Arcticzymes Technologies ASA

OSE:AZT

Earnings Call Transcript 2023-Q2

[Marie Roskrow, executive]

[Audio Gap]

these macroeconomic uncertainties, including, for example, high inflation and rising interest rates. [Foreign Language]. In China, where their economy has grown at a frail pace as demand has weakened both at home and abroad.

Biopharma spending has been weaker than expected, particularly associated with biomanufacturing as such companies have tightened their belts in order to preserve cash. Destocking is still ongoing, and we talked about that in the last quarter and continuing to influence our customers' buying patents. Of course, it's not just companies as small or as big as ourselves is are being influenced by these factors. And significantly, I think if you look, for example, and analyze the second quarter earnings results, from the large cap and growth companies, large growth companies in the life science tools sector, many of whom are our customers, it's apparent that the factors I've just mentioned are biting hard. Across the board, the large-cap tools companies, including, for example, the largest Thermo Fisher, Danaher, Agilent, Illumina, Sartorius, I could go on all of them, have, without exception, reduced their revenue guidance for this year. Several of them missed their second quarter earnings and at best, their annual growth rates were expected to be flat or low single digits, and some of them are even expecting negative growth this year. So obviously, the performance of our customers strongly affects their buying patents, and this is significantly influencing our revenue stream, and I think will continue throughout this year. I'm going to come back to what I think lies ahead in the next second quarter from a market perspective. I'll do that in the summary at the end.

So having said that, let's move on to what the company has actually been doing in the background for the last 3 or 4 months. Next slide, please. I think, the most significant thing, particularly for the future of this company is that we ran a very successful CEO search in conjunction with Coulter Partners, who did a fabulous job. As you know, Jethro's effective date of leaving was the 30th of September. And we're very pleased to announce recently that we've hired Mr. Michael Akoh, who I'm sure many of you have looked up on LinkedIn. And you'll see that he is an excellent fit for ArcticZymes, and we're really pleased to have attracted such a high-caliber candidate.

And importantly, and very good for us, Michael will start on the week of September 18, which is earlier than was reported in the press release, because he was able to start work earlier than we thought. So that's very good news.

To support Michael, in addition to the senior management team already in place, we have 2 new members of that senior management team. We have, for the first time, a Vice President of Corporate Development, and that's Jeremy. And in addition, we made an internal promotion for a VP of Regulatory Affairs, and that is Grethe. Next slide, please. So a quick word, a quick update from R&D. You've seen this slide before. And at the beginning of the year, these were the products that we were hoping to launch during the year. We've now launched, as you know, the proteinase HQ in April, middle of April. And then most recently, we've launched a generic enzyme called Taq or AZtaq. Now as I say, this is a generic enzyme and lots of companies have similar enzymes, but it is 1 of those workhorses that enzyme companies do require. And there are 2 ways to do enzymes, as you know, you either make them yourselves or you do a deal with an external company to bring that product inside.

And in this case, we decided to start it during the lockdown, we decided to build our own tech DNA polymerase and we've just launched that. And this is an important product or say generic, it's still very important because it's the first step basically providing the whole enzyme package, particularly in the molecular diagnostic space. So it's supported this product by our own internal buffers and protocols, and we'll be using it particularly in the applications lab. The next 2 products that we hope to launch -- will be launching later this year, the SAN HQ, which is being produced under GMP quality, and that is the product that's being supported by the DMF, which I'll mention in just a couple of minutes. We're expecting to launch that in the fourth quarter of this year. That's really important from many perspectives, but this is the first product that we are producing under GMP quality.

For anybody who knows anything about GMP, that's the very highest quality that is required for use in human therapeutics. And although, obviously, this isn't a drug, this is a component in a workflow to produce, for example, an AAV or any sort of viral vector. Many of the components these days have to be produced or ideally produced under GMP situations.

GMP is an incredibly high standard. And I think our manufacturing team, under Marit, many of whom you've met has done a terrific job in getting our facility to that standard in order to be able to produce such a product, and that will be launched later in the year.

