ProMetic Life Sciences' (PFSCF) CEO Pierre Laurin on Q2 2014 Results - Earnings Call Transcript

Aug.15.14 | About: ProMetic Life (PFSCF)

ProMetic Life Sciences Inc (OTCQX:PFSCF) Q2 2014 Earnings Conference Call August 15, 2014 11:00 AM ET

Executives

Pierre Laurin - President and CEO

Bruce Pritchard - CFO

Analysts

David Dean - Cormark Securities

Neil Maruoka - Canaccord Genuity

Doug Cooper - Beacon Securities

Alan Ridgeway - Paradigm Capital

Roger Benson - Number One Corporation

Barry Taylor - Webco Management

Operator

Good day and welcome to the ProMetic Life Sciences Inc’s 2014 Second Quarter Financial Results Conference Call and Webcast. I would like to introduce Mr. Pierre Laurin, ProMetic's President and Chief Executive Officer; and Mr. Bruce Pritchard, Chief Financial Officer. For your information, the presentation will be followed by a question-and-answer period. You can ask questions in the language of your choice.

I will now turn our call over to Mr. Laurin.

Pierre Laurin

Thank you very much and good morning everyone. We’ll follow the usual process here having Bruce first review the financial highlights of the quarter and the first six months of the year, before we update our shareholders and analysts on the progress of the Company. But before we do that, there would be usual Safe Harbor statement has to be made as this presentation does contain forward-looking statements about our objectives, our strategies and our business that involves risks and uncertainties and that disclaimer is presented on slide two.

On that note I will pass the baton to Bruce for the financial results of the second quarter. Bruce?

Bruce Pritchard

Thank you, Pierre and good morning ladies and gentlemen. I’d like to ask you to move to slide four in the presentation. And I just want to remind listeners that this part of today’s webcast is based on the financial statements for the quarters ended 30, of June 2014 and 30, of June 2013, which have been reviewed by Ernst & Young the Corporations auditor as well as on the audited financial statements for the year ended 31, December 2013. All of these statements have been prepared under international financial reporting standards and additional annual financial information for the Group can be found online at sedar.com.

All sums in today’s presentation are in thousands of Canadian dollars except for the past share or if we otherwise indicated.

So, if we move to slide five, and before getting into the details of quarter results, I wanted to provide a few highlights for the quarter, each of which I’ll expand upon in turn during the remainder of the slides. So revenue for the year-to-date is $10.1 million, up 5.2% on the same period for last year. Research and development costs have increased in line with the increased activity involved in bringing products from both and our plasma derived and small molecule therapeutics businesses to the clinic. It also reflects the price and cost of NantPro are now consolidated into results of ProMetic since we took control over that entity in the quarter.

I am reporting this quarter a net profit and sort of year-to-date the net profit of $14.8 million. This has been generated as a result of the NantPro transaction I have just mentioned. And specifically from us recognizing the devaluation of our investment at the point of change for being an associate venture to one over which we had control.

We’ve undergone a comprehensive exercise with the assistance of a professional firm of qualified independent evaluators to determine the value of the NantPro business. This exercise is substantially complete and the final report remains outstanding, which is why we describe the current accounting treatment is preliminary. At this stage though, the Company is confident that the final valuation will be at or slightly above the levels included in these financial statements. Accounting standards give us up to 12 months to finalizing accounting treatment for this type of transaction that we’re aiming to finalize it within the remainder of 2014.

The valuation process itself is involved triangulation exercise or reviewing internally and independently generated DCF models as well as comparing the results with market data such as analyst reports. Notes 2D and number three to the financial statements provide full details of the accounting treatment.

From management’s perspective, this gain appropriately reflects the significant value secured by ProMetic in getting control on NantPro and specifically the ability to sell IVIG into the U.S. market. IVIG currently represents a market of US$4 billion in the United States and $8 billion worldwide.

Just regarding these gains associated with NantPro the business returned an EBITDA loss of $10 million for the year-to-date compared to an EBITDA loss of $2.4 million year-to-date 2013. This reflects the area of commitment to increase the R&D spend to transfer products as planned and to retain rates to our products for longer before licensing, so that any such deal could be done at better values. To this point, we’ve not seen any licensing activity in the first half but do anticipate delivering license revenues in the second half of 2014. Finally, on this slide I just want to highlight the recent Thomvest follow-on financing of $20 million. This occurred after the balance sheet date and is therefore not included in these financial statements.

So moving to slide six, this reflects my earlier statement the revenue for the year-to-date is $10.1 million, up 5.2% on the same period of last year. The split of revenue is however different. Product sales have continued grow with year-to-date product sales standing at $6.3 million, an increase of $1.8 million or 40% on the $4.5 million reported in the same half of 2013. At the same time, service revenues have fallen to $3.8 million, down $1.3 million or 25% on the $5.1 million reported in the first half of previous year. This reflects both the change in NantPro becoming a subsidiary therefore eliminating any of the service revenues from that entity on consolidation but also reflecting the fact that we sort the amended external service provided to licensees so as to retain more of the value for the future for our own shareholders.

So let me go on to slide seven and some of the key figures from the profit and loss account for the second quarter. And revenues for the quarter were up $4.4 million compared to $5.2 million for the second quarter of 2013 with year-to-date revenues for $10.1 million, up $0.5 million or 5.2% from the first half of 2013. As I mentioned on the previous slide within this has been an increase in the product service revenues, which impacts on cost of goods and these amounted to $2 million in the second quarter of 2014 compared to $1.8 million in the second quarter of 2013.

