Arcticzymes Technologies ASA

OSE:AZT

Earnings Call Transcript 2019-Q4

[Jethro Holter, Interim Chief Executive Officer]

Okay. Welcome to the Q4 presentation. I'm Jethro Holter, the interim CEO, and I'm joined here today by Børge Sørvoll, who is our CFO. And Børge will share the presentation with me today. Just having a problem with the slides here. There we go. Now it's working. So the agenda today is what I want to do is we're going to start off recapping the new strategic direction. This is what we presented at the Investor Update Meeting on 10th of December. We will then look at the highlights. We will look at the Q4 achievements and then what we delivered in 2019. We'll then look at the ArcticZymes business, Biotec BetaGlucans. Børge will then take you through the Q4 financials, and then we'll look at the outlook to see what to expect for 2020. So in terms of the strategy, the new strategic direction, as mentioned, we had an Investors Update Meeting on the 10th of December, and we sort of outlined where we're going to go in the future. I'm going to touch base on the key aspects of that meeting. For the company, we have one goal moving forward, and that is really about -- all about profitability. We want to drive this organization into profits and have sustainable profits. And the formula for doing this is really based on the model to the left. It's really about focusing on doing the right things. And when you look at Biotec Pharmacon, for many years, we've had very strong ambitions. We wanted to do many things, and you've seen me doing many things. But to really realize that, we need many more people on board, 100-plus team. We need to put much more investment behind that. So what we realized is we really have to change what we're doing. We have to do fewer things and work on those things which bring the most value to the table. And by doing the right things, doing fewer things, we can really focus on customer excellence because that's what businesses are about. It's serving customers. If we serve customers well not just with good products, it's also about good service, it's about high quality. It's about all the support. A customer is like a marriage. You need to -- you have your ups and downs, but you're married. You're looking for that long-term relationship. Then you get the reoccurring sales. You grow your business. That drives profits. And the point is we want that sustainable, long-term profits, and that's certainly what we've been doing in building our business over the years. And then what that does then, it fuels shareholder value, and that's what it's about. We want to drive and build long-term shareholder value in this organization. And the best way of doing that is making this company profitable and growing that profitability. To do that, we need to change course. We need to change course towards profitability, and that's what we've done. We made decisions in December to do that. Moving forward a year, we -- ArcticZymes is going to be the main strategic arm of this business. And how do we do that? I've always -- one thing is we change the boat. We change tack, where ArcticZymes now is -- represents -- sorry, 80% of our efforts in the future will be towards ArcticZymes. Also, it's about having the people on the right side of the boat. And so we have made -- gone through a structural reorganization in December, which is completed now. So what we've done is we've moved many of the people from -- some of the people from BBG into -- from Biotec BetaGlucans into ArcticZymes. We've reduced, scaled back the support for Biotec BetaGlucans to what is needed. And we've also let some people go and reduced some positions, so that we've lightened the boat to what's right for this organization and we've balanced the boat with the people on the right side. The next bit is really about having full wind in the sales. You need wind to drive the boat. And so what we're doing is we're putting some more investment into ArcticZymes so that we can extract the long-term profitability, so if we can accelerate some of the things we're doing. And the last thing is really a clear destination, and that's important. You've got to know where you're going, and we have a 6-year business plan for growing that ArcticZymes business. And that's really key in growing that both organically and inorganically. Why? Two good reasons: One, ArcticZymes represents the best opportunities for this company to accelerate and grow the top line; secondly, it is the part of the business which has the best margins, and we can certainly achieve the best sustainable profitability, which obviously translates into shareholder value. So that's really the essence behind the strategy. If you look at the different businesses here, again, I mentioned ArcticZymes is the main business moving forward. It's the most profitable part of the business today, and I think you see that in the results that we're going to talk about today. Moving forward, it's really about organic and inorganic growth for that business. When it comes to Biotec BetaGlucans, there's 4 -- as most of you know, there's 4 businesses underneath it. We have animal and consumer health business. They're very similar businesses. They serve commodity markets. It's low margin. It's the cash cows. But what they do is they do operate at a profit, and that's important. So I think here, they do add value. So we will maintain those businesses. Why? They're profitable. The soluble betaglucan, SBG for short, today, it's being used as an adjuvant in combination with [ a vaccine ] by Sloan Kettering Memorial Hospital in clinical trials for kids with neuroblastoma. And today, it's a noncommercial for us. We provide it as a research service. But moving forward, we got to translate that into commercial value, and that's what we're really going to focus on in 2020. So we really want to drive that into a licensing deal moving forward with Sloan