Oxford Biomedica plc (OTCPK:OXBDF) Q2 2022 Results Conference Call September 15, 2022 8:00 AM ET
Company Participants
Rob Ghenchev – Chairman of the Board and Intern CEO
Stuart Paynter – Chief Financial Officer
Kyri Mitrophanous – Chief Scientific Officer
Sophia Bolhassan – Director of Investor Relations
Conference Call Participants
Joe Pantginis – H.C. Wainwright
Miles Dixon – Peel Hunt
Natalia Webster – RBC Capital Markets
Julie Simmonds – Panmure Gordon
James Orsborne – Stifel
Alistair Campbell – RBC
Soo Romanoff – Edison Group
Operator
Good afternoon, ladies and gentlemen, and welcome to the Oxford Biomedica Interim Results 2022 Conference Call and Webcast. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. We will only be taking questions from the phone line today, and any questions submitted through the webcast will be answered after the call. As a reminder, today’s conference call is being recorded.
Rob Ghenchev
Good afternoon and good morning, and welcome to Oxford Biomedica half year results. I’m Rob Ghenchev, I’m the Chairman of the Board and Intern CEO, and I’m joined today by Stuart and Kyri to share the update on Oxford Biomedica and then also with Sophia, who will help with the Q&A later on and all the questions you will have after this call.
So if I start with the first slide, I’m really pleased and excited about the momentum with Oxford Biomedica and I have Slide 3 please. And that momentum is really — if I had to pick one KPI for you to remember and we’ll come back to, this is our increase in customers by 70% over a year ago, and that’s probably one of the best predictor of future revenues. The more fundamentals is that we had set up a new strategy much more focused of becoming a leading, innovating global viral vectors across all viral vectors for cell and gene therapy companies.
And we have delivered on the first half on this strategy. And the reason why I’m excited about the potential of these strategies that we all agree that cell and gene therapy will bring the next wave of breakthroughs and medicines, almost several hundreds of companies in biotech and big pharma are active in the space. Viral vectors, we all know will play a critical role for cell and gene therapy. We all know the strong double-digit plan forecast for both the AAV and the lentiviral vector outsourced supply market, and there’s still many more gains to be gained through innovation and Kyri will come back to that.
Oxford is indeed uniquely positioned to serves our customers than the industry problem in this manufacturing challenge around viral vectors. And we’re doing that through proprietary technology, continuous innovation and viral vectors. Once again, Kyri will share some of the update on this leading position that Oxford Biomedica has. And only are we leading in the innovating space, but we also have a track record of delivering on the manufacturing, as we demonstrated on through the Oxford Biomedica unique ability to deliver the adenovirus based COVID vaccine from AstraZeneca and also by the long-term relationship, which we have with Novartis as the sole global supplier of lentiviral vector from Kymriah.
And last but not least, I think we’ve taken really the windfall of this positive impact on the Company of the vaccine business to invest into the largest viral vector of the market, AAV platform, the AAV market, and we acquired and completed the acquisition of Oxford Biomedica Solutions for our AAV platform based in Boston.
Can I have the next slide, please? Slide 4, beyond the ability to integrate our Boston business and our AAV business, we’ve also started to completely transformed our business to make it a truly innovative CMO. And the testimony of that is the new customers that we have announced yesterday in addition to our analogy and more to come on that front.
As I mentioned in my intro and my excitement about the momentum of Oxford Biomedica is the impressive customer base that is expanding by over 70% in the last 12 months, that you know that it takes a long time to finalize the deal in this space. It’s a very important decision for any biotech, or any big pharma company when they hand over the key of their viral vector to a third-party. It takes a long time, the good news that is we retain them also for a long time. And it will take some time before the 70% generates revenues, but the important thing is indeed that metric and the dynamism in our customer base.
We also expanded existing agreement, an important one was BMS or a subsidiary of BMS Juno Therapeutics, their large viral cell and gene therapy company. We signed four new U.S.-based agreements from four U.S. customers, including a new AAV customer since the beginning of the year, and we provided clarity on the future of our relationship with AstraZeneca through an expanded supply and development agreement.
If I go to the next slide, Slide 5. The acquisition of our AAV business in Boston is running very well, just to remind you of why we did that. As I mentioned, the AAV business is even larger than the length, the viral vector business is growing even faster, at very strong double-digit rate. We were not present in this market.
And now since the beginning of the year, we are present with a unique platform and proprietary IP, a unique plug and play platform that has convinced already one customer as I mentioned in addition to allergy and is in the process of convincing many more. And just to remind you, we have manufacturing capabilities there with proven scalability all the way to 2000 liter for commercial supply. And we expect profitability to be reached in the first half of 2025.
If I go to the next slide, these just summarize again, the innovative service updates that we have since the beginning of the year. And once again, I’m thrilled with the momentum that is provided by an impressive team at Oxford Biomedica.
And I’m handing over now to our CFO, Stuart Paynter to put the few numbers behind this momentum. Stuart?