Total research and development costs have increased over the same period. And as I mentioned previously and Pierre will elaborate late during his section, there has been a significant progress made towards delivering on the filing of INDs for both plasma-derived and small-molecule therapeutics. In addition, with NantPro now part of the Group, the R&D costs of that new subsidiary are also reflected as cost for ProMetic. With this context, research and development costs were $9.6 million in the quarter compared to $4.4 million in the same quarter of the previous year, bringing total research and development cost to $15.5 million year-to-date compared to $7.8 million for the year-to-date 2013.

Administration and marketing costs in the second quarter were $2.8 million compared to $1.3 million in the same quarter of 2013. With that increase reflecting the increase in headcount and associated share-based comp costs of our growing business. Finance costs are higher year-on-year, reflecting the interest in the first -- on the first Thomvest loan. And in this quarter, the fair value adjustment on the warrants associated with that loan and that I’ve explained in previous webcast, actually positive impacted the second quarter of ’13 at $1.8 million due to the reduction in the share price at 30th of June versus that 31st of March 2014.

And finally, we have the two gains, which arise as a result of the change in the NantPro relationship from that -- of associated to that subsidiary. As I mentioned earlier, this is based on the preliminary allocation of purchase price and we expect to finalize that valuation exercise this year but expect the results to remain similar or even to increase.

Year-to-date EBITDA, as I mentioned on slide five, shows a loss of 10 million versus a loss of 2.4 million for year-to-date 2013. That difference is made-up of the additional costs associated with advancing the products to clinic and gearing up the business for commercial launch. So overall, the Group has returned a net profit of $23.4 million or $0.05 per share in the quarter compared to a loss of $1.9 million -- actually $2.5 million or $0.01 per share in the second quarter of 2012.

If I move on now to slide number eight and the key features from the balance sheet at the end of the second quarter, cash stood at 2 million compared to 17.4 million at the end of the year. But I’d remind everyone that this doesn’t reflect the recent 20 million received as follow-on investment from Thomvest, which came in just after the balance sheet date. Accounts receivables stood at 8.2 million, compared to 14.2 million at year end. Within that figure, trade receivables have reduced by 3.3 million, partly as a result of converting 6 million of the NantPro receivable into our equity investment but also as a result of increase in product sales. And since the year end, the loan to InvHealth has also been repaid in full.

Capital assets have risen by 1.4 million, representing mainly the investment in Laval. Trade and other payables are down to 6.5 million compared to 7.9 million at year end, reflecting payments made in the year-to-date. Deferred revenues increased to 1.5 million, which represents the recent upfront payment from Octapharma on their latest PO against which deliveries have not yet commenced.

The warrant liability stood at 11.3 million, and just reminding everyone that that’s a non-cash liability.

The long-term debt provided by Thomvest shown here is 6.9 million will also be repaid by the exercise of the warrants that I just spoken about. The increase in this figure since year end is due to the accretion of the interest on that instrument, and the long-term debt provided by shareholders, which stood at 3.2 million at the end of the quarter and has subsequently being repaid in full after the balance sheet date. Finally, as a result of the gains made on obtaining control of NantPro, the balance sheet has strengthened significantly since year end with net equity standing at $56.3 million, up from $18.6 million at year end. And total assets up from $49.9 million to $129.9 million at 30th of June.

So wrapping up on the financial results for the quarter continue to demonstrate the investment in product development, and the value created by taking control of NantPro, both of which are positive indicators in my view of the potential returns to come.

So, I am going to hand back to Pierre for the forward-looking business update. Pierre?

Pierre Laurin

Thank you, Bruce. Apologize for the fewer here and participants on the call that we just realized that the aversion that was filed on the Web site does not contain the appropriate pagination going forward. But I will give the header of the slide as we proceed to facilitate synchronizing what I am saying with the appropriate slide.

So moving onto slide 10, which is probably showing up as slide 14 on your screen but the header being, PBI-4050 and development timeline that slide simply to indicate that we are totally on target as planned. The PBI-4050 Phase I was successfully completed. And we are very pleased that there was no serious adverse event reported at all even in the highest dose given to healthy volunteers. And then we are now moving to Phase Ib2. But we will update everyone as soon as we have completed various analysis of how best to proceed, and I have few more slides on this to expand on our program.

But suffice to say that we are designing the clinical program to both target appropriate indication but also to generate proof-of-concept data in humans, confirming that all the effect that we have seen in the animal, the early effect but not necessarily the fibrosis effect, but the effect on profibrotic markers, biomarkets in humans both measured in blood and urine and in some cases biopsies could be confirmed as soon as possible.

So, again PBI-4050 timeline on target and moving onto the following slide, which is slide 11, I have expanded here that we are looking currently at two orphan indications in chronic kidney disease, diabetic kidney disease and three indications for which we would move PBI-4050 asset in patients. The first group, I would say, of patients that we would like to test would be done under open label studies and we would monitor the progress of those patients against a very well established disease state baseline. These patients have either a combination of diabetes and fibrosis or very well established fibrotic state. And we believe that in a matter of couple of months, we could already see signs of progress in those patients against their very well established baselines.

With regard to chronic kidney disease and diabetic kidney disease, this would be a trial, a multi-center trial that would be double-blind placebo controlled trial with three arms to two arms on two different doses of PBI-4050 and placebo arm. And the primary endpoint, again, would be to measure the effect on biomarkers for fibrosis and diabetes. Duration of the study would be three month, patient enrollment and duration of treatment for three months. And we will disclose soon the site in Canada and the U.S. that we’ll be participating in this study. I have to say that again patients have already been identified. Sites have already been identified to pursue these programs. So, we’re very, very advanced on the PBI-4050 program. And I will come back with slightly more detail on what to expect in the second half of 2014.

