Shareholder 2021 Aug - #2 German Interview


Well-known member
Second German interview with Helmut and Dr. Wolgen - Aug 28, 2021
translated by Alexius

1. Intro

Hello and welcome to a new special Youtube video on the subject. We have already sat together a few months ago and generally looked at the topic/the company Clinuvel. And I must say the response was really great, specifically to you personally Mr. Wolgen. Many people were enthusiastic about your entrepreneurial mindset. So I am very glad that you have taken the time again today. Once again good morning to Helmut and good morning to Mr. Dr. Wolgen. I look forward to the conversation.
Dr. Wolgen: Good morning Mr. Johnen, good morning Mr. Rohde. Glad to be here.

2. Interpret financial results, and distribution decision years ago

Also, from my side a warm good morning. We have of course asked around in our community a few days ago if there are any questions from the investor side. We have compiled the most frequently asked questions over the last few days and will now go through them with Philippe Wolgen. The first question is about CUV's result: Yesterday, CUV presented its annual figures, i.e. revenue, earnings and dividends etc. We have also prepared 1-2 slides. The first question is for Philippe: The figures were really very good in terms of sales, earnings and earnings per share. And our question is: Can you explain these results to us a little bit, i.e. the most important figures that were presented there yesterday.

Dr. Wolgen: Very good Mr. Johnen, thank you very much. In order to interpret the quarterly figures from July and the year-end results from 2021 correctly, we need to take a look at the past. Basically, the question is: At what point in time and why the decision was made to either choose/engage a strong distribution partner, or, to structure the company in a way that it can drive the product independently. And this decision in the history of a pharmaceutical company is essential, is existential. This moment is actually peculiar and exceptional. You can say, Mr. Johnen and Mr. Rohne, we have reaped the fruits of the risk decision today.

You focus on one goal for a long time and you have to set up the systems, the company, so that it is able to independently establish and maintain relationships with hospitals and insurers in two markets, Europe and America. And we actually saw that yesterday in the numbers. We have based on that background and that background of the decision to set up a solid team in Europe, set up that distribution to different countries, and we have also set up a team in America in 2019 that takes care of the patients, delivers to the hospitals and independently has the conversations with the insurers. If you had done something different, like hiring a distributor, what would it have been like? This is very relevant when looking at these numbers...and it would look like this: It would involve an exclusive business relationship, usually lasting 5-10 years, concerning one or two regions. Where the pharmaceutical company, which could be Clinuvel, would go into dependency from one day to the next. And that is no guarantee at all that patients will actually receive a new, innovative drug. We made that decision 7 years ago and those results are really reflected as you see in this graph. And that's what we call: The clinical value translated into a financial value and total shareholder return.

3. Performance since 2005, and lessons learned

The next question is also super interesting: Are you personally satisfied with the development since 2005 or would you have done something differently? And if so, what would you have done differently? Was there anything which did not go as planned?

Dr. Wolgen: A company's planning is usually very precise and we stick to our plans very devotedly. But the environment changes and you can't plan for that. So this risk decision that I mentioned before, it was not easy in 2014 and it was not conventional. But after analyses and market surveys, we decided to do it and I've actually never regretted it, even though the whole company was dependent on this decision. Could you have done something else? One could have conventionally either sold the company, at a low value, one could have contracted a license partner with the risk I discussed before, and we chose the third option: To do it independently. That was not common in our industry. That raised a lot of criticism and astonishment in 2014...visibly in Australia. So yes, you could have done it differently, but I'm convinced, I can quantify this as well, that we wouldn't have achieved these numbers had we chosen options 1 or 2. Another thing is: a story was put forward, even though the company had suffered failures during 25 years from 1980 to 2005, and we chose to restructure Epitan and save it from bankruptcy. We could have created a new company with new shareholders, fewer shareholders, but we did not choose that. Yes, it could have been done differently, but on the whole...when Mr. Johnen flew to Melbourne for lunch in 2006 and asked me: This company is going to be worth 1.7 billion on a single drug, is aiming to diversify and is highly profitable, I would not have believed him 15-16 years ago. I am never satisfied, but I am content.