Stuart Paynter
Thank you very much Roch. If I can proceed to Slide 8, as Rob said and I’ll reiterate, good morning to everyone and good afternoon. We really do have good momentum and that’s borne out in the first point on Slide 8, which is around the core business growth. So you know, the opportunistic work through the COVID vaccine, which was vitally important to saving 10s of 1000s of lives has really given us the firepower financially to execute on the AAV strategy, which as outlined and gotten strategically into a market growing of more than 20% CAGR.
Now, as that revenue goes away, you can see the reduction in revenue. So overall, we’re pleased to report the core revenue growth of the synergy therapy is growing very nicely at double digits. So that is momentum on which we build our core business, as the vaccine work is essentially winding down. The operating losses, you see that £5.8 million the first half of the year compared to a profit previously.
Again, we’ve taken that profit made previously and made a very smart investment for the future, as Rob has said, and the loss we carrying, of course, is representative of the new business in Boston. And it’s going to be loss making, as Rob said, profitable in the first half of 2025. So at the moment, we’re utilizing the latent capacity to add new customers as quickly as we can, in order to build towards that profitability, but we will be carrying an element of loss for that business for a number of years.
Now, you can see that, incorporating that loss, the underlying core business again is around that breakeven mark. So, we are intent on making the core business sustainably profitable going forward, and that’s a key goal of the organization as we currently stand. As you can see, the operating expenses have increased to reflect the skills, capabilities, and costs of doing business in the AAV field in Boston. And we are super committed to continuing to build that exciting business with a platform that is already starting to prove itself in some of the data that’s being released.
And the first customer through the door was Rob said, Cash used in operations of course that reflects the transformational deal, which was done in the first half of the year with an equity raise, a debt raise and the acquisition of the asset. And then capital expenditures, you can see the ongoing amount includes Oxford Biomedica Solutions. And it’s pretty much down to sort of rates of maintenance. And of course, there are there some other strategic goals we have in terms of building out the follow area of Oxford going forward, but that really is in the planning stage.
The next slide, please Slide 9. So, we’ve included a slide on cash, which we’ve not done before, but we think this is a representative of the marketplace and the macroeconomic geopolitical situations in which we find ourselves. And we want to highlight the robustness of the business model we’re running and the relative strength of our balance sheet in terms of business liquidity. So, cash at the half year was £118 million and just short of £116 billion at the 31st of August so we see you see that.
Again, we reiterate, we’re not a traditional cash burn type business, very sustainable. We are in the process of refinancing and part repaying, the Oaktree one-year loan facility that was taken out as a bridging facility to get the deal done back in January. We have made really, really good progress on that. And there’ll be more news to come in this calendar year.
And then we have an ongoing process that’s the saving leaseback of Windrush Court, which is our GMP and analytical laboratory suite here in Oxford that is being marketed in the high £50 million. And we expect to achieve in excess of GBP55 million in terms of the cash generation from that asset. So, we think this is a good time to make sure that all the assets are working for us in terms of solid liquidity into the business.
At the same time, the review of gene therapeutics, which Kyri will go through a bit more detail on a few more slides, is progressing nicely. And I’ll remind you that the goal of the organization is to take these exciting assets retain a long-term interest in them, but not carry the burden of the burn on these internal products on our own P&L and really good progress is being made Kyri, it’ll take you through a bit more of those later, and cost control initiatives.
So, currently, we have a headcount freeze within the organization where we are strategically making sure that we are appropriately sizing the business for a world in which the vaccine revenue is going to wind down and to make sure that this is a sustainable robust and strong business in terms of its underlying skills and capabilities, and the opportunities it sees in front of us for the next 12, 18 months, whilst maintaining very, very strong, robust liquidity.
Next slide please. So here’s the very familiar slide, you can still see strong growth in the underlying revenues on the top table in the darker color, every half year as well, there are some of the lumpy licenses incentives, royalties and grants that come through, which is good for liquidity. And we really liked that sort of revenue, but it’s less predictable. And you can see that, there’s been a significant uptick through the vaccine in the last three halves.
And as we’ve been at pains to say, we’ve utilized that momentum to build strong robust pipeline in the underlying business, and to make the play in the in the bigger market of AAV. And as you can see on the bottom chart, this is operating EBITDA, you’ll see there are one off acquisition fees in this half, just over £5 million to deal with a transaction. And of course, we’ve added in significant costs in the opposite Oxford Biomedica Solutions business.
So I hope you can see there that as we progress, we’re looking to do this very sustainably. We’re looking to continue to fund the innovation story which carrot will take through, which is key to our offering to the marketplace, both AAV and lenti, and we’re in a really, really strong position to continue to fund the innovation, and the investment in the right areas, in order to make the best opportunities that use of the market opportunities in front of us, not just in terms of the core business. But obviously, as we progress our talks are ongoing about collaboration opportunities with other vaccine providers as well to the Serum Institute and you made the investment £50 million into the business this time last year.