Kettering Hospital and [ a vaccine ] owner, Y-mAbs.Woulgan. Woulgan is a product for wound healing. For the company, it's been a loss maker. There's a lot of costs that goes into that. We put a lot of marketing efforts into this product, but we've never been able to really grow the sales as to our expectations. And we really looked at this in December. So in Q4 and in December, we made the decision to divest that. And the reason for that is because we could see that we would -- the business could never be viable in our hands. We can never grow the sales to what was needed to really make that a success. We believe in somebody else, in other owner's hands with a marketing -- necessarily marketing power, they can drive that much better than us. Hence, why we're divesting Woulgan. So that's the strategy that we got in place in a nutshell. There's a lot more behind that, of course, and which we presented on the 10th of December. That presentation is available online as well on our website if you want to review it. In terms of the highlights for Q4, I think, actually, we are very proud to present our Q4. I think we've had a record quarter, and I think the top -- the EBITDA shows that. So we had a positive EBITDA with NOK 4.6 million. And there's an asterisk there, and that's because we've actually -- these numbers exclude Woulgan. We've done that since Woulgan now is held -- is considered assets held for sale. So we've done that to align with accounting practices. So the 2018 numbers here in brackets are adjusted for comparable purposes. Also, with this EBITDA, this was driven mainly through strong ArcticZymes sales. But also behind that number, we have taken on extraordinary onetime costs associated with the restructuring. So we actually had NOK 2 million [ there extra in ] costs of accruals related to the restructuring of letting some people go. So think that's why this is a very good result. Gross profits improved by 27% to NOK 18.1 million compared to NOK 14.2 million for the same quarter last year. In ArcticZymes, we had 42 -- sorry, we had 52% growth in Q4 where we achieved NOK 16.3 million compared to the same quarter last year. Net cash flow for Q4 was NOK 9.2 million. When it comes to myself, I was hired as interim CEO, coming in October to replace Christian Jørgensen. And that's basically related to the new strategic direction of the organization here, being part of ArcticZymes, leading that for 5 years and then ArcticZymes being the main strategic arm of the business, it's natural that you need -- I was chosen to take the company forward as interim CEO. I mentioned already, we have a new strategic -- a new group strategy. So now that's all -- we're there ready to go. We've done all the structure reorganization in Q4. So the organization is all ready to go on that now. And also, ArcticZymes launched its M-SAN, and this is a Salt Active Nuclease. And we've been -- this complements our existing Salt Active Nuclease portfolio. And here, what this does, it allow us is to gain greater market access and accelerate the growth we've had in the therapeutic market, and I'm going to come back to that in a bit. So deliverables for 2019. These are some of the things we delivered on. And overall sales growth in the group was 13%. Again, these numbers are without Woulgan. If you put Woulgan back into the equation, we would have achieved 16% growth. Organic growth for ArcticZymes in 2019, we grew 40%. We've also had significant reduction in our cash consumption. So we've really cut down on burning cash. So effectively, in 2019, we only burnt NOK 0.4 million, which is, I think, that's a phenomenal achievement if you consider our past years. One thing we originally planned to do was to renew the clinical trial agreements with Memorial Sloan Kettering Cancer Center. What we did, we've delayed that because what we want to do is we really want to ensure that we have something that translates into the commercial deal. This is something we want to work on in 2020. I think it's much better to work on things, slow it down a bit, get what you really want. So that's what we're doing now. And I think that's important. We have to make this commercially viable. So that's going to ArcticZymes. So these are the commercial achievements for ArcticZymes. The quarterly performance, we had -- actually, in Q3, we thought we had the highest performance ever. In Q4, we have even higher performance, reaching NOK 16.3 million. So this is the best-ever sales we've had for a quarter. But of course, it's important to manage expectations because when you look at our business, the ArcticZymes sales fluctuate between quarters, and we do expect this moving forward as well. We expect fluctuations in both directions, up and down per quarter. So one thing we know always is Q4 is always higher than Q1. So -- and that's always got to be expected. We're going to have this, and I've always mentioned this quarterly fluctuations. But on -- but what we do expect as we move forward is we will grow that business year-on-year, and that's the point. So I think when you look at the quarters, it's always good to look at the kind of year trajectory as well. So then in terms of annual performance, I mentioned it before, we have 40% growth. And when it comes to EBITDA, we actually had a double-digit EBITDA in 2019 where we landed on NOK 14.3 million, and that's over double what we achieved last year. So really, it shows that we are growing the profitability of the business. We're maintaining costs and growing the top line. So the model, how we're driving ArcticZymes, is really working as we'd like. So when you look at the growth, there are some key contributors there, and I think it's very good to break this down. So the Salt Active Nuclease, the -- that product line represents 25% of total sales. And if you go back just a few years ago, 2016, we almost had a big fat 0 in sales of SAN. And I think this just shows