4. Plans for cash buildup… dividends/share buyback/acquisition

I can still remember that, too. I remember when we got to know each other a little better during lunch in Melbourne. I was convinced even then, but two things were learned: It turned out very well, but it also took a little longer. I can still remember the first time we came to the Clinuvel office, there was an hourglass in the entrance area. And there was a timeline on it until when, if you were successful, you expected a breakthrough. And that's when we learned: The breakthrough came, it turned out very well, but it also took a few years longer than planned. These are always the imponderables that intervene in the course.

But today the company is doing very well. It is practically debt-free, it has increasing profits. It is accumulating more and more cash, which is increasing from quarter to quarter. Here's the second question: What are your thoughts on what to do with this cash? The profit in the last year has increased by more than 60%, the profit per share. However, the dividend of 0.025 cents has remained unchanged, it has not been increased by 20, 30 or 40% in line with the profit. What are the plans there? Will there be higher dividends if profits develop positively? Are there considerations to buy back own shares or are there considerations to look for acquisitions and to participate in companies?

Dr. Wolgen: Very relevant question. In three parts:
(Dividend) What do you do with cash and why do you do it and what are the long-term plans? The dividend is a sensitive issue in pharma. My old-fashioned view is that you have to recognize shareholders, short and long term, and we do that with a very moderate dividend. That's really a symbolic way of publicly expressing recognition. But we are talking to different involved, not only to an audience of shareholders. We also speak publicly with health insurance companies, insurance companies. And a company that increases the dividend in the middle of a world crisis is certainly a sign for the health insurance companies that the prices of the drug are too high, and this leads to a conversation between the pharmaceutical company and the insurance companies that the dividend is too high, which would reduce the price of the drug. So you have to have a sensitivity, a rationality, to walk the middle path. And I am very sensitive to that.
(Share Buyback) That also applies to the issue of share buybacks. There are circumstances where that is a very valid tool and it has a certain purpose, but in today's environment where we are, and where the economy and health economy is suffering, I don't think it's appropriate for a pharmaceutical company to initiate share buybacks to drive the price up and maybe give the short sellers an answer. That's not part of the environment and I don't think that's responsible. Although the small shareholders would like that, I think it's a strategy that's not fashionable. Many companies do it, but you have to be able to do it and I can't.
(Acquisitions) Acquisitions is a very good topic. The dedication and focus from the company was dozens of years ago to achieve something that had not been achieved before and that took certain damages to overcome and now that we have done that and are commercially successful, the stage has really broken.....and that should actually be seen like a painting. A painting in three parts. The first stage is really: Can you save and restructure the company and realize and commercialize the product? If you can do that, you go to the second stage. The second stage is diversification and that's either organic or inorganic, we decided to do both. But also in a sequence. And diversification comes from within, so new products, new applications, two markets: one medical and one non-medical. You need a base for that and the base is people, professional experts that you have to hire, integrate. If you do that too quickly, then there is a lack, then you cannot achieve the integration. If you do it too slowly, then the market loses patience. And then, in the second stage, you need one or more acquisitions. And the acquisitions have to be value-adding and have to meet the criterion that we bring in teams/companies that add something that we are missing. And in the third stage, you have to be sovereign and independent, and my goal with this company, which I could have done in exactly the same way in another company, is to be able to manage the company independently and sovereignly without being dependent in the value chain. And this topic goes right to my heart. In business literature and in business schools, it was common for 20 years to talk about globalization...but we have really seen in the last two years that we are very individualistic, very nationalistic, that we are dependent on a region, instead of globalization. The tensions between America and China, between China and Australia, between Europe and makes me think economically that we should also exist as societies independently, autonomously. And that's really the third stage that we're striving for.