Next slide please. So here’s his the P&L for you. So for those of us who love a bit P&L, this is the output of all the things I’ve been talking about. The couple of things to highlight on here are the obviously the revenue we’ve talked about, vaccines coming off, core business growing very nicely. The bio-processing costs are going up, that’s a utilization issue. Heavy utilization was done last year and 24/7. Obviously, the core business is a slightly different profile of cadence, and then the on the R&D and admin expenses, we’ve added some in Boston.
But as I’ve alluded to, these are being reviewed in terms of making sure that we are the right size and suitably have the suitable and correct capabilities and invest in the right areas going forward is key to the success of the business. The one other thing to mention is the finance costs, finance costs, there are interest on the loan. That’s not the whole piece of it, of course, there has been increased leases that have gone through from our acquisition of Oxford Biomedica Solutions, and there’s some an FX loss in there as well.
So, at this point and I’ll proceed to one more slide please. I’m going to hand it to Kyri to take us through some of the innovation we’re making and then I’ll hand her back to finish off the presentation.
Kyri Mitrophanous
Thank you, Stuart. Good morning everyone, and good afternoon. First, I will share with you some of our recent innovations around the platform. These are focused on realizing the potential of viral vectors to revolutionize medicine by enabling life saving cells and gene therapies. Then I will describe the exciting product areas we’re working on and our plans there.
Now, let’s first take a look at the platform innovation. So Slide 13, please. Our goal is clear. What we’re seeking to do is to industrialize the production of viral vectors. Our expertise, IP and investments make us world’s leading producers of viral vectors particularly of lentiviral vectors, and through our Boston expansion experts in AAV production as well. By increasing the amount of vector we can produce, we can improve vector quality and thereby enabling new therapeutic possibilities.
Let me show you an overview of the platform on this slide. So first, we have capability on the top right of the slide, we develop vectors that allow optimal expression of the gene of interest to fine tune the therapeutic effect. And we’re developing targeted vectors to genetically modify specific cell types. Both of these are key to the future of lentiviral vectors, as they allow their use in new ways and to enable new therapeutic indications.
Second, we have scale and that’s on the bottom right. We have a number of innovations which we’re implementing in our bioreactor processes to improve yields and quality. For lentiviral vectors, we have now implemented Process C, which includes perfusion that increases titer removes impurities, before they enter downstream purification, we have U1 and U2. These are additives that increase the titer but also prove the number of active particles. And we have an optimized downstream process to further improve vector quality.
For AAV, our Boston colleagues have developed a novel Dual Plasmid AAV system that leads to superior productivity and quality. We’re continuing to evaluate other types of enhancers and additives and process improvements, and we will discuss these in due course. We are seeing an increasing interest in Process D that’s the one on the bottom here. That’s making vectors using producer cell lines. We announced one new project in July this year. Producer cell lines have better scalability and productivity and we’re looking at ways of improving the speed of their generation for lenti and extending this technology to AAV production.
Finally, we have analytics, automation and AI on the left hand side. The secret to innovation as we have said before is understanding what happens inside cells and vector particles during production technologies such as transcriptomics, proteomics give us a window into the bioreactor as well as the cell. We’re using automation to analyze more samples and to enable faster batch release. And we use AI and machine learning to take full advantage of the huge datasets that are generated from these kinds of analyses. By understanding vector production better, we can increase components that boost yield and quality and reduce those that don’t.
And now let me give you some more details about some of our recent innovations. Next slide please. So Process C for lenti has been successfully implemented to GMP as planned, and we have seen the expected gains in productivity and quality. We have a number of customers evaluating Process C and have already made processing materials as GMP for a customer. Our colleagues in Boston have now exemplified a novel Dual Plasmid AAV system at 2000 liter scale, and seeing the expected gains in profit productivity and quality attributes.
We have made great progress with our fourth generation lentiviral vectors, which we expect to launch in 2023. These vectors enable higher expression, have additional safety features and a larger capacity, so can deliver greater amounts of DNA. This last point is critical as we are seeing increasing demand for vectors to deliver multiple genes or more complex expression cassettes. Improvements in analytics have also been realized with the successful transfer to GMP of automated cell-based assays. These allow for much greater productivity and reproducibility.
Let’s move now on to products, next slide please. Our current focus for product development is the application of systemically administered lentiviral vectors to treat disease. Our focus initially will be in two main areas in vivo CAT-T generation and lenti-targeted liver therapies. In vivo CAR-T bypasses the need for costly and limited GMP cell engineering facilities by directly administering the vector into the body to generate the CAR-T cells and is necessary, if we are to realize the full potential of CAR-T therapy for both liquid and solid cancers.
We expect to be able to treat many more patients, treat them as first or second line therapy rather than third or fourth. And this should give better clinical outcomes. Our work on developing therapies by genetically modifying liver cells is progressing well. The liver is a continually dividing organ and because lentiviral vector is integrating target cells, a one-off treatment is all that may be needed to give lifelong benefit. A lot of high-quality vector is required for both in vivo CAR-T and liver gene therapy, which we are particularly good at making.
