Oncodesign: Very Strong Improvement in Full-Year 2019 Results

Regulatory News:

ONCODESIGN (Paris:ALONC) (ALONC – FR0011766229), a biopharmaceutical group specialized in precision medicine, is announcing its full-year 2019 results and its outlook for 2020 and beyond.

Philippe Genne, Chairman and Chief Executive Officer of Oncodesign, commented: “We had an exceptional year in 2019, which brought some major strategic accomplishments. Our operating revenue reached the key €40 million mark after three years of strong growth, and we also achieved profitability. Our clinical portfolio also gained traction in parallel with this strong financial performance. Firstly, we selected an initial drug candidate, the first-in-class RIPK2 kinase inhibitor in autoimmune and inflammatory diseases, which originates from our Nanocyclix technology platform, and we sealed a promising partnership with Servier to select a LRRK2 kinase inhibitor as a drug candidate in the treatment of Parkinson’s disease. Likewise, our Service business delivered robust organic growth of +11% with the signature of major service partnership agreements. In addition, the growing reputation of Oncodesign’s expertise internationally powered growth of 12% in North America. Overall, this performance is a testament to the effectiveness of our unique business model built to meet our goals of profitable growth and financial independence. This approach has enabled us to maintain a high level of investment in R&D—40% of turnover again in 2019—and to remain focused on our ultimate goal of improving patients’ quality of life by discovering innovative new therapies effective for cancer and other serious diseases with no known treatment. Our recent introduction of a new organization structure based on 3 business units—Service, Biotech and Artificial Intelligence—should make our model even more effective and also provide greater clarity as to how we create value.”

Arnaud Lafforgue, Chief Financial Officer of Oncodesign, added: “With our robust €10.7 million pro forma cash position at December 31, 2019 and €15.2 million at the beginning of April 2020 (excluding French research tax credit 2018 of €3.5 million still expected in April 2020), we are better-equipped than ever to fulfill our development potential. We are reiterating our confidence in our future prospects notwithstanding the Covid-19 pandemic, which has not put our medium-term targets in doubt. The aim remains for the Service BU to generate €50 million in turnover by 2023, with an EBITDA margin of between 15% and 20% and for the Biotech BU to launch the clinical development of three products.”

“We would like to take this opportunity to restate our support for all healthcare staff and, more broadly, for all the organizations and individuals working flat-out each and every day in response to the pandemic”, concluded Philippe Genne, Oncodesign’s Chairman and Chief Executive Officer. “After introducing homeworking and all the requisite health-related safeguards, leading to successful implementation of the business continuity plan, Oncodesign has adapted to a new way of working. We would also like to thank our employees, our shareholders and our partners for their unstinting commitment especially in this health and stock market chaos.”

2019 operating revenue up 21% to €40 million

Oncodesign’s operating revenue rose 21% to €39.51 million in 2019. The rise in operating revenue was fueled chiefly by organic growth in the Group’s turnover to €26.9 million. This 34% increase marked the third year of brisk growth (after 40% in 2018 and 28% in 2017), representing a CAGR of 25% since 2017.

• 2019 Service turnover up 11% to €21.1 million, with organic growth and the US leading the way

In 2019, Service turnover grew 11% to €21.1 million, supported by the signature of strategic service contracts, in particular with partners such as Galderma, Erytech Pharma, EISAI and Ipsen in oncology. This firm performance was predicated chiefly on organic growth, which held up at a brisk pace, with a CAGR of 16% over the 2017-19 period. Turnover in North America (United States and Canada) recorded a 27% increase to €2.5 million in 2019. North America contributed by 12% to the 2019 turnover, up from around 10% in 2018. This advance illustrates the region’s pivotal role for the Service business, supporting the case for its continued development over the coming years. Oncodesign is working on a new type of Drug Discovery service offering, with business partners contributing to the technological aspects and promotional efforts set to be supported by specialized business developers who have joined the existing team, including in North America. This new tech-driven offering should pave the way for business to accelerate over the coming year.

• 2019 Partnership turnover: €5.8 million

The Partnership’s turnover flowed from the strategic alliance established in early 2019 with Servier to pursue LRRK2 kinase inhibitor research. The partnership began in March 2019 and generated turnover of €5.8 million in 2019, consisting of a €3 million upfront payment received on signature and €2.8 million to cover the corresponding research costs. After the end of the financial year, Oncodesign and Servier reached a preliminary major milestone in February 2020 in the development of their LRRK2 program in Parkinson’s disease. This was achieved ahead of the original timeline and triggered a milestone payment to Oncodesign. In addition, negotiations are underway with new partners, and the aim is to resume clinical development of the mutated EGFR radiotracer in 2020. Development of the program originating from the Nanocyclix platform was fully internalized by Bristol-Myers Squibb under its agreement with Oncodesign, and the project continues to move forward.

• Other operating income down 0.7% to €12.6 million in 2019

Additionally, Oncodesign recorded in January 2019 the annual subsidy payment from GSK of €7.9 million, reflecting its acquisition of the Les Ulis research center (last payment has occur in January 2020). The second significant component of other operating income was the research tax credit, which amounts to €3.7 million in respect of 2019 (€0.2 million from Canada already collected and €3.5 million from France expected in April 2020). Lastly, other operating revenue declined by almost 20% to €1 million in 2019.