how quickly you can grow a new portfolio of enzymes. Once you're in there, it grows nice after a few years. You can see it starts accelerating up. And the launch of the new enzyme, which I'll come on to again a bit in more detail, this will help to accelerate that moving forward. With the molecular biology and molecular diagnostics segment, we had nice growth there. And also, we have a nice opportunity pipeline that we've been working on with customers for many years. As you know, when people start trying to use our enzymes, it takes them several years to develop products. But we've been there with our polymerases. And also, now with our new ligases, things we will also -- we're there working with our customers. And there's 2 interesting areas we're looking at. One is liquid biopsy. So to make this simple: When you go into a hospital for -- looking for cancer or something like women for prenatal testing, most biopsies are invasive. You have to stick a needle into -- for prenatal testing into the uterus or, for cancers, you have to be opened up, and a tissue has to be removed. Liquid biopsies does it the easy way. It just takes a blood sample, and then you do a DNA test to look for that disease. And one of the things which is, for us, is there's a lot of companies who are developing these liquid biopsies. And the beauty of our enzymes work very well in developing the DNA tests associated around them. So this is one of the areas we're really focusing on, and we have a lot of opportunity in the pipeline in that area. Another thing is with this -- in this world is there's a technology called LAMP. It's -- I won't even try and explain the technology because even for me, it's complicated. But LAMP is a way of amplifying DNA. And until last year, that was heavily protected by patent, this technology. But last year, some of the patents had started to expire. This year, all the remaining patents are going to expire with the use of that technology. And the beauty of that is there's a lot of companies looking to exploit that technology. So for ArcticZymes, we are looking -- we're working with those companies who want to exploit that technology. And we've actually -- our polymerases, when we designed our polymerases, we intentionally designed them and engineered them for LAMP technology back in -- when we started to develop them in 2016. So we are ready to start exploiting them, and that's really exciting for us. So in the next few years, we would expect to be growing our sales in those 2 areas in the molecular diagnostic field. And everybody has always asked about the main customer. I think it always -- it's always been, "Oh, your main customer is the majority of your business." No, that's not the case. At the end of the day, when -- our main customer today represents 1/3 of our business. So I think that sort of puts it in perspective. Going back maybe 5 years ago, it was, certainly, the vast majority of the business, but not today. So it sort of gives you an indication of how we've built the customer base out. We have a much broader customer base. And also, we've had an expanding product range. And all this help is what is helping the growth in the sales, and we're going to continue expanding that product base through new innovations. And I mentioned, we launched M-SAN. That's the seventh product we launched in 2019. And M-SAN, as I mentioned, it's a Salt Active Nuclease. And in a therapeutic world, in gene therapy, there's a lot of different types of varieties that are used. Today, our SAN -- our current SAN products only work for certain viruses. The M-SAN will work for some of the other -- different viruses we can't tap into today. So we can take much more of -- we can take a broader market share moving forward and accelerate growth. And if virus is complicated for you, maybe I can talk about computers. I tried this, this morning, and it worked. So consider -- if you think instead -- if you think about SAN as an operating system on a computer today, we can target all PC users, okay? But we can't target Android or Mac users. So basically, M-SAN is equivalent of like making a software that works on Android and Macs at the end of the day so we can capture everybody. So that's the point is why we've beefed up our portfolio in that way. Sometimes, I like to look at everyday objects to make it easy to understand our technology. So I hope that puts some perspective on that for you. ArcticZymes also collaborated with Cell and Gene Therapy Catapult, which is a U.K. academic institute, and this institute is a leader in working with companies to help them commercialize their gene therapy technologies. And we collaborated with them and presenting a poster with them at their Gene Therapy Manufacturing & Gene Therapy Congress (sic) [ Cell Manufacturing & Gene Therapy Congress ] in December in Amsterdam, and we got a very good reception there. I think our business, it's not -- normally, we talk about who we work with because a lot of what we do is under confidentiality. That's what the business is. But I think it's nice that we can sort of share and give you some flavor of who we work with. And in this case, we can because an academic institute, and a lot of companies are working with this academic institute. So I think that -- so this poster is available, and information about Catapult is available. If you look in the reports, there's links to these, so if you want to dig a little bit deeper. We're also growing our portfolio of new enzymes. So we have a nice pipeline. And one good example of this, we've had funding and been working on EU Horizon 2020 funded project called Virus-X. And now this project is entering the final stages. There's been a lot of prototypes being developed in this project, which is really exciting for us. We've now been selecting the most exciting prototypes. They're going into product development now. And I think over the next few years, we're