Dr. Ravi Rao joined OXB in April this year, and he’s leading a review of the therapeutic product strategy and how we best ensure that the great promise of these products is realized. This work will complete by the end of the year and will be executed on in 2023. Our aim here is to maintain long-term economic interest in a number of therapeutic products with a potential material reduction in annual operating expenditure, which was GBP5 million operating EBITDA loss in the first half of this year.
I’ll stop here and hand back to Stuart. Thank you.
Stuart Paynter
Thank you, Kyri. If we just progress to the next slide to the financial outlook. So, we’re expecting similar levels of revenues in the second half as the first half, and more than 90% of those are booked in. So it is a pretty solid forecast and obviously continued growth in the underlying core business. The vaccine’s revenue is going to reduce the aggregate revenues of around GBP30 million from AstraZeneca in this full-year, but the bulk of the revenues been recognized in H1 2022.
So broadly speaking, the EBITDA numbers are going to be around in half 2022 with a very similar amount of CapEx and all of our spend profile and everything you’ve actually heard is in service of the target, which is obviously to enhance our position as the leading viral vector. Our sourcing player in this marketplace across these two vibrant markets with a long-term goal to grow our revenues at faster rates than the market’s growing, the market’s growing very, very quickly.
Last slide please, just on some of the catalysts. Obviously, Oxford Biomedica continues to be a deal generating company and we expect new deals through the end of ’22 into ’23 for both OXB Solutions in Boston and the core business in Oxford our lentivirual vector business. We’ve made public statement that we expect to new customers in the AAV field this calendar year, and we’re bullish on that. The therapeutic strategy is, as Kyri said, we’re looking to have that finalized by the end of this calendar year executed in 2023.
So, we’d expect to see some news on that, and achieving that goal of keeping that long-term economic interest by and minimizing the internal spend on them on programs. And then the payment of refinancing and the same leaseback we expect to be complete this calendar year. And put us in a very, very strong and robust cash position with a well thought out sort of capital structure for the business, including an element of debt, moving forth for the next the next period of time.
So, I’m going to leave you with our initial strategy slide, and I’ll hand over to Sophia, who’s going to kick off the Q&A process.
Sophia Bolhassan
Thank you, Stuart. We have a number of you queued up on the phone lines. Operator, can you please open up for the first question?
Question-and-Answer Session
Operator
[Operator Instructions] We will take the first question from Joe Pantginis from H.C. Wainwright. Please go ahead.
Joe Pantginis
Couple quick questions, if you don’t mind. So, first, Stuart with regard to the debt refinancing and repaying any guidance with regard to the amount of what will be refinanced?
Stuart Paynter
So, we are currently working through that. Hopefully, we won’t have too long before we can fully share the details of the marketplace. But at the moment, we’re still talking to various providers about the profile of how that looks. So no specific guidance by now, but you’re not going to have to wait too long to see that.
Joe Pantginis
I understand and then look, I mean, it’s great to see the business grow, especially out of Boston. And I guess, look, as you make these announcements, you say that the terms are undisclosed. And I can understand that because there’s a lot of the competitive environment is quite wide. So, I can understand that. So can you give us some level of baseline expectations with regard to the types of deals you terms, did the deals you sign with regard to maybe some minimum terms that could be expected from these types of deals?
Stuart Paynter
So, it’s an interesting question, Joe. I mean, the reason that we have done a few undisclosed deals recently based on the lentivector side and AAV side is because some of these smaller biotechs are in the process of raising funds through Series A, Series B, and obviously, we’re respectful of that process. So not talking about anything in particular, but the way that we sort of view early stage agreements is that we can take someone from a very early stage of constructs work on through PRD both in Boston and Oxford to get them something very viable.
And then you’re talking about potentially tox studies and other things. So each deal is slightly different, but it will involve producing them material for sort of viability, maybe animal studies, tox studies, those sorts of things, but they are all different. So it’s difficult to give guidance. But, they are, what they are, is essentially a gateway with the customer, to take them onto a journey and help them solve issues that they’re undoubtedly going to face that we’ve seen before, which enables them to progress through that early stage development and then through clinical space development. And ultimately, our goal is to support the customer all the way through to commercial, where we have, obviously, our Oxbox facility, which is already approved for commercial manufacture.
So, it’s an — [indiscernible] finish now. So, it’s a real soup to nuts offering. And, this is one point, we can capture the customer, and hopefully provide them with access to the technologies and the solutions, which will make them a happy customer and stay we’ve got a great track record of keeping customers for a very, very long time. And then Novartis has been with us for a decade now, with us helping them all the way along from the first-stage production for Kymriah all the way through to launching in 30 countries.
Joe Pantginis
I appreciate that answer. And it certainly talks to the variability of the types of clients that you bring in and the maturity levels and what have you, and almost providing an end-to-end process. So thanks for that answer. I appreciate it. And then, of course, I’d be remiss if I didn’t ask about the gene therapeutics pipeline, because look, as Kyri described your different initiatives with regard to tech improvements, and what have you. How a lot of that could potentially translate to your gene therapeutics pipeline? And what you know, we could potentially look towards with regard to any potential news flow?