And finally, we were producing another -- launching another product called T7 RNA polymerase, and this importantly is the first product launch that will be supporting our RNA enzyme therapeutic strategy. The company has taken the decision that generic enzymes, whilst we worked on them, particularly during the lockdown period, moving forward, it makes more sense for us to do transactions to bring generic enzymes into the company. And now that we have Jeremy as obviously, VP of Corporate Development, part of his job will be to go out and look for the generics that we need and bring those into the company under whatever structure is most suitable for us. Therefore, we can divert our R&D resources into focusing on the more innovative, let's say, sexy novel enzymes, including a suite of RNA enzymes to bring to the market. Thank you. Next slide. So these -- a couple of the enzymes that are part of this whole RNA processing enzyme strategy. I just mentioned the T7 RNA polymerase and that hopefully will be launched in the fourth quarter. That is a really key enzyme that we need. Behind that, we have a more novel, which was a 2023 prototype. And hopefully, it will go next year into becoming an NPI and then we throw these terms around assuming, you know what's an NPI is. Well, an NPI basically just stands for new product introduction.

So when you put something into an NPI, it becomes a project where there are multiple disciplines involved to get that product basically to the launch pad. This is a specific, sequence-specific RNA ribo-endonuclease, and there's a few details on the left-hand side. This will be novel. This is exciting. And currently, we have a number of companies who, obviously, I can't name under CDA who are working with us and doing some sort of beta testing on the prototype.

And depending on the feedback, obviously, in our own internal work will determine if and when and how we proceed with that enzyme. But that, at the moment, is looking quite promising. And behind that, we have a suite of other novel enzymes, which next year will be from discovery, moving into prototypes, and then we'll move them through the same process that we've done with the ET-N1, as mentioned above. Thank you. Next slide. And again, I showed this slide last time. As you know, and we've beaten the bushes about this because it was really a massive focus of ArcticZymes. The last quarter, the second quarter, it was really everybody hands on deck to get this over the line by the 30th of June and not to exaggerate, but this was a real undertaking.

And based on the success of that filing, i.e., the success of filing it to the FDA on time, that's the basis on which Board and I decided to promote Grethe from her position as to be the VP, because she led the team who did that. And everybody did a terrific job working on this. So it was submitted on the 30th with our partners, PharmaLex, to the FDA. It's actually 30 to 60 days, I don't know how I did say 30 to 60, but just it's 30. And these are calendar days. So as of today, we are on day 47. So we haven't heard anything back from the FDA yet. This is not setting stone. This is guidance.

And obviously, being summer, it may take slightly longer, but we are expecting to hear back from the FDA in the next few weeks. This is not to say that they've looked at it and everything is perfect. This is that they look at it and they tick the boxes, has everything been included in the filing that they need to see, have all the papers being submitted? Is it what they're looking for in terms of the submission? It's not the quality, it's the actual components of the submission.

And on the basis of that, we'll get a unique DMF number. And the process, as you see outlined here will proceed. Just to be clear, having filed this huge file, that's not the end of it. That's sort of the beginning of it. So there's still a massive amount of work that needs to go into this. But I think getting that filing in was a really substantial step for the company.

Thank you. Next slide. I'm turning my papers as we speak here. So this is coming to that product, the SAN HQ GMP, that's the product which is supported by this whole DMF. And you've seen these graphs before. But well, you haven't seen all of them. You've seen the 1 on the left, and that's really the USP. And again, USP, 1 of those silly things we throw around. For those of you who don't know, that just means unique selling points.

So i.e., what is the standard feature of this product? And obviously, there it is on that main graph. And that's the ability or the activity of the SAN HQ in high salt concentrations. And as you can see, if you look at the x-axis along the bottom, that's the salt concentration, and our enzyme works optimally between 400 millimoles and 500 millimoles, we've got 100% activity whereas the competitors have fallen away to almost, well, practically nothing.

Why is that important? Because AAV, adeno-associated virus, which is 1 of the viruses, the key virus is used in the cell and gene therapy space in the clinic works, as you can see, optimally at that salt concentration in the processing of that virus. So that's a really important key differentiator. We've also done obviously a lot of other quite simple, but important comparator data generation, and this will be used in our product support documents. And when we go out pre-marketing, which we've already started our pre-marketing campaign for this product along with the DMF to potential customers. They want to see data, obviously. This is very science-driven. So we're producing a 20-page product document, which we will use as marketing and support. And in order to do that, we've been working in the lab to generate some examples here, which you see.