If we flip the slide 12, this is now the plasma derived drugs. Again on target all of them Plasminogen already enrolling the patients. We are not giving the drug yet because we obviously need the IND to be granted but these patients are eagerly waiting to be treated and the sites have been identified, and all lined up. So it bodes well for the timeline on Plasminogen, IVIG in the same position. IVIG we have to wait for some stability data before we can file the IND but on target again to be filed this year and start enrolling the patients as planned this year.

So, fibrinogen we announced just a few weeks ago that we will be accelerating that program and shipping products as of Q4 this year. This is a Pharmacopeia agreed fibrinogen because fibrinogen, as you know, can be used an excipient in many different medical applications. Fibrinogen itself as a therapeutic will have to undergo with some clinical trial, and more to come as this program unfolds but we have already a pretty good idea on how to also qualify fibrinogen as a therapeutic targeting a very well defined condition. But suffice to say that we will start making sales out of the Laval facility manufacturing the GMP product fibrinogen. And there is significant demand for that type of product without having to undergo the regulatory clinical developments.

The Alpha-1 Antitrypsin was already -- previously described as EMR to commence in the second half and the first half of next year, and again on target. And we also maintained two other orphan drugs that will be announced this second half of 2014. So by enlarge both on the small molecule PBI-4050 and the plasma derived program, on target and actually with some pleasant surprise with fibrinogen was accelerated by six months.

If you flip to the other slide, which is labeled 13 correctly, this one, the global plasma business is exceeding 15 billion in annual revenue as of 2013 stats. And you can see IVIG was almost half of those revenues and about 4 billion in the U.S. alone. So, no need to dwell more on what Bruce already expanded. It has affected our short-term revenue, but I think it’s a safe step to move forward with a larger lion share of the future revenue for the IVIG product that we’re advancing. But slide has also meant to show the tremendous growth potential of the orphan drugs coming out of plasma.

C1 there stands for C1 Esterase Inhibitor. Global revenue of C1 Esterase Inhibitor range to about 450 million now in revenue, and again people have noticed the acquisition by Shire of ViroPharma who sell their C1 Esterase Inhibitor acquisition at $4 billion, 10 times sales. So significant growth potential and value creation with the orphan drug that can be derived from plasma and permitted using its platform technology intends to bring both the orphan drug to market, as well as economically yield advantage or process, providing safety feature advantage on some of the commodity products such as IVIG. So exciting time, balanced business plan, because launching -- improve, call it, super generics is less risky, plasma derived protein has a very clear regulatory pathway and provide an extremely interesting risk reward ratio.

Slide 14, which is not labeled 14, but on the top is in summary and the key development regulatory milestone. I want to review with you we what we successfully competed in the second half, on the first half of this year, and what we anticipate in the second half of this year. So on PBI-4050, as you know, our Pre-CTA meeting with Health Canada led for a complete understanding of what to do next until this clinical program. We’ve scaled up PBI-4050 and manufactured GMP products. And we were granted green light to proceed for our Phase 1 in Canada. And we completed that Phase 1 with no serious adverse events. In the mean time, we’ve been preparing for Pre-IND meeting with the FDA for the proposed Canadian and USA multicentre trial for the chronic kidney disease patients. And we foresee enrolling those clinical sites and filing the IND and the CTAs in Canada and the UK, and INDs in the U.S. for those Phase 2 studies and commence the patient enrollment this year.

We also expect to have orphan drug designations for PBI-4050, as we proceed. I mean, PBI-4050 has composition of matter patent protection already issued in U.S. with several other patents being layered on top of the original one already granted. But the orphan drug designation is not so much to provide market protection, but more to crystallize clinical a regulatory pathway with some indications that we find extremely interesting for a drug like PBI-4050, could most likely accelerate the commercialization of PBI-4050.

Plasminogen, well, successful Pre-IND meeting with the FDA to agree on both the clinical regulatory pathway in the manufacturing process, we’ve scaled up the product and process. We manufactured the GMP product and the package for the IND has been prepared. And we already started enrolling -- recruiting the patients and screening the patients along with the principle investigators. So in the second half, the IND filing for the Phase I, II, III and patient enrollments are the milestones to watch. And as expressed before, on target, to be in a position to file our BLA next year and hopefully commercializing Plasminogen in 2016.

IVIG, the Pre-IND meeting is well successful with the FDA. Agreement again on the clinical regulatory pathway in manufacturing process, we successfully scaled up the process and the product. We’re preparing the IND package, again started enrolling the sites, preparing the principle investigators. And again, just like Plasminogen but slightly, tracking slightly behind in terms of timing. IND for bioequivalence trial, this time this is a non-inferiority trial Phase I/III and patient enrollment. Again good timing for us because lot of patients available for our trial and bodes well for us adding the projected timeline for a BLA filing early ’17 launch late ‘17 early 2018.

On the following page, so looking at fibrinogen where, again third product successfully scaled up. Manufacturing GMP batches and preparing the technical specification such that we can launch this product for use in medical applications. Fibrinogen is used to harvest and culture stem cells. It’s used in wound healing products. It’s used in hemostatic bandages and various delivery systems. So, use for that product is going to generate some revenues for us. And as I explained before, we will be also looking at ways to receive a license for a therapeutic use for fibrinogen as well.