Stuart Paynter
Yes, so I think Kyri took us through what we’re focusing on, which is liver based lenti treatments and in vivo CAR-T, both systemic treatments with lenti, which require higher volumes, which puts us in that unfair advantage position is a producer of high quality, high volume, high titer lentis. And we’re looking to essentially push forward the agenda with the latest technologies. Kyri mentioned Process C, fourth generation lenti, all these other things, which could form part of the offering here and looking to attract external sources of funding there.
So we’re super excited by the value that can be created. We’re just aware that there’s a different risk profile to that area of business than the underlying, innovative CDMO business. So, we’re looking for that external funding in order to make sure that they’re well funded, push forward as fast as possible because patients need these treatments. And the call on capital between innovative CDMO and a product business is very different. So yes, I mean, the timing remains that we should be in a position to execute that strategy in 2023, but progress is being made very, very rapidly now, coming up towards the end of this year.
Operator
The next question comes from Miles Dixon from Peel Hunt. Please go ahead.
Miles Dixon
If I could just maybe ask Joe’s question a little bit differently. So, the license milestones and royalties in first half grew by 18%. Can you comment how much of that was from existing or legacy work versus new partners? And are you seeing a change in the profile of the economics that you can now ask from, from what looks like a quite significantly increased cadence of new partners?
Stuart Paynter
Would you like me to take that, Rob?
Rob Ghenchev
Yes, that would be great. I think it’s targeted to you.
Stuart Paynter
Hi, Miles. So, I think it’s a great question and we see milestones licenses come from various customers at various times, depending on the maturity of the relationships. So sometimes their licensees when they sign on and sometimes their milestones is some element of commercial development where we’ve particular tied to milestone, et cetera. So there’s a very good spread and it forms part of the core of those licensing deals we do in terms of the economics going forward on platform deals.
Actually, we are seeing and we are targeting in fact, early stage biotechs, as well as big pharma and what we try and do is be as customer centric as we can. So, there’ll be various economic pressures on our partners, and they’ll be very different if they’re big pharma to small biotech. And we try to really apply our increased robust balance sheet to help them get on-board and start solving their problems. Because the long-term economic value of these bills is very similar whether there’s a big license fee and a less milestones or whether there’s smaller license fee, big milestones, and we just need to get them through the door.
So, we essentially are not seeing any difference from the market except for the fact that the small biotechs are under some pressure from the funding of course. And we see that as an opportunity because what we do know is that there are very few small biotechs now spring into existence who are going to create their own manufacturing solution. So, we see the market growing for small biotechs coming to proven CDMOs, which we are. We’ve proven that we can take someone from early stage all the way through to the commercial, which is one of our USP disruptive through earlier.
So, in that sense, the market is very, very vibrant for us. We have a very strong pipe finding both Boston and Oxford, and that gives us the confidence to be pretty bullish about new deals and the economics are remaining strong.
Rob Ghenchev
I may admire to the second part especially of your question add to what Stuart said. There is another in addition to the early stage biotech and the big pharma, there is another trend that we are seeing more and more. And I guess in the months and years to come, we’ll reveal more as we can, but its late stage biotech who are getting post-service from their CDMO, who cannot deliver and are turning to us in panic. And so we are seeing clearly a momentum there of large companies who can’t really deliver given the sophistication and the complexity of what needs to be delivering our space.
Miles Dixon
I think you answered my second question there about the pipeline of opportunity, but if I can go on from one USP to another and perhaps to Kyri. I mean obviously the yield and quality of the virus manufacturing you talked about and your reputation in lenti and adeno speaks for itself over the while the last 15 and some two years respectively. And when you mentioned Dual Plasmid AAV, how do you Boston AAV capabilities compared to the competitors out there?
Kyri Mitrophanous
Thanks for the question, Miles. So, when we looked to bring in AAV expertise, we looked at a number of different companies, a number of different opportunities. And what we found in our Boston colleagues as they are now was an expertise in a large scale AAV manufacturing, using 293, HK-293 cells at a very large scale.
And they had used these materials in a number of clinical trials with a particularly good safety record and had a considerable experience in terms of making many batches without any failures. So I think that compares very well to what’s out there for AAV, and as we get to know more about their capability, but we are more reassured that they are industry leading in their knowledge vector system processes and also IP.
Miles Dixon
Kyri, would you would you like to comment on the posters from ASGCT that Oxford Biomedica Solutions produced on their titer and there may be something on the particle to infectivity ratio?
Kyri Mitrophanous
So, one of the key aspects with regard to AAV is the particle to infectivity ratio. So, how many of your particles have got genome in them and how many particles don’t. And the more of those you — more empties you have then the higher the dose you have to administer and that means more empty particles going into the body that may elicit unsatisfactory outcomes information and so on.