going to really bring some very novel, interesting enzymes to market. So I think here, we're going to see a lot of interesting stuff coming from ArcticZymes over the next couple of years. So in the central part of growing our business is really operations. And I think the important thing is you've always got to scale your operations and to maintain security of supply with your customers. And also, since we have an expanding product range, we have to ensure we have the capacity to manufacture all these different products. So one of the things we did during Q4 is to implement a second production line. So that's important, so that -- so going into 2020, it's important that they're fully operational. Also, it's also about scaling up. So several of our products are going through process development to scale up their production. So we're scaling up. Some products are being scaled up 10-, 100-fold. And that's important because at the end of the day, it's about meeting future demand. But also, it's about economies of scale. If you grow your business with a customer, the customer want more product, bigger orders. They expect a better price. So of course, what you need to do in scaling up, you improve your margin, and you can -- and you get better. You can pass some of those cost savings on to your customer. You can get a better margin, too. So it ends up being a win-win situation, and you remain competitive. So we're working on those scale-up projects and -- right now. The last thing is -- I'm going to talk about ArcticZymes is about organic -- inorganic growth. You've seen how we've been growing the business organically. We also -- to move forward, we want to grow the business inorganically by doing M&A. And the reason for that is we want to become European's leading one-stop enzyme company. And in order to do that, you can't do that alone. I think there's a lot of other small companies out with very nice enzymes, nice products and capabilities that we don't have. So we don't have to reinvent everything ourself. So by bringing in other companies together with us or several companies, we can really strengthen our brand position as that one-stop shop. We have a broader and deeper offering, and that's important. We need to grow in both directions. And by doing that, having more of the -- expanding the value chain really helps us to accelerate our growth in sales, enhance our operational and innovation capabilities. But very important is if you want to be a leading European company, you need a Central European base. So I think here, Norway is good. We have -- we'll always have our Norway base, but it's important to have a base in Central Europe. So I think this is one thing the M&A will achieve. The status. We are in advanced discussions with several companies. We're getting very close, and we do expect our first transaction to happen in the first half. Of course, that is all dependent, of course, on agreeing terms, but I'm confident we will do that. So I'd like to switch gears and talk a little bit about Biotec BetaGlucans. And when it comes to Woulgan, as I mentioned, we made a decision to divest. And we've, of course, spoken to all of our customers. And as we expected, there's been mixed response. Some customers were totally okay, but some are okay. But our position here is it's business as usual. We are still going to provide product and the same service we have to our existing customers. We're seeing positivity around Woulgan with potential business development consultants. And what we want to do is bring a business development consultant on board to help us to drive the divestment process. And the consultants we've spoken to are very positive towards the divestment here. And we've had some interested parties already approach us as well about purchasing Woulgan. So I think here, we're seeing a positive response to this. From the commercial sides, even though we've got growth in Woulgan sales, it's -- for the quarter and for the year, these sales are far below our expectations. So again, that helps to support -- this supports our decision to divest Woulgan. Germany still represents the key market and the driver for sales for us. The majority of the sales of Woulgan have been there. What is interesting, in December, we actually signed a new distribution agreement with a company, BioLogiQ, in the Netherlands. And they were fully aware. We talked about the divestment of Woulgan. They're fully on board with that, but they still signed up. And so that's encouraging. I think that is a very positive signal that people still want to come on board, even though we're going through a divestment process. So when it looks -- when we look at the other Biotec BetaGlucan segments, the adjuvant, the SBG, as mentioned, we really want to extract the commercial value moving forward. So we've had a lot of -- we've had discussions in Q4, and we are continuing those discussions with [ the vaccine ] owner, Y-mAbs and Memorial Sloan Kettering Cancer Center in really translating those -- research shows those clinical trials have been done over the last few years into commercial value. And that's really important now. We need to make sure that the work we're doing pays for itself and brings profit into this company. So that's what we're working on right now. Consumer health. We've got growth in the M-Gard product in Q4, and this growth is actually mainly due to bringing new customers on board. We're seeing a nice expanding funnel of potential leads in the U.S., Asia and Europe. For animal health, for the sales of M-Glucans in the feed sector, sales are down for Q4. And for 2019, sales are down compared to last year. We also -- and I think some of the reasons for sales are down is there are some seasonal effects when it comes to sales of these products, particularly in the salmon feed market. So with that, I'm going to hand over to Børge, and he's going to go through the financials.