Alpha-1 Antitrypsin, on the case of Alpha-1 Antitrypsin, what’s interesting here is we wanted to make sure that as we make Alpha-1 Antitrypsin, we do not unduly affect other orphan drug candidates. And that was successful. We are now in a position to be announcing those orphan drugs that will follow on. And we are now in the preparation of the technical dossier to hold pre-IND meeting with the FDA. And this should happen in the second half of this year. In few from months from now, we’re again, just like the other product, we’ll go through with the FDA on a process, the regulatory pathway, and this program should start as planned in Q1 this year.

And finally the orphan drug, we maintain with even more confidence now because of what we’ve been able to achieve in the first half that we will be announcing two additional orphan drug candidates. We’re already in the preparation of technical dossier. There is some fine tuning to be done here before we disclose them. But expect again disclosure of those two new orphan drug candidates in the coming weeks, months.

So, the outlook, again for the second half of this year, also include slide 16, which only shows in the bottom of your screen on unfortunately 44, that will be corrected. But partnering deals as we explained before, we had to take some -- make some investments and allow and invest ourselves in scaling up and advancing those products such that the partnering deal could be more lucrative. And these deals are not just done to provide financial contribution but also deals that provide ProMetic with improved access to some markets for both, orphan drugs and emerging markets for some of the commodity products but also, and very importantly, additional manufacturing capacity. So, all of those at term sheet level right now some of those will obviously close this year and contribute both strategically and financially.

I would wrap the last slide, before we open the floor to questions, to remind everyone that we’re really well on our way to develop and focus Company with some products, exciting products, proprietary -- either proprietary because they are patented and patent protected, like 40-50. But also our process has created proprietary barrier to entries to some of those promising plasma derived products. So that, as you can see, you’ve seen that slide before. But it’s really clear now that we have a strong pipeline of products meeting unmet medical need in the area of pulmonary disease, liver, kidney and some blood disorders. So look forward to progress with this and create what will gradually be known as a very, very focused specialty pharma with a strong pipeline and revenue growth. Exciting times gentlemen.

So opening the floor operator for questions, at this point in time, thank you.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of David Dean with Cormark Securities. Your line is open.

David Dean - Cormark Securities

Good morning everyone. Thanks for taking the questions. You mentioned that you’re going to be looking at biomarkers for 40-50 going forward in the next couple of trials. I wonder if you could tell us what those might be, which ones are you thinking of?

Pierre Laurin

Good morning David. There is consensus in the medical community that there is well defined pro-inflammatory and pro-fibrotic biomarkers, and they will include the standard one such as proteinuria, creatinine, but also involves now NCP1 in urine, involve IL-6, monitoring of various cytokines such as CTGF, TGF-beta and all kinds of other cytokines that are known to be up-regulated during pro-fibrotic phases and evidencing when that something is wrong with the patient and that there is disease progression.

That, in itself, is not enough to secure licensure. One will have to do a longer term study to show that the effect in the targeted organs is actually met with some evidence, some clinical evidence biopsy evidence. And this is why that these phase are usually to prove the point that what we’ve seen in animal, which first manifests itself with the appropriate movement of the biomarkers in the first weeks of treatment and it’s followed in the animals with confirmation evidence of efficacy with the improvement of the organ functionality and histology and so on. Of course you cannot do histology in human, so we have to rely to other techniques. But already showing that the biomarkers would be moving in the expected directions, will bode well to confirm that the drug is likely to provide the same benefit in humans that we’ve seen in numerous animal models.

There is also significant effect of glucose and that also is a parameter that could be observed in the matter of weeks. So, if we start seeing the glucose moving in patients that are diabetic in the matter of weeks then obviously you can imagine that that will confirm as well again translation of data from animal to human. So, these are the type of early monitoring that we’re paying more attention in that service to proceed to.

David Dean - Cormark Securities

And do you anticipate that the orphan indications will look at the same biomarkers, or is it going to be a little bit different?

Pierre Laurin

No, same biomarkers. Except that, as usual, when you talk about a specific orphan population, the attitude of the regulators is somewhat different. And you can expect not that it’s not a collegial relationship but usually with the orphan situation there is more eagerness to actually accelerate the program for extremely needy patients. So, we look at some of those orphan indications very favorably because they are well monitored by specialists. And therefore you can little bit more rely on strong data pack for baseline. Again these would be at preliminary studies but they could perhaps give us an answer in terms of efficacy much sooner because they are open label.

David Dean - Cormark Securities

Okay. And on Plasminogen, do you have all the drugs supply you need to start dosing?

Pierre Laurin

Yes, both for IVIG and Plasminogen, the drugs are in the vial and they are ready to go.

David Dean - Cormark Securities

Okay. And is there any FDA inspections of I guess specifically Laval plant in the near future?

Pierre Laurin

No, usually inspection is triggered by the announcement that we’re filing a BLA then you have the near BLA, post-BLA, pre-BLA inspection. So, we could expect a visit next year.

David Dean - Cormark Securities

Okay. And just some clarification of something bet around getting ready for enrolling of the Plasminogen trial, it sounded to me like you’ve started screening patients. Did I misunderstand and you started to enroll patients in that or are patients actually being already screened waiting for those?