5. Expansion Strategy

Very exciting to have this path in front of your eyes. There is one more question: The expansion strategy: Why is this approach chosen and what are the next steps, also in the long term?

Dr. Wolgen: Not an easy story to explain. But that is born of the knowledge of technology. We have specialized in hormones that belong to a very specific family, and these hormones have different applications and properties. If you analyze this in detail, and this does not only need to be done by the company, this happens to the same extent in the scientific environment, then you see what the potential of these hormones are. You don't have to invent it yourself every time. And some of the properties are that it causes pigmentation, that it has an antioxidant effect, other properties are that it can accelerate DNA repair. And we have the mandate to fulfill that, to actually accelerate that. That's in the medical field: that's widely published, that's what other groups are doing in the world, and we're one of the few that specifies and focuses as a listed company. When you take out the sub-parts of the technology and it's been validated once by the authorities, EMA, FDA, Australia, Israel, then you understand that you can use this application, these ingredients, in a large audience as well. In a larger market. From that, a company that goes to a medical level, but also to a consumer level, that's not a strategy that comes only from the people...but it has also been brought in from the technology and the properties.

It's two very different businesses, you have to analyze that, you have to learn from the mistakes, it takes time. As you may have understood in March, we are very risk averse. We want to know first what the risks are, where they are and what we can do to reduce them. And that also applies to the consumer market. We are in the middle of the stage where we are finishing the marketing analysis and with the marketing strategy we have to achieve something with which we can fight or compete with the bigger houses, cosmetic houses. This is a new discipline, you could say. Can you do that with a partner? Sure, but it won't be as successful and profitable if you let the technology out of your hands at the beginning of the chain. So I am very confident. To come back to this topic: Today's marketing doesn't happen old-fashioned on a billboard, it's digital marketing, it's search experts, where you can reach the target groups. And which target groups and why, that's what we founded with the CBM team. With one goal, to optimize digital marketing to drive our consumer products.

6. Scenesse drug pricing

Now let's move on to the main Clinuvel drug in use, Scenesse. Here, Clinuvel is taking a somewhat different approach than the other pharmaceutical companies, because CLinuvel has said that it should have a uniform price in Europe, and then there is a separate price in the USA. The question is: What has been the experience with this, will it be continued? In Switzerland, in general, the drug prices tend to be higher than in Germany, because the purchasing power in Switzerland is also higher than in Germany. Now it has been decided to do this in a different way than most of the competitors with a uniform price? What are the experiences? Are they positive, or do you change something in the future?

Dr. Wolgen: A very good comment. The pharmaceutical industry has actually historically gotten a price for new drugs in every country, and that's assuming that the doctors, the patients, and the insurance companies don't talk to each other. There's a disconnect there between what a business thinks in an open market, how you communicate these days. and what you're supposed to do as a company. In our analyses, in 2012 that started, we had a completely different view: if you want to launch a drug for very specific target groups, and there is no reference, but you know that the doctors are associated in a group worldwide, and you know that the patients are on social media, which we woke up ourselves in 2007, then the communication is fluid. The insurers, they indicated Switzerland, but the German and Swiss insurers communicate with each other. They know that. The Germans the French, the French the do price differentiation makes no economic sense at all in my view. It might be more profitable, but it is not even, not actable and not fair.