[Børge Sørvoll, Chief Financial Officer]

Thank you, Jethro. As Jethro has talked about, Q4 was actually the best quarter ever we've had so far, and it's actually the best quarter since the company was listed on the stock exchange since 2005. And it's also -- it's following a really strong third quarter this year. That was also one of the best quarters in the history of the company. So we have seen a really good positive trend in the second half of the year, now this year. And even though some areas have underperformed this quarter, other areas have definitely excelled, and we've seen significant growth in the quarter. By combining sales and controlling our expenses, the fourth quarter and the full year 2019 turned out to be really good and, as I said, the best so far. Looking at the cash flow for the year. It is easy to see that sales and -- that sales are generating good cash flow. And our fourth quarter changes in cash and cash equivalents were actually NOK 9.2 million, and it's a really good quarter. And of course, what is the explanation behind this? And also, and I think we have to come back to third quarter. We had really good sales in the third quarter. We saw the revenues coming in, in the fourth quarter from those sales. We also had a really strong start in the fourth quarter in October where, also, we see that all of the cash from those sales came in, in the fourth quarter as well. And there are tax grants from previous year are being paid out in October as well, and that has also a positive cash effect for the quarter. And that gave us NOK 9.2 million and changes of cash for the year. And even though we see that our cash flow was increased, our payables has remained unchanged, whereas our receivables are reduced slightly also. It's gone down NOK 3 million compared to same year last year. So I would say we have a good situation here going into 2020. And as Jethro said, our cash balance at the end of 2019 was NOK 31.3 million. At the end of last year, we had NOK 31.6 million. So our ambition to significantly reduce our cash consumption is -- we have exceeded that statement by far. And I think 2018, we had a cash consumption of around NOK 12 million for the year, excluding the capital increase we did in June last year. Going over to sales. As Jethro has talked about, ArcticZymes grew their sales by more than 50% in the fourth quarter compared to the same quarter last year and generated NOK 16.3 million. Animal and consumer health, there, we saw a decrease in that area by close to NOK 2 million, in excess of NOK 2 million and is primarily explained by reduced sales in animal health. And that, as Jethro also said, we see some seasonality in that area of the business. And we also saw, on an annual level, sales in that area were down by NOK 4 million on -- for the full year. We again generated NOK 1.1 million in quarterly sales compared to last -- NOK 0.9 million last year. And of course, our expectation in this area has been higher. We expected higher revenues. We expected higher growth. So of course, both Q3 and Q4, it was a disappointment based on our own external expectations, even though we have seen growth in that area. But also, I think is that this is -- I think it defines -- or it's the correct decision to divest Woulgan because we don't have enough marketing power. We don't have enough resources to give this product the proper attention to get those revenues in. And also -- and as I said, even though it's an amazing product, but we don't have the necessary resources to get the sales here. Anyway, sales for the quarter, they were up to NOK 23.1 million compared to NOK 19.5 million in last year. You can also see some -- if you look at the graph on the right-hand side, you see that, of course, it's the ArcticZymes business that is driving it. And you can see there's a really nice trend from Q1, Q2, Q3 and Q4 now. And of course, so we wanted some -- basically, we said that we would have some quarterly fluctuations in this one. So we don't see kind of a continuous trend just going straight up. There will be bumps and bumps along the road here. But of course, you want to see that -- where we are, we want to see that annual growth in the annual figures for -- especially for ArcticZymes. Looking at the profitability, it is the same as with sales. Of course, it is the best quarter so far. We delivered an EBITDA of NOK 4.6 million in the quarter. It is -- the numbers have been adjusted slightly. Both the Q4 2019 and the Q4 2018 numbers, they have been adjusted for IFRS 5, which is assets held for sale after we made the decision to divest Woulgan. We basically had to take all the expenses related -- all the direct expenses related to Woulgan. We had to take them out of the P&L and put them on a separate line, basically. So the EBITDA here is excluding Woulgan. So this is the EBITDA from our continued operations, how the business would look like without Woulgan as such.But of course, personnel is still our biggest driver for expenses, but it's also the biggest asset we have in the company. Without the highly knowledged and educated personnel, we will not be able to drive sales, and we won't be able to generate new products either. So that is important. But also, it is -- so I think from an EBITDA perspective, as Jethro said, we took some restructuring costs in December, close to NOK 2 million that, of course, we have seen the cost effect. We saw that one in the fourth quarter. But the cash effect will, of course, come into -- we will see that one in 2020 when we have the payables from those restructuring costs. And also, I think it's important to say that IFRS 16 leases was implemented on January 1, 2019. It's been implemented in all of the numbers, but basically, it has an effect on the way we book our property, plant and equipment, our rent, the housing, et cetera. So all of those expenses are now being booked on the balance sheet and depreciated. And that has an annual effect of around NOK 3 million that has been taken out of the profit and loss statements. But all figures have been recalculated for comparison purposes. So this one shows how we have improved the business, basically. Going into ArcticZymes, some of the details in ArcticZymes. And as we have said, I'm not going to say so, but I think it's a nice story. We have grown it from NOK 10.6 million to NOK 16.3 million on the quarterly sales. But even better, we also see on the annual figures that we have grown now ArcticZymes from NOK 32.5 million to NOK 45.2 million. And that's a growth of almost 40% on an annual basis, which I think is a number that we are really proud of. Operating expenses have, of course, increased. We have invested more into this business. We have reallocated resources from the BBG side of the business over to ArcticZymes. We have also -- we also now, in 2019, we had the full effect from the BDs, the business developers, that we hired in last year. So they are all in this year. And we have also taken on some expenses relating to M&A or inorganic growth consultants. That is also part of driving some of the operating expenses, at least for 2019. But looking at the bottom line, of course, Q4 was an amazing quarter. So we grew -- our EBITDA went from NOK 3 million to NOK 9 million, close to 200% up. And also, essentially looking at our EBITDA on an annual level that it grew by 100%. It went from NOK 7 million to NOK 14 million, basically. So it's a good achievement on an annual level as well. And then going into the BetaGlucan side of the business. And the BetaGlucan numbers are now -- they are based on continued operations. So the numbers here are excluding Woulgan as such, all of the direct expenses and sales and revenues. But also, I think you can see it from -- I have a net profit line here that's basically showing that -- what is Woulgan contributing to the numbers here. But we see that our -- of course, our sales were down, as we said. It's down to NOK 5.6 million compared to NOK 8 million in the same quarter last year. We also see that annual figures are lower. But these numbers are actually better than our own internal expectations that we had when we started the year. So we have sort of exceeded what we saw. And this is going -- it's not going to be a business that is -- will grow a lot here when you look at the animal and consumer health. And gross profit is, of course, down as well. When you have reduced sales, the gross profit will go down. But we have also reduced our activity levels in this area as well. So our expenses have gone down as well, especially if you look at the fourth quarter. And you also see that our EBITDA is worse than the last year. We go from minus NOK 1 million to minus NOK 2 million. But when you look at that at an annual level, we have actually managed to improve it slightly by NOK 600,000 when you've gone from NOK 5.7 million to minus NOK 5 million. And as I said, if you look at Woulgan as a separate entity, fourth quarter, they had a net loss of NOK 1 million compared to a net loss of NOK 1.9 million in the same quarter last year. And on an annual basis, this year, we had NOK 3.5 million compared to NOK 6.9 million in the last year. And this, of course, also -- this is direct expenses. This excludes all of the internal hours that I used and then Jethro used and then Christian used as well. And then, of course, that is expenses that are gone as well now kind of based on the expenses we had for Christian, that we won't see those in the future. So of course, we expect the numbers to improve. But I think with that, I think Jethro will talk a little bit about the future now and where we see that 2020 will go.