Pierre Laurin

It is an interesting question. And again it’s something that is somewhat different than when you are dealing with a new chemical entity. We’ve been interacting very closely with patients association, principle investigators, patients, parents of patients. And upon announcing that maybe a life changing solution is available, it’s quite clear that all of a sudden the so called screening of patients have started much earlier than usual. So, we already know. We’re going to be in the trial, they qualify. You already have a good medical history package. And the treating physicians are the principle investigators. So, all of that is facilitating the progress of the program.

In the case of IVIG, again, we’re required to do a bioequivalence trial in primary immunodeficient patients. Again very well defined, very well identified patient group, working closely with the usual clinical sites that perform those studies. So, we’re not reinventing the wheel on that one. And again, we usually rely on the pool of patients that will voluntarily participate in those patients, and those types of studies. So, it’s a bit different than when you deal with a new chemical entity, like PBI-4050.

David Dean - Cormark Securities

And last question from me, how soon do you think you are going to -- when do you think the IND is going to be approved for Plasminogen? It sounds like Plasminogen, and that will be first, right?

Pierre Laurin

Yes, Plasminogen will be first. We, like most companies, will typically announce when either hearing is granted and/or when the first patient enrolled, or administered. I think that we’ll probably have to adopt a rule of engagement here that applies to every product. But again if there was anything wrong we would have to disclose it so, so far there is nothing wrong. We’re on target on all fronts.

David Dean - Cormark Securities

But if you were to would kind of put a ballpark on timing of that what would you say?

Pierre Laurin

Well, we’re looking at September for Plasminogen and October/November for IVIG.

Operator

Your next question comes from the line of Neil Maruoka with Canaccord Genuity. Your line is open.

Neil Maruoka - Canaccord Genuity

Thanks for taking the question. A lot was accomplished for the first half of the year in advancing your plasma derived therapeutics towards the clinic and that was evidenced by the higher R&D spend, but looking forward towards starting beginning to enroll patients into the trial for Plasminogen. You’d expect that your R&D spending is going to go higher. Can you comment a little bit around the directionality of our your R&D spend over the next few quarters? Because it was a bit higher than what we were expecting even with the additional R&D spend on IVIG. And what other steps can you take to reduce that spend or are there any other top-line mitigating factors for your overall spend?

Pierre Laurin

Right, I’ll start first from the operational angle and Bruce can add to the financial treatment. But one thing is for sure, when you enter into clinical program, I would say that you have two big buckets, two large buckets of expenses and they’re almost equal. The first bucket is generating your GMP clinical trial material. Now that costs money because it all relates to your IND filing, all the package to safety and the plasma you need to buy and the manufacturing costs thereof. All of that goes into the bucket of the clinical trial. The clinical trial per se after that is, of course investigators, CRO reports, statisticians and so on and we don’t incur anymore of the clinical trial manufacturing of the product.

So, I don’t see the overall clinical program costing more. It’s more like you’re now changing one bucket to another bucket in terms of cost for those programs. There are again low number of patients and in the case of IVIG, we clearly identified those costs have been spread over 2.5 years. So, we’ve almost incurred more cost if you are prepping and generating all the necessary material for the entire clinical trial. So, it’s difficult to say, maybe Bruce can expand on that but it’s obvious that as we get into ‘15, ‘16 and you sort of having orphan drugs and other products adding up that the clinical program will be more significant. But in ‘14 and ‘15 this is not like significant increase of cost. Bruce you want to add to this?

Bruce Pritchard

Yes, I mean I think specifically on the point that Pierre just raised about the materials, Neil, when we had NantPro as an associate, we were able to manufacture product and hold it as an inventory item and when NantPro became a treasury company, the inventory is not something that they sold to third-party and we ended up having expense over the quarter. So, all of the costs associated with preparing that clinical trial material have now hit the P&L and have taken the hit in the quarter rather than being spread over the life of the trial. So, I think Pierre is absolutely right, what we have got going forward into the second half of the year are actually beginning to see our own cost of running the trial rather than material. So, like Pierre, I do believe that we will see a significant increase. We gave some indications I think in the presentation at the AGM of the overall likely costs for the trials are for Plasminogen and IVIG and I think we still standby those figures, having the rough spread of them as well.

Pierre Laurin

And just to wrap up on the comment you made, Neil, there is obviously top-line contribution to be expected heading into second of this year, resulting from business development activities related to those products, right. So, that’s also another way to basically upset the cost going forward but without losing value.

Neil Maruoka - Canaccord Genuity

And are those sources of revenue included in the projection in your MD&A that you have sufficient funding to operate the business for the next 12 months?

Pierre Laurin

Bruce, you want to comment on that?

Bruce Pritchard

Yes, that’s right I mean of course going through self analysis is two things, I mean obviously we look at it from the point of view of foot to the floor and best case scenario in which case these are all in there. We also look at the worst case scenario of what happens if these revenues don’t come to fruition what can we do with our existing cost base and the cash that we have on hand in order to be able to maintain going for same runway which is 12 months from this base. So, we look at it from both angles but from our perspective we believe strongly that those AG revenues are going to come in. We are going to keep our foot on the gas in terms of those R&D programs and keep the momentum on those programs.

Operator

Your next question comes from the line of Doug Cooper with Beacon Securities. Your line is now open.

Doug Cooper - Beacon Securities

Hi, good morning guys. Just starting on the revenue line, the product sales in particular, can you talk about how many clients generated the revenue in the quarter?

Bruce Pritchard

I will take that one, Pierre, I mean Doug, the product sales come obviously predominantly from the bioseparations business and there are the major clients in there and Octapharma is one of them and that’s well disclosed. But there are many others, I mean probably in the region of 10 to 15, varying in size from the larger ones like Octapharma then small guys laundering research, batches of products.