Operating income of €0.7 million in 2019, after an operating loss of €3.8 million in 2018

Operating expenses increased by 6% to €38.8 million. This reflected Oncodesign’s tight grip on costs considering that turnover rose by 34% (up 19% excluding Servier’s upfront payment). The increase in purchases consumed of just 2% to €17 million was particularly impressive. Staff costs came to €18 million, up 13% relative to 2018. This increase reflects the 12 new hires between June 2018 and year-end 2019, including research directors, to support the development of our new service offers (IDDS and DDSA). Oncodesign’s average headcount rose to 235 in 2019, from 232 in 2018.

R&D expenses declined by 8% to €11 million in 2019, from €12 million in the previous year. The Company has made the strategic decision to stop funding the ALK1/2 program (while it looks for a partner) and to focus on its flagship MNK1/2, LRRK2 and RIPK2 projects, and its collaborative projects. The IMAKINIB and IMODI collaborative projects came to an end in December; only the Oncosnipe project remains active. Thus, the investments made in 2019 mainly concerned the MNK1/2 and RIPK2 programs, paving the way for the selection in December of a RIPK2 kinase inhibitor drug-candidate, which was one of Oncodesign’s key goals.

After taking these factors into account, Oncodesign recorded operating income of €0.7 million in 2019, after an operating loss of €3.8 million in 2018.

Net income of €1.6 million in 2019, after a net loss of €3.1 million in 2018

Net financial expense contracted slightly to €0.20 million, directly reflecting lower interest costs on borrowings. Exceptional expense came to €0.10 million. Net income from consolidated companies improved significantly to €0.62 million. Amortization of the negative goodwill related to the Ulis research center contributed €1 million (€0.8 million in 2018) to Oncodesign’s 2019 net income, which came to €1.6 million, compared to a loss of €3.1 million in 2018.

Solid cash position of €10.7 million² at December 31, 2019 despite ongoing R&D spending

Despite further heavy investment in R&D activities (around 40% of turnover), cash available stood at €7 million at December 31, 2019 excluding the research tax credit due in respect of 2018. By comparison, cash available stood at €6.4 million at December 31, 2018 excluding the research tax credit. After pro forma inclusion of the €3.7 million due in respect of the 2018 research tax credit, cash amounted to €10.7 million. Payment of the 2018 research tax credit was confirmed in April 2020.

In addition, Oncodesign’s cash position has been boosted by the final subsidy payment of €7.92 million by GSK in January 2020.

Taking all these factors into account, its cash position at the beginning of April 2020 stood at €15.2 million before payment of the French 2018 research tax credit of €3.5 million anticipated during April 2020.

Introduction in early 2020 of the new independent BU-based organization structure

As a result of the growth in the Service business and the emergence of a more mature portfolio, including drug candidates under proprietary and partnership programs, Oncodesign reviewed its organization structure and decided to establish three Business Units: Service, Biotech and Artificial Intelligence. The aim of the new structure is to make the Group’s business activities clearer for its employees, customers, partners and investors. Each of the BUs has its own objectives and resources. The Service and Biotech BUs were up and running in early 2020, while Artificial Intelligence, the third BU, will be set up during 2020 to support the drug discovery of the future. A senior executive is currently being hired to run it. To finalize this new organization, Oncodesign will move into a new building in December 2020 housing the corporate, IT and the Biotech and Artificial Intelligence BUs.

Business continuity plan and roll-out of appropriate measures to address the Covid-19 pandemic

In response to the Covid-19 pandemic, Oncodesign activated on March 12, 2020 its “Pandemic Management Plan” covering the whole organization, including the labs, quality assurance, IT infrastructure, human resources and logistics. It will safeguard the continued delivery of services in line with any additional guidelines imposed by the health authorities.

The new organization structure introduced at the beginning of the year, the effective roll-out of the business continuity plan and its current cash holdings have curbed the effects to date and will ensure Oncodesign’s continuing operation over the coming months.

Medium-term development plan maintained despite the Covid-19 pandemic

For the time being, the health crisis is not having a significant impact on the Group's activities, but it is difficult, in the current state of affairs, to estimate its ultimate impact of the crisis on Oncodesign’s order backlog, turnover and laboratory activity. Depending on how long it lasts, it could call into question the Group’s economic outlook for the current year, like that for the entire global economy. The activities of the Service business, which depend on the activities of pharma and biotech companies, are particularly at risk. As things stand, we are reiterating our 2020 target of €40 million in turnover and positive net income as announced 4 years ago thanks to our hybrid business model.

It is recalled that the acquisition in September 2017 of the service part of Bertin Pharma, allowed Oncodesign to become a founding member of the IDMIT project (Infectious Disease Models and Innovative Therapies). IDMIT is a world-class research infrastructure dedicated to preclinical research on primates to study and understand infectious diseases and to develop and evaluate innovative preventive and therapeutic strategies. This national biology and health infrastructure is under the responsibility and coordination of Roger Legrand of the Institut de Biologie François JACOB of the CEA. The co-founders are the CEA, the Pasteur Institute, the University of Paris-Sud, Inserm, ANRS and thus the company Oncodesign.