[Jethro Holter, Interim Chief Executive Officer]

Thank you, Børge. So I'd just like to give you a flavor of what to expect in this -- now in 2020. And I think the important thing is really, it's about going full speed ahead with a new strategic direction. We're there. We're ready for that. And of course, it's about executing the #1 goal. It's driving the whole business into profitability in 2020. It's also going to go beyond that. We want to make -- ensure we grow that profitability, make sure we're sustainable moving forward. We've gone through order restructuring. In December, we reorganized to do a whole reorganization of the personnel. So -- but it really supports ArcticZymes. As I mentioned earlier, ArcticZymes is 80% of our focus now and will be the main strategic business. We also have been working, and we'll ensure that we drive the acquisition process as fast as possible. We want to get that first acquisition in the first half. I think that's important. We really see some very nice synergies with the target -- with the targets we're looking at, which will help us accelerate the growth. Of course, when it comes to the Biotec BetaGlucans, it's important that we now operate that as a profitable business. So part of that is, of course, we've reduced the personnel there but also how we work in those individual business is going to be different to how we have done before. It's the same thing when I came to ArcticZymes 5 years ago. We had to look at the business and really be very smart and put a strategy behind how do we make those work. And it's the same thing here with the BBG. Even though we changed personnel, how we work will be different moving forward. Now it is about making that business profitable. And of course, when it comes to Woulgan, this is obviously working on that divestment process. And as mentioned, we have -- we have consultants who are going to help us. We should be hiring a consultant very soon and get that process going. So -- and I think this is really the recipe that we see to what will drive long-term shareholder value. So with that, we'll stop, and thank you. And we open for questions.