It also forces an arbitrage between countries where you actually choose the country where the price of the product is the lowest. Every action has a consequence and we had seen this quite differently in 2014 and we introduced a uniform price in Europe. And the response from the insurers was and is today quite outstanding. They are not used to it, are sometimes suspicious "it can't be like that, Clinuvel is such a black swan", but it works. But it works and I can also defend it. You don't pay the doctors, you don't pay the insurers with discounts, but you have a price and it is quite transparent and you can also find it in the year-end results. In America, we do it the same way. America is a federal country with 50 states that all behave differently, have different health care systems, different insurers, and we do it exactly the same way. A single price for the whole United States. The feedback, the discussion, is very good and it works for us, I don't know if it works for other companies, but I think it's the modern way where you have to be open with a contractor, the insurers. We have never increased the price since 2016, even though the raw materials, the production costs, the supply chain, has increased about between 10.4 and 14.5% in 5 years. But we have....
Helmut: Can I ask a very quick question in between? I can remember...a few months ago you communicated, the prices will be raised for the first time now, right?
Dr. Wolgen: Exactly. After 5 years, on September 01, we will increase the price by 13%.
Helmut: That means in 4 days the shareholders can rejoice. (laughing) And also the company will make more sales.
Dr. Wolgen: Yes, sure...but equally you have to be sensitive that the insurers receive a price increase they don't like. That's navigating between two areas of tension. But we also never exceeded the volumes, the patient volumes per country. We never exceeded the treatment volumes, so we followed exactly the contract terms per country. And with this behavior, I think, you have created a trust in the long term, which helps a company. That's how we see the environment: You say something in public and you stick to it. If you are discovered not to keep your promises or public statements, then you stand weak in a conversation/negotiation. I don't find that plausible. But I understand, Mr. Johnen, Mr. Rohde, it's not common, maybe it's a little different than the other companies.

7. Dr. Wolgen selling shares

Yes, that sounds very fair. I think trust pays off in the long run. With the next question, you've also noticed in the community that people are asking questions very quickly. One has seen that you have recently sold shares and it is of course always the case that people from the outside ask the question: How do you interpret the whole thing now? Is it something normal, is it usual, is it normal or is it negative? I would be very interested in the opinion of you.

Dr. Wolgen: Also a very relevant question...appropriate. Common in listed companies is that the board of directors, the captain of a ship, sells shares every year for planning, family planning, retirement, tax planning. I actually never did that during 16 years, even after FDA or EMA approval. I didn't see any reason to do it. But after 16 years, I thought to myself: I also need to do this planning, but it has no consequence or relevance to the health of the company at all. But after 16 years I did the same measure you can say that I bought three times in the market and nobody made any comment. I will periodically look at it, but my sale has no cause for unhappiness at all.

Helmut: So you can see that the stock market tends to see negative news. When you sell 5 shares, there is a certain nervousness. If you buy a few shares a few weeks before or after, nobody really cares.

Dr. Wolgen: There is very nice literature about it, that gives me a smile. The first authors to deal with this subject were Tversky and Kahnemann, they are two got the Nobel Prize. I find it fascinating stories/books. They were the first to publish Selection Bias. Simply put, you are lucky if you win $50 on $100 and have 150 in hand. One is more disappointed when one loses from $200 to $150, which has the same result. You see in these studies that people are much more disappointed when you lose 50 dollars with the same resulting outcome. The market is not behaving rationally in that sense.

Maxime: When stocks go up, people rarely question why they go up, but when they go down, there are a lot of questions and concerns.

Helmut: I don't think any of us can do anything about that. There will always be such questions when insiders sell shares, then people say: Oh, do I have to worry? Other things you just take without being asked.

Dr. Wolgen: You know, questions are good. Asking means that there is communication. But verbal abuse, vulgarity, that's not part of the environment. But the market attracts that, and when people lose their savings, or have the impression that they're losing it, that leads to irrational behavior...I don't have much time for that.

8. OTC Products and market differentiation

Let's move on to the next question. This is about the future OTC products that will be launched. What makes them different from the previous ones on the market and what will Clinuvel do differently than the competition?

Dr. Wolgen: Yes, a very important comment. The OTC products have been derived from our knowledge and our medicinal molecule. What we have learned from that, we have translated into consumer products. You differentiate on three levels: At the product level, at the target groups and how we market that. I call marketing the most important element of success. A team has been set up, worldwide. The team believes strongly in a strategy, that's also important to say. If you push the development it can be that the team doesn't believe in it. Then you have to stop. You have to have a certain homogeneity in the goals. Then you attract the consultants and the scientists. At the end of the day, if you come to the conclusion that it's a plausible plan, then you have to execute it.