So B, C and D are really just comparator data temperature response, pH response and Tween-20. And Tween-20 is a common processing agent that's used in various workflows. And obviously, the differentiation or minimal differentiation in some cases, is important or less important depending on what processes you're talking about. The difference in temperature, for example, is not important in some people's processes than it is for others. And you can see there, and I'll just touch on that 1 because that's quite interesting. If you look at that top graph B and that's the temperature response, you can see that the SAN, which is the black line, the optimal 100% activity is about 37 degrees. What's important is also you can deactivate the enzyme, it falls right back to 0 at higher temperatures. So the ability to deactivate it is clearly differentiated from those other 2 products.

And even at lower temperatures, there is look slightly higher, but it is significant, in some cases, 10%, 15% higher activity at the lower 15 to 20-degree range. So both of these factors, the heat deactivation and the low activity of product advantages. Some may stay relatively minor. But again, they're not minor, depending on what the processes you're looking at.

The Tween-20 response, Tween is a detergent that's used -- it's a non-ionic detergent. It's widely used in industrial biotech and it's well tolerated. As you see our enzyme is at 100% activity despite the concentration between 0% and 10% of Tween-20. Most people are using between 0% and 2% in that process. So you're looking at the left -- far left-hand side of that graph. And as you can see, we are around still 90%, 100% activity, whereas the competitors are significantly lower.

So if you always pick this data, you can always find parameters where our SAN HQ is either equivalent or different or maybe not to an advantage in some cases. But as I say, the most important thing is the differentiation within the salt environment. There is more data, of course. And once the product brochure is available, I'm sure that I'll have some of you asking to see it. And we will be able to send that to you in due course, if you're interested in all those details. Thank you. Next slide. Sorry. So as I said, for the first time, actually, in ArcticZyme's marketing history, we've decided to go out with a huge marketing campaign, which is both obviously online, predominantly online through webinars to improved website through the product, brochure, et cetera, et cetera, to premarket this SAN HQ GMP. We've had the fly around, you've seen it on social media in order to generate interest. And I'm not a marketing person very clearly. But we do have a marketing expert that works for us, and he gives me these facts and figures from the web. I understand none of it, but the basic message is that we are having a lot of clicks, clicks become views and views potentially become interest and he thinks those numbers are very significant.

So we have to see, obviously, that translates later down the line and are not talking, flicking the switch of the fourth quarter and talking into next year as to whether all of this pre-marketing will actually result in sales for the SAN HQ GMP. And obviously, there are many potential customers that won't be interested in looking at the DMF. Not everybody wants to look at the DMF, because they don't have to look at the DMF, but they do want high-quality GMP material. So let's see how that goes, but this has been a first for us. It's been a learning curve. And I think at the moment, we're getting very positive feedback on this product. So as I said, this product is being produced in Tromso, at the moment in our own manufacturing facility, which many of you have seen. And we've had to upgrade parts of that and in order to be able to produce to tons of GMP standards. So the bottom paragraph on the left here is internal GMP audit.

You can't just start new processes and expect people to just take your word for it. It has to be audited. So we were audited by a third external party and basically got the rubber stamp to say that what we were doing, that we were compliant with the regulations and that we were producing to the right standard. The regulations, there are books of regulations. There's not half a dozen, there's hundreds of regulations that we need to stick to. And again, a shout out to Marit and her team for doing such an excellent job and really getting that process to that standard. Thank you. Next slide. So from Derek and his sales and marketing team, things are tough, and I'm not making excuses there's no excuses to be made. It's the reality of the situation and his team are working extremely hard. It is analogous to pushing rocks up hills right now. So I don't want people to think that sales are soft, because people are not trying hard. It couldn't be further from the truth.

We've hired a new salesperson with great relevant experience on the East Coast to support Jennifer. And we hope that we'll see the benefits from that in the second half of the year. But when you are fighting against these headwinds, however hard people want to buy, if they haven't got the capacity to buy the volumes that we're used to seeing, it's not going to happen.

But in the meantime, it gives us the opportunity to develop further relationships. We have gained 27 new customers in the second quarter. We gained a similar number in the first quarter. So the first half, we've picked up another 50-odd customers. And when the markets turn and when conditions are better, these people have the wherewithal and the ambition to make bigger orders. These are not sort of teeny-tiny microcap companies. Some of these are significant companies that there is the potential to get larger orders probably next year. So that's been a positive in that sense.