And although AAV P2I ratios are not shared by everyone, from the knowledge to the tweet, we had from talking to KOLs is the P2I ratio that the Homology Medicines that process generated was at the cutting edge. And in addition, the overall productivity of the 500 liter the 2,000 liter process that they had developed was again at the higher end if not the highest we had seen. The another aspect that is critical is how do you purify your AAV to use methodologies that are industrialized or are using things such as centrifugation and so on that are okay for small scale are okay for one off batteries but are not really going to solve the industrialization of AAV manufacture.
Ideally, you’d want to use more robust systems and that’s what the Oxford Biomedica Solutions team now has, so the downstream process that is being utilized is scalable, robust, and again, fit for purpose for commercial and beyond.
Operator
The next question comes from Natalia Webster from RBC Capital Markets.
Natalia Webster
Thank you very much for taking my questions. I have two plays. So firstly, we’re hearing that the impact of more limited biotech funding is leading to prioritization of pipeline assets. I realized that you discussed having a mixture of pharma and smaller biotech customers, but are you seeing this impacting any of Oxford medicals customers, particularly on the early stage side?
Rob Ghenchev
Do you want to take that Stuart?
Stuart Paynter
Yes, I mean, it’s a very good question. We’re still seeing very robust funding in the venture stage. I think the real pressure is on publicly listed companies in terms of their ability to raise funds. But we have a nice mix of both venture funded biotechs, small publically listed biotechs like Homology as a customer, for example, big pharma. We know that big pharma doesn’t stop.
We know that the small companies are well funded. The interesting pieces there is that that middle group, and actually, what we are seeing, because we are working with customers who it’s their very existence depends on progressing their products, and the sort of stage the element they’re in, they need to produce data, whether it’s clinical data or preclinical data, in order to get to their next value inflection point.
So we as a service provider are on their critical path. So if they have $1, to spend somewhere, they’re going to spend it on their ability to produce data, which is going to be something they can do to move their share price, because typically those companies pre revenue. So we benefit from a very close relationship with our partners, and solving very tricky issues for them, and frankly, being on their critical path to producing the data they required to push forward.
Natalia Webster
Just my second question is more specifically on the deals that you’ve announced. Just wondering if you could provide any color on this to new BMS programs and how important these are for your near term growth expectation?
Stuart Paynter
Yes, I don’t think we can reveal much there earlier, but because we were providing a service to our customers, we want our customers to be happy. But when we can, we sure will produce more. I think what you know, the great news is that you see a BMS who made a significant acquisition and really has a significant stake in the cell therapy space and leading now is expanding their partnership with Oxford Biomedica and significantly. So, I think that’s the take home for you at this stage. We’d like you to provide more colors, but we have to respect our partners and customers wishes.
Operator
The next question comes from Julie Simmonds from Panmure Gordon.
Julie Simmonds
Just a couple of questions on the cost side. I know you’ve talked about sort of getting your levels of personnel down to a sustainable level I think was how you described it. And just sort of looking at the increase in number of people you had sort of versus last year, its 700 and something. So I think, 716 to 920. Firstly, I was just wondering what level is sustainable. And then secondly, along the same sorts of lines, the sort of cost presumably of the additional U.S. personnel was more expensive than the UK, and just sort of, are we going to continue to see sort of that balance?
Stuart Paynter
Hi, Julie. Yes, no, I did use the word sustainable. I think sustainable stroke appropriate is the right is the right messaging. So when you quoted those two account numbers, of course, 120 plus people came into the organization in that timeframe from Oxford Biomedica Solutions and you are correct to say that there is a premium to be paid for the scientific expertise that you get in Boston, but that premium is well worth it because some of the best operators in cell gene therapy are in that hub, which is why the premium is there.
And of course, you’re very close to a whole bunch of biotechs, which are being spa all the time from academic institutions and venture capitalists. And it really is the center, especially the AAV world. So it’s the right place to be to attract the best talent and to be close to customer. And our commitment is to move forward in a sustainable way in both parts of the business. The Boston business of course has its own plan, which we’ve outlined, and the Oxford business, the business that remains the core.
We are committed to making sure that that is sustainable and has appropriate starting levels in order to meet the demands, both from our customers and to continue to innovate in a way which keeps our lead. Because we’re an innovation led CMO and this is the lifeblood of the business. So, we are working hard on internal measures to make sure that we are fit for purpose to face into the market with the revenue opportunities we see in front of us in 2023 and beyond.
Operator
We will now take the next question from James Orsborne from Stifel. Please go ahead.
James Orsborne
I’ve got three, if I may. Firstly, now you’re four months into the OXB Solutions venture. I understand you have 25 million guaranteed in the first 12 months from Homology. I just wondered going, looking forward into next year, what are your expectations from going forward, and is there any commitment from Homology on the revenue side at this stage?
Rob Ghenchev
Yes. So, I mean, you’ve correctly said that those revenues contracted for the first 12 months post-acquisition, and that was the commitment that was made at the time of the acquisition. I mean, when we look forward to our partners at Homology, what we can say is that the team at Oxford Biomedica Solutions are uniquely placed to serve that customer, having worked for them and with them for the previous five or six years.