Doug Cooper - Beacon Securities

Right, so I’m just trying to get the handle on what do you think the potential growth from that is? Because we haven’t actually seen much year-over-year growth in that really to-date, I mean as we’re coming off a the small base obviously but how many of those clients have approved regulatory approved product that they are in the reorder phase for and how many you can think will be getting there in the next 12 months?

Bruce Pritchard

I think if my memory serves me correctly, we’ve got 14 or 15 that are approved with 20 or more are in the process of approval. They are all very different scales, so from the big orders that we see coming through on a sporadic basis, those are products which are now approved and on the market. And we are starting to see those beginning to normalize and some of the challenges that we’ve got is of course with these clients. They build up a pre-launch inventory of their product and until they getting their product on to the market and start to see the how it performs. They are getting cautious about their own inventory of materials. So, we’re still in that phase with some of them, so it’s a bit early to predict year-on-year however we’re going to see those panning out but we certainly expect to see some of those beginning to reorder in the next few months.

Doug Cooper - Beacon Securities

And I think just looking back to the AGM, I think the revenue guidance for the company was in the range of 40 million. I mean are we still comfortable with that level? I’m assuming bunch of that is license revenue but do you expect the ramp up in product sales as well in the second half?

Bruce Pritchard

Okay, I was just going to say, I think if we look at the straight line of the revenue illustrated at AGM that was fairly kind of even split of product service license revenues. And the product revenues we would anticipate seeing running at broadly similar level. And as we move forward through the rest of the year, service we may see, we’ll see a bit of service but that’s not going to grow, I mean obviously a lot of the initial service revenue that we have in the first part of the year was based upon having NantPro as an associate to be able to do the revenue. Obviously those services internalize, you will see that. So, by definition that is absolutely licensing revenue in the forecast. I think it’s fair to say that based on the trials negotiations that were out with the number of partners, we believe that there is a good chance of bringing in revenue from a combination of those that will get us close to the guidance, who will be at the bottom end or the top end of that 5 million to 40 million range. I guess it will probably be more at the bottom end but at this stage basically where there are active negotiations, we feel fairly comfortable that we’re going to get there. And obviously with risk, it takes piece of tango and close the deal, so as such we are kind of at the mercy of those third-parties in closing the deal and getting it until the timeline. But as I said as we stand right now, we are still pretty confident about that.

Doug Cooper - Beacon Securities

And just one other, I mean actual products of margins was a 34.8% in the quarter, is this just a volume scale, I would have thought product margin in the past has been as high as 65 is pretty volatile but is there a volume thing that?

Pierre Laurin

Yes, you’re absolutely on the money it’s exactly that, I mean we’ve had a heavy emphasis in this quarter on sales of products which are lower margin than some of the others that we’ve seen in the past. That is something that the volatility in that moving, I don’t know, over time as we beginning to get more regular orders all of these things.

Doug Cooper - Beacon Securities

Okay, but moving on, just you mentioned NantPro being valued in the quarter, license and I guess intangible assets went up by 100 million in the quarter but what was the valuation, because I don’t have a notes in front of me, what was the valuation, internal valuation for NantPro piece?

Pierre Laurin

Yes, so the valuation is reflected in these statements was $99.5 million and so that increase in the intangibles is entirely related to the NantPro transaction.

Doug Cooper - Beacon Securities

Okay. Remind me how much of the NantPro you offer for now?

Bruce Pritchard

I got the balance sheet data about 71% or thereabouts.

Doug Cooper - Beacon Securities

So, for NantPro the actual piece will be guided at 141 million give or take and this is, obviously you haven’t filed the IND in this business yet.

Bruce Pritchard

So, the value that we take because it’s a subsidiary and because the whole thing is about 99.5.

Doug Cooper - Beacon Securities

Well that’s inclusive of everything.

Bruce Pritchard

The whole thing, yes. And as I mentioned in the webcast, we are almost there but not quite finished with the valuation in this phase yet, few eyes don’t teased across and so it’s possible that we will see that move up a little but I don’t have specifically that in the way but that is possibly somewhere upward on that.

Doug Cooper - Beacon Securities

And so, who did the valuation?

Pierre Laurin

We’ve used an independent firm at this stage until we’ve got the final report. I think it’s probably not appropriate to name them publically but it is a reputable accounting firm of significant size and their chartered evaluators have been involved in the…

Doug Cooper - Beacon Securities

Who has a specialty in biotech or healthcare?

Pierre Laurin

Yes, who certainly have some experience in this area, yes?

Doug Cooper - Beacon Securities

And just to circle back on the question of cash, obviously the Thomvest money came in post quarter, you paid back $3 million. You said I think there is no due to shareholders. Where this cash sit now and I guess let me start there, where this cash sit now?

Bruce Pritchard

We’re roundabout the $17 million, $18 million level, that kind of level, we’ve had some receivables in, we’ve paid some suppliers but it’s roundabout that level.

Doug Cooper - Beacon Securities

Okay. And the burn rate in the quarter was about $8 million or $9 million, do you see that getting smaller because of say top-line growth or just the license revenue anticipated in the second half that’s going to help you forward for next 12 months or so?

Pierre Laurin

Yes, I mean that’s exactly it. We are, still on the basis of the comments about revenue and revenue guidance, we are anticipating seeing some cash receipts coming in, in the remainder of the second half, which are going to help offset that burden.