We've also been able, for the first time, to secure a standing order from 1 of our largest -- our very largest customers, and that was a good work from Derek and his team. They often these companies don't like to commit to standing orders, particularly in the market conditions that we face. But of course, from their perspective, the advantage is that they can negotiate a better price if we can lock them in for a certain volume, then it's quick pro quote as we say, right, they get a better price, and we have some security as to the orders. So we are very pleased to secure that, and I think that gives us a little bit in our back pocket moving forward.

As we announced at the end of the first quarter, we've kicked off the partnership in China. China, at the moment in terms of sales is pretty bad, I have to say. And again, if you look back at the commentary from the large caps on Thermo and Agilent and Sartorius. What are they all saying? China is dead at the moment. But that's okay. It gives us, again, the opportunity to develop our distributor networks, to develop our B2B relationships with our person on the ground, Grace. And once the markets pick up and they will pick up because they always pick up, right? It's just a matter of time. We will be very well poised to move much more expeditiously in China than we have done in the past.

What else on that slide? Not really much. We went to a couple of conferences. We don't go to that many conferences anymore, because they're not that well attended simply because they're very expensive to go to. You have to set up a booth, you have to fly people out, it's multiple days. And really, you've got to analyze retrospectively what do you get out of that. And again, in these sorts of conditions where people are really ratcheting back on expenses, they're not going in huge numbers to these conferences. So we are being highly selective about the few that we go to without wasting time and money.

Next slide. So the voice of customer, obviously, as we've said before and repeatedly is what helps drive our business and that feedback is critical. And I'm not going to read all of these. You can read them or you cannot read them. But excuse me, in the U.S. and in the U.K., we've had a number of customers that basically they want to talk to us, but they want to talk to us specifically about reducing our prices. And one of our biggest customers came in and said, you know what, we just want a 50% reduction in price. And you know what? I said, no. We can do deals with customers, and we're very open to that depending on volume, of course, but we're not just going to say, "Yes, okay, you are not doing very well. We'll just give you a 50% reduction." Because that's not good for us either. But obviously, people try it on. We have a good bit of a banter in a negotiation. We come to an understanding, but they don't get 50% off. Some people are just a bit cheeky.

So -- but we've had that from numerous customers, and that's the sign of the times, I think that, that is a real concern, the price of the enzymes. But they also understand that if they want the sort of quality that we're producing, they have to pay reasonable money for those. As I said, China is pretty dead at the moment. There's lots of projects that are being canceled or delayed. So we're hearing. But as I've just explained what we're doing in China.

And again, people coming back and saying, we want to continue discussions. We're very interested, but we can't buy volume right now. So there's nothing different than we're hearing personally from our customers and then what is the general sentiment in the market. And when you read analyst reports, as we all know, we don't believe everything that analysts say. But when we're hearing things from the [ voices ] now of our own customers to confirm what we read on paper, then I think there's no better voice than the voice of the customer.

Next slide, please. Or maybe there are no slides.

[Børge Sørvoll, executive]

No, I think that was it.

[Marie Roskrow, executive]

So we'll come to the summary after Borge is going to walk us through the numbers. Thanks very much, Borge.

[Børge Sørvoll, executive]

Okay. Thank you, Marie, and thanks for that introduction. I will run you through the second quarter results and the financials for the first 6 months. And as Marie said, it's more or less the same as we kind of experienced in the first quarter this year. And I'm going to first move into kind of the sales area moving into the molecular tourist area. And as you can see, we achieved fully sales of NOK 15.3 million in the quarter. And this represents a decline of 7% compared to the first quarter this year, where we had NOK 16.4 million. But you can say we are basically on the same sales this quarter compared to the second quarter last year, where we had NOK 15.5 million in sales in Q2. For the first 6 months of the year, sales are at NOK 31.7 million compared to NOK 45.6 million at the same period last year. But as you might remember, in the first quarter last year, we had COVID-related sales of NOK 14 million. So if you adjust for this factor, than comparable sales for the first half year, then sales within molecular tools are actually on exactly the same level, and it's a 0% change compared to that quarter, that first 6 months. Molecular Tools had a 54% contribution of total Q2 sales. And this is similar to what we have seen in previous quarters. And in the first quarter this year, we had a 52% contribution. And also, what we can see that as in the first quarter, our research customers has more or less returned to normal purchasing patterns that we had and we saw and -- we have normal purchasing patterns and not as we saw in the fourth quarter last year, where basically all our research customers disappeared or they didn't buy anything. Sales within the 2 different segments in molecular tools are at 34% within the -- or 30% within Research and 24% in the Diagnostics segment, respectively here, sorry.