So, in terms of the ability to serve that particular customer, there is no one in the world like it. So we are very confident that Homology as an organization moving forward under new leadership now. And it’s we expect it to be a considerable customer for the foreseeable future.
James Orsborne
And just following on from that and I just wonder if you can give any more color, on the initial demand you’ve had, with the AAV platform coming online. I know you’ve mentioned about having two deals, by the end of the year, you’re remaining confident in that or even perhaps exceeding your expectations?
Rob Ghenchev
James, I remain — we all together remain very confident in the ability to achieve that goal and that commitment. And then, we’re always welcome if we can do more, but at least what we want is to be able to deliver on what we have committed, that’s what we have committed to new customers by the end of the year. And we have already won, as you mentioned, four months through this transformation from just a manufacturing operation for a company into a state-of-the-art innovative CDMO in the AAV space.
James Orsborne
And then just finally on CapEx with the expansion of the Oxbox facility, how’s best to kind of look at that going forward? And you mentioned around sort of having maintenance CapEx for this year, will it be ramping up significantly in the years to come?
Stuart Paynter
I mean, it’s obviously a fully funded project through the investment with Serum Institute. And we are continuing to collaborate with Serum on a number of different topics including taking best practice on design of flexible, large volumetric, advanced therapies, manufacturing space. But of course, the board needs to be told that as an investment and the board will pull the trigger when the market demands that it should do that.
So, I think we’re in a great position, we have a world-class facility completely up and running with full finish. We have the ability to extend that facility as we see the market extend out in front of us. We are funded to do so. It’s a pretty enviable position to be in. But for the rest of this calendar year, we don’t expect large chunks of CapEx on that program.
Operator
We’ll take the next question from Joe Pantginis from H.C. Wainwright. Please go ahead.
Joe Pantginis
Earlier Rob, you made a, what I think is a very compelling statement with regard to CDMO scheduling not only in the U.S., but abroad as well. And that is the issues with CDMO scheduling and clients turning to you in panic. So, how I want to ask the question is the following. So first, obviously, that’s a very compelling way of customer acquisition. And I was hoping you can comment with regard to the backend with regard to customer retention because it’s not like they can just turn away from you because a slot opens up at their current CDMO. So I think that’s actually pretty promising. I’m hopeful that you can confirm my thoughts.
Rob Ghenchev
I think your thoughts are broadly — I mean, our customers are free, but I think it’s a good KPI of the robustness of our ability to deliver and satisfy our customers need is in the customer retention. And I’m pleased to look at the almost 10 years with Novartis is not too selling. So and they’re clearly a large and demanding customers issuing. So I think, once we’ve — and the key draw behind that is again the fact that we innovate all the time. So, if we — and it’s both in the [IV] and AAV space.
Stuart mentioned in the and Kyri commented that the fact that you continue to perform better than your competitors, and the posters from our colleagues in Boston on AAV at the American Society of Cell & Gene Therapy mentioned that there was a poster from a competitor that was bragging about the title and our titers were higher. So, if you continue to innovate and beat the competition from a performance standpoint in terms of innovation, customer retention follows and if, of course, if we deliver for that customer.
So I completely agree that the customer acquisition is probably the best predictor. And that’s why I’m thrilled and excited about the 70% increase over a year ago because that’s the key. It takes a while, takes a long time, but once you have them you have them.
Joe Pantginis
I appreciate the color. Please Stuart
Stuart Paynter
Kyri, go ahead.
Kyri Mitrophanous
Yes, so I was just going to add. So, Joe, one of the issues that we have found is customers with other companies when they hit a wall, when there is an issue, maybe they’re not getting the, looks good on small scale then they go to larger scale, and they don’t get the titles or the quality that they’re after. Unlike others, we are able to dig deep use the technologies we have developed to try and understand what the issues are and how to fix that. There these various problems.
So, we often find is not just sort of lack of slots or availability of analytics and so on. It’s also having that ability to solve the problem that clients are encountering these complicated therapies. I think we’re at the beginning of turning cell and gene therapy into a routine manufacture and manufacturing process, there’s a few years away.
So, we’re still at the stage where each new product has its own idiosyncrasies that we have to deal with and Oxford Biomedica because of its expertise in other areas is able to provide a lot of that analysis and solutions. And then, when we do get a customer and because of that, and hopefully, they’re pleased with the outcome there they as you say often, they don’t move on.
Rob Ghenchev
Thanks Kyri for clarifying.
Operator
We’ll take the next question from Alistair Campbell from RBC. Please go ahead.
Alistair Campbell
I got three questions. That’s okay. First of all just on Novartis and obviously still a very important partner. And I’m very encouraged to see you talk about a continued strong relationship, but just, obviously, that’s a company where you’ve had significant changes in the research and development organization in the last six months. So just kind of a confirmation that you’re still having very good strong relationships post those changes and perhaps post some reprioritization on Novartis’ R&D unit?