IDMIT is interested in the study of human infectious pathologies, their treatment and prevention. The aim of this infrastructure is to develop animal models of human infections, centralize state-of-the-art technological platforms, particularly in in vivo imaging, and provide a highly competitive infrastructure for preclinical research on vaccines and anti-infectious treatments. IDMIT has models of human viral infections in non-human primates, in particular for the study of HIV/AIDS, Corona Virus, Dengue, Chikungunya, influenza, yellow fever, etc.

Within the framework of this infrastructure, ONCODESIGN has added to its own technologies and skills, the skills and specialized platforms in infectiology and immunology present within IDMIT, for the benefit of its internal projects and its clients / partners. In addition, Oncodesign ensures the commercial exploitation of this infrastructure, manages the Biological Resource Centre and takes care of quality assurance. To this end, Oncodesign has a team seconded to the CEA site at Fontenay-aux-Roses, where the various equipment and installations related to IDMIT are located. It is obvious that in the current circumstances, these infrastructures are strategic for Oncodesign at different levels, in the short and long term.

Oncodesign’s key growth drivers will be:

– Further development of our strategic technology pillars based on AI: a precision medicine platform for the 21^st century

– Ramp-up in our pipeline: selection of kinase inhibitor drug candidates originating from our Nanocyclix technology and selection of external opportunities from other targets

– Growing maturity of the pipeline with molecules moving into clinical stage: anti-mutated EGFR radiotracer (phase I completed), RIPK2 and LRRK2 inhibitors, MNK1/2 inhibitors in oncology

– Acceleration in the development of multi-year Drug Discovery Service Agreements (DDSA) and Integrated Drug Discovery Services (IDDS) agreements delivering growth in Service turnover and EBITDA

– Non-dilution of shareholding: no fresh funds raised since the IPO in April 2014

Looking beyond 2020, Oncodesign’s targets for 2023 are:

– Service BU: turnover of €50 million and EBITDA margin of between 15% and 20%

– Biotech BU: launch the clinical development of three products

– Artificial Intelligence BU: halve drug discovery lead times and build up revenue streams

Oncodesign’s annual financial report is available on the website at www.oncodesign.com

Next report: First-half 2020 sales on July 23, 2020 (after market close)

About ONCODESIGN: www.oncodesign.com

Founded 25 years ago by Dr. Philippe Genne, the Company’s CEO and Chairman, Oncodesign is a biopharmaceutical company dedicated to precision medicine. With its unique experience acquired by working with more than 800 clients, including the world’s largest pharmaceutical companies, along with its comprehensive technological platform combining state-of-the-art medicinal chemistry, pharmacology, regulated bioanalysis, medical imaging and Artificial Intelligence, Oncodesign is able to predict and identify, at a very early stage, each molecule's therapeutic usefulness and potential to become an effective drug. Applied to kinase inhibitors, which represent a market estimated at over $46 billion in 2016 and accounting for almost 25% of the pharmaceutical industry’s R&D expenditure, Oncodesign’s technology has already enabled the targeting of several promising molecules with substantial therapeutic potential, in oncology and elsewhere, along with partnerships with pharmaceutical groups such as Bristol-Myers Squibb. Oncodesign is based in Dijon, France, in the heart of the town’s university and hospital hub, and within the Paris-Saclay cluster. Oncodesign has 233 employees and subsidiaries in Canada and the USA.

Disclaimer

This press release contains certain forward - looking statements and estimates concerning the Company’s financial condition, operating results, strategy, projects and future performance and the markets in which it operates. Such forward-looking statements and estimates may be identified by words such as “anticipate,” “believe,” “can,” “could,” “estimate,” “expect,” “intend,” “is designed to,” “may,” “might,” “plan,” “potential,” “predict,” “objective,” “should,” or the negative of these and similar expressions. They incorporate all topics that are not historical facts. Forward looking statements, forecasts and estimates are based on management’s current assumptions and assessment of risks, uncertainties and other factors, known and unknown, which were deemed to be reasonable at the time they were made but which may turn out to be incorrect. Events and outcomes are difficult to predict and depend on factors beyond the Company’s control. Consequently, the actual results, financial condition, performances and/or achievements of the Company or of the industry may turn out to differ materially from the future results, performances or achievements expressed or implied by these statements, forecasts and estimates. Owing to these uncertainties, no representation is made as to the correctness or fairness of these forward-looking statements, forecasts and estimates. Furthermore, forward-looking statements, forecasts and estimates speak only as of the date on which they are made, and the Company undertakes no obligation to update or revise any of them, whether as a result of new information, future events or otherwise, except as required by law.

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¹ After pro forma inclusion of the €3.5 million due in respect of the 2018 French research tax credit, expected in April 2020
² After pro forma inclusion of the €3.5 million due in respect of the French research tax credit, expected in April 2020

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