and receipts? How much is this contract worth per year and for how long? Answer to follow.

19.
Lastly people want to hear about pricing for TAVR, 3D, neocel, vascucel, cardiocel and what is happening with sales of each product line. Seems very slow! Can you please break it down?

1) We are fast approaching a situation where we do not want to divulge specifics on sales (broken out by product). The key reason for that is that we are still a small player against much bigger companies (who now know who we are) and do not want us taking market share (which we are doing). We do not want to broadcast or advertise our sales to the competition (they will work it out soon enough) in the short term so we do not attract undue competitive attention (until it’s too late).

2) To put perspective on ‘slow’ one needs to really understand medical sales is not like selling consumer products and clinical superiority is not a guarantee of commercial success. In terms of lifecycle we are still at the introduction phase (this phase can last for several years), and I would say the marketing and positioning strategy can only be considered as being in place in the months following Code Red. I understand that some holders have been on this stock for years, but what they invested in may not be what is driving our future value (i.e. we really need to consider AHZ as a new company in a new space from Code Red onward). As such, I am very pleased with the current progress: we are still doing a lot with a little in relative terms (compared to the companies we are up against who spend hundreds of millions collectively on the commercialisation process.)

CardioCel and CardioCel Neo are performing well, and the feedback from physicians is universally positive. The sales teams are bringing in new accounts and increasing product utilisation. As to the deal cycle, getting products approved in VAC committees can take many months but we are now getting through this process across the country where we have presence. VascuCel is taking longer than anticipated and the space is high potential (160k CEA’s per year)…we did need to do a lot of work at the physician level due to the lack of knowledge and presence previously in this space. The sales team was also overwhelmed with the new product launches (CardioCel Neo) and had diminished capacity to manage the products (our resource constraints are ever present). The third-party reps are finding traction now in this space and our KOL networks are expanding rapidly. The National accounts team is also working on some large-scale IDN contracts that will take some time to negotiate but they are well in play.

CardioCel 3D is being trailed in an expanded use program. The reason for this is that the price point of this product is significant as is the technical nature of the procedure. Our team is working side-by-side with the surgeons in the OR on every procedure at the moment (we will not allow the product to be used without our presence in the OR at this point). We need to ensure we preserve both the price and positioning of this product for the future, so everything we do now is critical in terms of ensuring profitable uptake. So far some of the biggest reference sites in the world for this procedure are using (and paying for) CardioCel 3D and enjoying great success in terms of patient outcomes. CardioCel 3D is a premium product that showcases our technical abilities and gives us significant credibility as a company (especially important given our scale).

The halo effect is also coming into play as two major hospitals have ordered CardioCel Neo as a result of their experience with 3D (these accounts had been using competitor products). TAVR is a development stage project with significant upside potential (and a higher chance of success than an early-stage drug development project). We have developed some IP already and will be filing our first submissions. We have two prototypes in hand at the moment. I will not be showing pictures of the prototype until our IP files are lodged to protect our invention from our very large competitors in that space.

Cheers and thanks and look forward to another inspiring webinar with some informative answers.

You’re welcome David! Thanks for organising the questions. I enjoy discussing our progress enormously. One thing is clear – we are now a sustainable company with an in-market product range that has significant commercial advantage and a development pipeline of realistic and high value projects to ensure our revenues will exceed expectations into the future. Our ADAPT portfolio will further expand as resources allow to bring in additional revenue for many years ahead. I will do a webinar in September once our full year results are available, with a full update in November at the AGM.

Best, Wayne

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I've read this for the third time, either me or us are really stupid or Wayne is an exceptional story teller. Maybe its the former as this share price isn't justified after that spruik. Regards

AHZ Price at posting: 22.5¢ Sentiment: Buy Disclosure: Held
5 Upvote

0 Great analysis

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