Secondly, in terms of your strategic options for externalizing funding, I just get a sense of what you’re hoping to achieve. Is this simply getting some expenditure off your P&L or actually hoping to get partners or a partner who’s willing to invest much more than you’re currently investing alright and maximize the value of that portfolio?
And then finally, they’re not an area of expertise for me at all, but in your early discussions on sale leaseback, if you had any kind of initial indications of what we should be thinking about in terms of rental yield?
Rob Ghenchev
So, I’ll answer Novartis’ question and then let Stuart answer the two questions. So, yes, I’m pleased to say that the relationships Novartis continued to be very strong at all level.
And yes, there is change, but over the last 10 years there have been quite a bit of change in the Company and the keys to continue. I think some of the people based in Boston leaders there remained absolutely the same and Kyri maybe you want to provide also more colors. But on the — since you are much closer than me, I’m quite close at the top, but we are not doing the job at the top. It’s just — and it goes smoothly, that’s all.
Stuart Paynter
Yes. So, we’ve worked very, very well with Novartis. We carry on working with them. We’ve worked on multiple programs and we have an excellent relationship with them. There’s a lot of synergy. There’s a lot of co-development. The teams know each other very well. So, yes, that relationship is going very strongly.
Kyri Mitrophanous
Okay, Alistair, hi there. Great to speak to you again. So, on your second and third questions and on the product side in terms of the external funding, I think we are ultimately flexible. The goal here is to significantly reduce the level of spend that as that we’re putting through our own P&L to make it clear to the wider community, the market, what an innovation based CDMO looks like.
We’ve doubled down obviously on that part of the business with the investment by Oxford Biomedica Solutions. And so, that’s not to say, I mean, I hope we made the point clearly in the presentation, we’re super excited about the potential of those products. And actually, there’s some really, really strong funding going into things like in vivo CAR-T and lenti delivers a really interesting systemic approach here. Kyri outlined could be a potentially curative where some of the AAV approaches are sort of re-dosing regimen.
And think of it in such a way that we want to retain that long-term economic interest through maybe some sort of investment vehicle, but really not be carrying that P&L burn ourselves. We’re not frightened making a commitment to that investment vehicle, both in terms of technologies, people potentially a share. But we are looking for great partners to be able to accelerate both the funding and the time to push these forward.
Because like I said, in the presentation, the calls on capital between innovation based CMO and product just means that there’s always going to be a call on capital between two very different risk profiles. So, if you are — if you have a special purpose vehicle, which has that its core developing those programs, then it gives them the best chance to succeed and we need to give them the chance to succeed the patients.
On your third question on say, leaseback, we are pretty progressed through a process. We are very confident that we can exceed, get offers excess of £55 million going forward. And of course, what that will mean is an owned asset that becomes the least asset. And we’ve made sure that we are going to end up with a market rate, which is appropriate for paying rent to the U.S., we refer that as the value that’s essentially.
But it will retain full flexibility to do what we need to do in that facility. So it should be completely invisible to staff and everyone else. But it should just be a nice way of generating income on a one off basis, of course. But in these markets, making sure we’re maximizing the capital structure of the business is very important.
Kyri Mitrophanous
I think we’re running out of time, but we’ll take one last question.
Operator
We will take the last question from Soo Romanoff from Edison Group. Please go ahead.
Soo Romanoff
Thank you for including me here. Congratulations on the first half performance. I just have a quick one. I think we’ve touched on this a little bit. But I believe your close partnership with your customers is really highlights your specialized expertise and key assets. As you increase engagement and stickiness perhaps this offsets any funding concerns and maybe can add some context around that on the engagement or differentiated sophistication?
Rob Ghenchev
Stuart, do you want to take that?
Stuart Paynter
Yes. Sure. So, we are always looking at making sure that we’re optimally structured for facing into the market and being able to invest in those areas which need investing in. I think, in this presentation, we’ve made sure that we push forward that innovation is key to us. Customer acquisition and making sure we’ve got capacity for our customers is key to us. And obviously, cash and funding is key to us. And we’re in a very privileged position in that we have four available source of funds. We have debt and equity, which is available to anyone who’s listed, of course.
And then we have customers which can form a key part of our capitalization strategy, both in terms of license fees and ongoing revenues and income. And then, we have the ability to produce income and a one off basis on things like say, leaseback. So, I think the bottom message here is that, we will continue to make sure we’re optimally structured for capital and to progress the mission and the strategy. And we will keep on being customer centric and making sure that we capture and maintain customers, so that we can share the economic benefits of their programs in and what we bring to the party in the most optimal way.
Rob Ghenchev
Thanks Stuart and thank you Soo, and what again Stuart mentioned is that we are probably much less capital intensive than other CDMOs but more R&D intensive than other CDMOs.
But we are — this concludes sour presentation and Q&A for the half year result of Oxford Biomedica and thank you for your interest. And hopefully you can share the excitement about the potential of Oxford Biomedica in making the difference in the cell and gene therapy space.
And hence for you and for shareholders, superior returns and long-term profitable exciting growth. So, now looking forward to updating you in the second half, thank you.
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