Then I'm going to move over to the Biomanufacturing side here. And then we say quarterly sales are at NOK 12.9 million, which is down from NOK 14.9 million in the first quarter this year and also down from the NOK 14.8 million that we saw in the last year -- in the second quarter last year. And for the first 6 months, sales are at NOK 27.8 million compared to NOK 33.6 million and this accounts for a 17% decline compared to the same period last year as well. And of course, Biomanufacturing contribution to the second quarter was 46% of total sales, which is a little bit lower than the 49% we experienced in the first quarter and also the 69% we experienced at the end of last year as well.

And you can say, even though we did not experience growth in our figures following the pandemic, similar to what we have experienced over the last year, we believe, of course, this is part of kind of a little bit in part of the inherent fluctuations we have in the business. But of course, the challenging market conditions that Marie also touched upon plays a crucial role in this. And of course, as Marie also said, within the Biomanufacturing side, we now filed the DMF now at the end of last quarter, at the end of Q2 as well, which was a significant milestone for us. Looking a little bit on the trends in our business where we kind of have taken out the quarterly fluctuations and adjusted a little bit for COVID-related sales. And as you can see from the table here or the growth has been flat to slightly negative over the last year where we have moved our quarterly average rolling sales from NOK 31.3 million to NOK 29 million in this quarter now. And also, we had NOK 29.5 million in the first quarter this year when we did the same comparison.

Even though the trend is negative for the last 9 months, nothing fundamentally has changed. We are still in growing markets with attractive and novel products. Numbers of orders are slightly down in the second quarter with -- from 408 orders in Q1 to 343 in this quarter and did a comparison of 372 orders in the second quarter last year. And also, as Marie said, we had 27 new customers in the second quarter with 9 in Molecular Tools and 17 in Biomanufacturing.

And also with the first quarter where we had 28 new customers. Then we have a -- and you can see a total of around 50 new customers for the first half of the year. And as we said, of course, many of these customers are buying samples or -- and buying samples and small orders. But hopefully, this will grow to the larger accounts down the road as they kind of see the qualities and that see the need for our products. But also, it is important to highlight also that the markets are challenging. There's economic uncertainty out there. The constrained capital markets, customers continue to destock their inventories and we have seen a significant slowdown in the China region as well.

Moving into a little bit on the relative contribution of sales in the different regions. And as we talked about in the past, the European region has been the dominant territory for ArcticZymes followed by the American region and then the Asia Pacific region. But also for both the Q1 and the Q2 quarters here, the dominance has shifted towards the American side and also -- and this is natural because we have an overweight of B2B customers buying our SAN products in this region, whereas the Molecular Tools region is more within the European region. And of course, APAC continues to be a reason where we see great potential for future growth, especially after we signed collaboration agreements with -- for China with Genovis. And also, we believe this agreement will deliver value for both us and them down the road. But of course, right now, it is a little bit -- it's a tricky market where we're with China slowing down and everything. But hopefully, down the road, we will be able to generate significant value here.

Currency impact. Of course, as we've talked about in the past, we are in a global market. Our revenues are impacted by currency fluctuations and especially as our savings are primarily nominated in both USD and euro. And of course, the Norwegian kroner, it plays a small part in our sales, but of course, it has a much bigger impact on our expense side. For the second quarter this year, 79% of our revenues were in the U.S. dollars and 21% were in euros. And of course, based on the fluctuations we've seen in exchange rates over the last year, this has an impact on our profit and loss statement as well. Based on the USD and the euro we had in a bank account, this resulted in a loss of NOK 0.1 million for the second quarter compared to a profit of NOK 0.1 million for the full year of 2022. And also for the first 6 months of the year, we have NOK 0.4 million in profit on our currencies and bank accounts. Our trade receivables are also impacted by currency fluctuations, and this can be seen under other operating expenses. And for the second quarter, our operating expenses were reduced by NOK 0.5 million due to the weak control towards both the euro and the U.S. dollars. And for the first 6 months, our expenses are reduced by NOK 1.6 million, which is slightly higher than the same period last year, where we had a NOK 1.4 million reduction in our expenses.