We've gotten to a stage where we're differentiating in product features, target groups, and marketing. I emphasize marketing because there are many products that fail, that do not achieve success in the market. We have taken a different strategy, we have said: Ok, the future marketing will no longer be in the high streets, but only online. You have to reach the target groups. To reach the target groups, you have to have a fairly large population that is somehow affected or interested in the new products. That's actually what you do in modern marketing. You create the market first, before the products come. That's a discipline that we've learned. Because that's how it works with the really big cosmetics houses. That relates to working with influencers, with brand ambassadors, that's a whole new topic. That's how the world is going to behave in the next ten years, and we want to be a part of it. That has to complement the medical products, that's very important. These are not two separate businesses, although the disciplines are quite different. But the two product chains, medical and consumer, belong together. When we're done with the marketing, we'll go through a testing phase and then generously put it into the market. I expect that within twelve months.

Maxime: You can see it nowadays, there's a lot going on Instagram, then there's Tiktok, although for a very young target group...but you can see that a lot of big brands are already starting to do it. I think it's great that Clinuvel wants to go in that direction.

9. CEO contract expiring

The next question is about something where some investors are a little worried. In the 2020 Annual Report, it was stated that your contract expires in June of next year. According to analyst reports, this is also a major risk. What's your take on that, maybe you can give us an update on how it might go there?

Dr. Wolgen: In every company there is the key management personnel, the central figures...founders, families. We ran it a bit like a family since 2005. It is logical that a company is associated with some important managers. I'm consulting with my board about what we're going to do. But in any case, I have a clause in the contract that there is a 12-month period, so there can be no surprises. Whether we continue or not, our task will ultimately be to find a better woman or man. There are always better ones. You also have to be realistic. I have run the company for 16 years and it will continue. My job is to maneuver the company into a position that it will grow. Whether I do it or someone else does it, I don't think it's very important (smiling).

10. Clinuvel in 10 years

Now let's move on to the last question. An outlook - where will Clinuvel be in 10 years? And when we talk about the result of Clinuvel in 10 years, do we still discuss it with you or is the successor built then. (smiling)

Dr. Wolgen: Normally, I think… (I hinted at this in March), I think in Olympic cycles. 4 years I find a prediction that takes hold. The next Olympics. By then Clinuvel should be diversified with multiple pharmaceutical products, with some OTC product lines, new markets, new companies integrated and variable profit centers. So that means the company is generating revenue at different levels. My very big goal is to build the company independently. We are halfway there. That is the four-year forecast. I don't know if I'll still be there in 10 years. I think in 10 years, I would be watching on the sidelines, but not as CEO.

11. Wrap Up

Those were the top 9-10 questions we received from the community. Philippe, thank you very much for your time. We'll see you again in a few months, then. I would like to leave the closing words to Maxime and you.

Dr. Wolgen: First of all, thank you for the second invitation and the opportunity to talk about the company. I find your enthusiasm very much to be appreciated. Thank you.

Helmut: With 5-6 people, yes, we participated in the capital increase in 2006/2007 and we have been satisfied and happy accessories ever since. Even if I personally would have been pleased with a somewhat higher dividend. But I can also understand the reason [laughing]. The older you get, the more you pay attention to dividends.

Maxime: It's not that important to me yet, but it will become more important as the years go by. A huge thank you, it was again very informative and interesting. Thank you very much for the very honest answers, which not only interested the community but also me personally. I would be happy to get together again and again. Many thanks.

Helmut: See you next time. Bye.

Dr. Wolgen: Bye.

CUV Quote (Yesterday's close)

Time: 4:10PM AEST
Price: 43.58
Volume: 206806