Doug Cooper - Beacon Securities

And I guess my final question is the first half was seem to busy from perspective of I will say behind the tangible evidence, I mean you guys talked about a lot of stuff you’ve done but in terms of tangible evidence to let investors know what’s progressing maybe wasn’t quite as evident to us. In the second half, do you anticipate a lot more news to let investors know how you progressed along the clinical pathway?

Pierre Laurin

Well obviously and I appreciate you picked up on that because some slides really illustrated that you don’t get into patients by just striking the magician hat with a wand, right. I mean there is a lot of work that goes in behind this and we have permitted two things to remember. What has been invested to date is now a proven validated $400 million machine that can come up with a lot of products now sequentially and build an amazing pipeline. And we’ve now, I hope demonstrated that every time we show up in the FDA, it’s been positive. Every time we scale up something it works and it should bode well for other expected timelines and milestone that we foresee.

So when you look at the window, second half it’s going to be news flow rich both from the development regulatory milestone, news flow rich from a partnering point of view. And I completely trust that the revenue mix that we have indicated at the AGM which was almost evenly distributed between milestone license, revenue, service and product will be pretty much inline. More importantly, as we achieve this and we have to keep our eyes on the short term as well but hopefully the street will realize what’s also happening in terms of the growth potential for this company, it’s quite substantial.

Operator

Your next question comes from the line of Alan Ridgeway with Paradigm Capital. Your line is open.

Alan Ridgeway - Paradigm Capital

First maybe just want to start with you because I think I missed it in your answer to Doug. What did you comment on as far as the resin sales in the second half of the year versus the first half?

Pierre Laurin

Yeah, I mean I expect them to be broadly at the same sort of level. We are looking at base revenue and as projected to be in the range of 20 million to 22 million and Bruce saying there has been 10 first half and it should be roughly there, so that’s not far from we know our expected guidance. As you may recall at the AGM, we said there is going to be another bucket of revenue that is a mix of license revenue and milestone payment.

Alan Ridgeway - Paradigm Capital

So, over the last 12, 18 months, you guys have signed and had a number of rather significant products at some of your clients to be approved but really the resin business really hasn’t benefitted from that at least to-date. Can you comment on sort of your visibility into when some of these larger type run rate order flow may start to hit the top-line. As simple as we see Octapharma ramping slightly year-over-year. Last June you announced a partner or a client that would be ramping up to 6 million range, you just announced another type deal similar in size, when will these things finally start to hit the top-line?

Pierre Laurin

Well, I mean a lot of them will start ordering this year for deliver in ‘15 and so gradually the base case of that resin business will see a significant pick up in ‘15 and ’16. Then the other thing that we have not modeled yet for the street to understand is when other facilities that drive PPPS come online then they will need to order a lot of resin, each plant is using a lot of the affinity resin. So as you say and rightly so, some of the big movers in terms of product approve have not impacted yet. There is a particular client that has bought for nearly $20 million work of affinity resin over the past six years or so and received approval and will be buying large quantities as they are lining up their own forecast in launching their products. So, this is not impacted our revenue yet.

So, yes, there is growth potential in the base line business of supplying resin to others and it’s the mix of both that make some very significant downtime protection. We know that those clients now that they have approval, it’s just a matter of time to the get the order in and so on. So, we’ll be updating the market as we proceed. Sometime as you know we cannot disclose the nature and the name of the client but then people can simply follow the progression and track it on a quarterly basis or semi-annual basis. Our reminder as well all of you well know that but there is recurrence in those revenues, I mean a company would buy say $5 million, $10 million order of resin and that will last them a certain number of batches and that can be used in six month period or 18 month period until we have a better idea of the cycle it’s hard to make projections on this but they recurring. So, it’s annuity revenue that is recurring and growing on so far 15 clients, some bigger than others.

Alan Ridgeway - Paradigm Capital

Okay. Moving on then to the R&D line, R&D I think was materially higher than what we’re looking for even when we sort of back out the inventory adjustment. And if I think back to the AGM and sort of the breakout of the cost of some the plasma proteins going forward in 2014, when you look at that sort of $7.2 million ex the inventory R&D spend. Can you maybe talk to some of the other programs that really hit on that line? Was it a large hit from 4050? Was it fibrinogen? Was it orphan drugs, where is that other spend coming from? We clearly missed in our numbers.

Pierre Laurin

I’ll let Bruce expand on the technical accounting aspect of it but the inventory is one item but when you have 40 warm bodies doing something that is useful for the clinical trial but is not invoice anymore to a third-party, it’s not just the inventory it’s just entire cost is in the R&D because the activity of Laval right now for example is to supply and enable the clinical trial. And when you look at the clinical program for an IVIG which is anywhere between 10 million, 12 million, half of that is manufacturing the clinical trial material.

So, what we put for example in terms of spreading the cost over the years where the total cost which include manufacturing, we’ve already incurred that. Now you would be looking only at the cost of running the CROs and the sites which is half of the entire clinical cost. So, we took a bigger hit on the research program both by virtue of having incurred and manufactured those clinical costs and then so happened is in the first of this year. But also in the case of NantPro this is converting what could have been a revenue and to now a full expensed clinical trial cost.

So, when we look at other than those kind of movement and financial treatment we’re on budget. There has been no real deviation from our original plan other than obviously having to fully recognize cost on our P&L. And some of the cost as we explained related to running a bioequivalence trial has now been incurred as opposed to spread over two years.