Also, we -- if you are to look at the underlying growth in the business, excluding currency fluctuations, and we keep our currency, we have constant exchange rates for our currency, both in 2022 and 2023. Our second quarter sales would have been NOK 3.7 million lower compared to 2022. And also for the first 6 months of the year, our revenues would have been NOK 7.3 million lower if we had a constant exchange -- same exchange rate as in 2022.

And as I talked about, and in the past, currency will always fluctuate moving forward as well. And as if you might remember, then we had in 2021, we had a loss of NOK 11 million when we did the same comparison, and we had a profit of NOK 8 million in 2022 when we did exact comparisons. But of course, as a general principle in the company, we try to limit the amount of foreign currency we have on our bank accounts and also try to limit what we have outstanding from our customers to reduce the risk as much as we can.

Looking at -- moving into the expenses and a little bit on the profitability side for the quarter in the first 6 months here. And this is a slide that we have shown both at the Q4 presentation and the Q1 presentation. And as you are aware of personnel expenses is kind of -- personnel expenses have grown significantly over the last few years. And of course, this has been in alignment with our strategy and our organic growth ambitions. In 2022, we had a 30% increase in our employees. We have 61 employees for end of the year last year. And we have 0 net new employees in the first quarter this year, and we had 1 new employee in the second quarter this year.

We do expect this number to go up a little bit. We have a few new hires that are coming in now in the second quarter, some are replacements and some are new. But we still believe that we will not grow this number significantly throughout the year here. As you can see on the pie chart on the left-hand side here, R&D accounts for almost 40% of our total resources; commercial is around 21%; operations are at 24%; and QA & regulatory at 7%; and administrations are a little bit less than 10%. And as I said, looking beyond from where we are now, we do not plan to expand the organization as we've done over the last few years. 2023 will still be a year where we will reconcile the investments we have carried out over the last few years. So this makes us become an effective and productive organization.

So a little bit on the bottom line here. We continue to deliver positive contribution towards the bottom line. The second quarter was no exception to this to what we have delivered over the last few quarters and years. Our second quarter EBITDA ended up on NOK 6.8 million versus NOK 9.5 million in the same quarter last year. For the first 6 months of the year, we ended up on NOK 13 million compared to NOK 37.4 million last year. But of course, as we said -- as I said in the beginning, we had NOK 14 million of COVID-related sales in Q1 2022. And as we do an adjustment of this, EBITDA would have been NOK 23.4 million, which is kind of the better comparison to compare apples-to-apples basically.

Our operating expenses are up by NOK 0.6 million from NOK 20.8 million to NOK 21.4 million, driven, of course, by personnel expenses and other operating expenses. And year-to-date expenses are up by NOK 4.3 million from NOK 42.1 million to NOK 46.4 million. Personnel expenses were at NOK 13.1 million for the quarter or equal to what we had in the second quarter last year. And for the first 6 months, personnel are at NOK 28.7 million, slightly lower than expected actually due to some reversal of national insurance contributions and in the first quarter and that we have capitalized some of the -- our personnel expense that we had with to the DMF here.

We do have -- as I said, we do, however, have a few more new people starting in the second half of the year. So I expect the number for personnel expenses to be higher in the second half of the year compared to the first half of the year.

Other operating expenses were at NOK 7.5 million, which is NOK 1 million higher than in the same quarter last year, but this is in alignment with what we have -- with the guided reduction from the NOK 32 million that we said we're going to -- that we had last year. And year-to-date, other operating expenses are at NOK 15 million, so just below half of the NOK 32 million that I said we're going to be below at the end of the year.

Looking at the graph on the left-hand side, you can also see that we have -- we are improving our EBITDA margin after some challenging quarters. We had a 24% margin at the -- for this quarter now.

Looking at the cash flow. The cash balance and the change in cash were kind of in alignment with what we normally see in the business and change in cash and cash equivalents were NOK 7.3 million for the quarter. And of course, this is also driven by that we had a NOK 2.6 million capital increase related to option of exercise in the organization. Through end of June, our cash position was NOK 239 million. And I'm still confident that we are able to grow this cash position moving forward as we to continue to deliver positive reserves in the future as well. And I think with that, I think we're going to hand it over to Marie, who can say a few more words on what we expect for the last part of the year.

[Marie Roskrow, executive]

Thank you. Well, I'm not going to really read this slide because you can all read, I'm sure. So I just want to say a few words about what I think and what we think the rest of the year looks like in terms of the markets and how that might affect us. Obviously, this is my -- our view. And if you look at what analysts say, obviously, they all have slightly different views. So you can take from that whatever you like.