Alan Ridgeway - Paradigm Capital

Okay. But if I just to clarify, because if I think about what you guys presented at the AGM for each program where you said 1 million this year, 2 million I apologize I don’t have the numbers in front of me as they are laid out for ‘14, ‘15, ‘16, are I now saying that sort of half of that total was actually a ‘14 number and I should take down my ‘15 and ‘16 expectations?

Pierre Laurin

Well the cost certainly as we outlaid to explain to our investors, these are incremental costs, okay. These are incremental costs to run the bioequivalence. In those costs, there is obviously a cost related to manufacturing the product, it would not necessarily be a straight line but cost but a good chunk of it is related to the product as it spread. So, as we have a robust process and the confidence in the product and the stability, you take decision to be more efficient and manufacture at once some material, so it will reduce those costs going forward.

Alan Ridgeway - Paradigm Capital

Okay and then last question from me. So, the Plasminogen IND in the start of this trial seems to have slipped a bit from what you were talking about at the AGM. Can you maybe talk to the timing of that and maybe why it’s taken a little bit longer to get this trial started given some of the commentary at the AGM? And I’ll just leave it at that. Thanks.

Pierre Laurin

Well, split yes or no, we wanted to go in maybe month or two earlier in patients with, call it prototype version out and which would have required to do a bridging study at the end of the trial to show that the finished formulation is equivalent to the prototype, turns out that the finished formulation is now the one that we use for the entire trial and we do not have to do the bridging study. So, it doesn’t affect at all the BLA filing and it reduces any risk of those bridging studies. So, at the end of the day, the product development group outperformed our expectation and came up with the final formulation that is the commercial formulation used in the trial.

Alan Ridgeway - Paradigm Capital

So this final timeline to potential approval is still in line with what you guys have planned sort of all along?

Pierre Laurin

Absolutely.

Operator

Your next question comes from the line of Roger Benson with Number One Corporation. Your line is open.

Roger Benson - Number One Corporation

You guys feel enthusiastic about everything we got going in this company. I’d like to go back to the annual meeting as well, you did Pierre say that you wanted to concentrate on three of our projects and they weren’t the biggest things in the company that’s what you wanted to talk about, they were the first two orphan drugs in the IVIG program and you said that they had the potential among the three of them to, three years from now do about 600 million in revenue annually. Is that still good or have you arranged your expectations now?

Pierre Laurin

Obviously the easiest thing to point to is products that currently have market reimbursement established like IVIG and Alpha-1 Antitrypsin. And for the Plasminogen, we’re using a very modest price reimbursement estimate combined with our resin sales. We still standby these as base estimates. There is obviously other products that will come online between that time and these product launches. So, it really wouldn’t surprise me that our revenue will be actually higher than that, yes.

Operator

(Operator Instructions). Your next question comes from the line of Barry Taylor with Webco Management. Your line is open.

Barry Taylor - Webco Management

My question is on fibrinogen which is coming on the market in the fourth quarter. Where do you figure the annual revenues could be or the market is worth on that?

Pierre Laurin

There are two very good questions. The market for fibrinogen exceeds $600 million. It’s hard to track in a sense that the sales that are reported through IMS or the usual culprit that track those type of sales, usually track sales of the entity and the drug in a vial. It’s hard to make a composite of all the other byproducts that are sold using fibrinogen in it. So our best guess estimate is that the actual potential revenue for fibrinogen product and when you combine the industry, it’s probably closer to $1 billion. Now, I am sure that’s a gauge, our products output capacity on the back of the most lucrative orphan drugs. So on the back of this in an estimate it’s 500,000 liter, fibrinogen could contribute to another $75 million to $100 million to our top-line.

The first sales do not require exact approval, so they would be B2B that is we sell to other pharma companies that then use our material as part of their product. We’ll be examining what is the return on investment to actually take fibrinogen to a simple clinical trial and because the regulatory pathway is already laid out for that we know what to execute on, we’re finishing the numbers. And obviously if we see that sales could be tremendously improved doing this then we’ll add it on to the bucket and that’s another product that could be ready to further impact beyond those levels.

Barry Taylor - Webco Management

Okay, and I know we’re looking at fourth quarter, fourth quarter is three months. So, you’re looking at the beginning of the fourth quarter or towards the end of fourth quarter as I’m trying to think of the impact that might have on this year’s budget?

Pierre Laurin

Well, I would say on this year’s budget I wouldn’t novae my bread on this one we’re not trying to say that this is going to be a game changer for this year. You have to look at this and this is certainly a good question and here is how we qualify it. I think it’s a significant manufacturing milestone to be able to say we have accelerated by six month the market introduction of the product. We will be out there promoting this product as we speak, booking orders and so on. There will be sales in Q4 but I’m pleased to see that there will be a run rate in 2015 and going forward for that protein to top up our overall sales in advance of regulatory approval of the other products.

And that’s what we’re trying to do here is to come up with some products that have revenue mix that contribute revenue mix to further de-risk or perception of any risk associated with the business plan. So, it’s very promising and having the ability to manufacture again higher value products to partners is also in line with our business model. So, it bodes very well.

Barry Taylor - Webco Management

Okay, thank you very much and congratulations Bruce on your position. I wish you luck.

Operator

There are no further questions at this time. I will turn the call back over to the presenters.

Pierre Laurin

Well, thank you operator. Thank you very much for your participation this morning and to very good questions. We look forward to a very exciting second half as you can see with the three development milestones, partnering milestones and this is finally the table turning for ProMetics. So, I look forward to further webcast to update you on deals and our forthcoming quarter performance. Thank you again.

Operator

This concludes today’s webcast. You may now disconnect.

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