But frankly, I think being on the more positive side, I think there are some green shoots that are emerging. If you look, for example, at early stage investments in biopharma, particularly in the private sector from the VCs, those investments are picking up at the moment. And obviously, the result of this, for an example, is that the number of early-stage clinical trials, if you look at cell and gene therapy is again picking up. There was a lull and now it is picking up.

And the reason for that clearly is funding the innovative products and the innovative clinical trials are being started in the smaller companies in general, but they are expensive. So whilst there's been a couple of quarters at least where funding has been tight, very, very tight, in fact, impossible for many companies. There does seem to be some glimmer of hope that the VCs are opening their purses again and funding the really innovative companies.

It's been a bit of a triage in a way in that small to mid-cap biotech sector. And we've seen this in the past and the companies that were not at the top of their game couldn't track funding and they fell away. I don't think that's a bad thing for our industry, because the stronger and the better companies do emerge.

So when you look at the second quarter, there's certainly been a pickup in early-stage investments, and I see that as a positive. However, if you look at the public financing environment, the secondary markets I think those will continue to be very challenged probably throughout the end of this year. There has been -- there have been rather some in our set to some secondary financings, but not a whole lot. And in general, as you know, the IPO market is still pretty much dead. So companies can't raise money on the secondary market, then as we've talked about earlier, they tightened their belts and that strongly influences they're buying and our ability to sell to them. So do I see the situation changing in the next 6 months dramatically? No, I don't. I hope I'm wrong. I really hope I'm wrong. But at the moment, that's what I read into it. Some are slightly more optimistic hats than me are probably in the middle of the road. And as I say, we're moving into September now. So it's only a few months really till the end of the year. And I cannot see anything dramatic happening to change that situation.

The destocking issue that we've talked about does continue. But again, I think listening to what our customers have been telling us, I do have some -- I do have confidence that this will be out of the system predominantly by the end of this year. Some companies, it will move into the first quarter. But I think for the majority of our potential customers will see the -- and our existing customers, the destocking issue will be largely gone by the end of 2023. So that will also be helpful, obviously, for us. So I think overall, it's a mixed bag. I think sales are going to be difficult in the third and fourth quarter for everybody, including ourselves, including the large cap buyers, right? And we have to see what 2024 brings. But in the meantime, there's no question that ArcticZymes remains focused. We remain optimistic about the business. We have a very strong underlying business that continues to grow. And you may not see all of that on the surface -- but believe me, there are lots of things happening in the background. There's lots of positivity within the company, particularly now we've got Michael coming to join us very soon.

We're very confident that he has the expertise and abilities and lots of positive energy to take ArticZymes to the next level. And I look forward to returning to my semi-retirement and my garden. And obviously, I will be spending considerable time handling over the crucial bets to Michael and introducing him to you our investors when we meet again at the beginning of November.

So I'd like to thank the entire team of ArcticZymes and obviously, to you, our investors, whether you've joined us today or whether you can't join us, haven't joined us today. Thank you very much for your continuing support and enthusiasm, and we look forward to answering any questions that you may have. So Q&A is now open. Thank you.

[Marie Roskrow, executive]

Can't hear you, Peter.

[Børge Sørvoll, executive]

I think we have a question.

[Peter Östling, analyst]

Just a very brief initial one. The NOK 105 million in OpEx that you expect for 2023. How much of that is related to the work for the DMF? Or -- well, what I'm wondering about is that -- is this the level -- the base that we should continue to forecast from or will it be slightly less expenses in 2024 and going forward? Or Should you be used another base to forecast from? I guess that you used quite a number of the [ capitalized income ] and such when you did the DMF work.

[Børge Sørvoll, executive]

Yes. Maybe I can try and answer that one, Peter. You can say the NOK 105 million, I think that's a good assumption also. But you have to remember that for the DMF, we have capitalized most of that for us. So you don't really see it on the P&L today. So it would be more -- it's more kind of on the investment in the intangible assets basically. That's what we are...

Any other question?

[Marie Roskrow, executive]

So quiet. No? Okay. Well, if anybody thinks of anything, then please shoot us an e-mail later, and we'll be delighted to answer. In the meantime, thank you very much, ladies and gentlemen, for joining us, and look forward to seeing you soon, and have a good day. Thank you. Bye-bye.