[Unknown Analyst]

What do all these businesses [indiscernible]?

[Jethro Holter, Interim Chief Executive Officer]

So in 3 years' time, what we did in the investor update in December, we sort of put a kind of outlook, a more longer-term financial outlook. And I think the goal is what we're looking at. What we said is in 2023. That is the goal to at least have the ArcticZymes business bring in NOK 100 million through organic growth.

[Unknown Analyst]

NOK 100 million?

[Jethro Holter, Interim Chief Executive Officer]

NOK 100 million, yes. But of course, that's through organic growth. Of course, if we do M&A and we're successful with that, bring another company in, that will allow us to potentially accelerate that and hopefully, make that happen earlier. So that is the financial outlook we have, and we have very good visibility to ArcticZymes. We have a good 6-year plan. BBG, that's a little bit more complicated. I think to have a kind of long outlook there, we have to take this step-wise. And I think the focus now is Woulgan. And then, of course, I think the most -- when you look -- in terms of the B2B business, I think the SBG, the adjuvant is the most exciting thing that we have there. But the important thing is we need to translate that into a commercial value now. We have to get some license, and we have to get that licensing deal, whatever it is to really get the value out of it. And as mentioned, the animal and consumer health, that we have to monitor very closely. That needs to pay for itself. And that is a commodity market, and there's stiff competition. So I think that, we take step-wise as well. And like I said, we will maintain those while they're profitable. But 3 years down the road, that is difficult to say how those businesses will look. So.

[Unknown Analyst]

Have you taken all the restructuring costs in 2019? Or is there more to be expected in first quarter.

[Jethro Holter, Interim Chief Executive Officer]

No. We have taken -- we've taking them all in Q4. Do you want to comment any further?

[Børge Sørvoll, Chief Financial Officer]

No. I think you're right. We have taken all of the expenses in the fourth quarter. We do not expect to have any more restructuring costs in the first quarter or in 2020 as such.

[Unknown Analyst]

Another question regarding turnover. How much is recurring? How big a proportion of the turnover will be recurring?

[Jethro Holter, Interim Chief Executive Officer]

Børge, do you want to...

[Børge Sørvoll, Chief Financial Officer]

No. I think you have to -- as Jethro talked about, I think, listen, we have a marriage with our customers. But of course, we are trying to grow the business with them as well. So of course, most of it will be long-term recurring revenues as well. So of course there are -- some of the customers are buying only in 1 quarters where others are buying every quarter. But on an average level, of course, most of them is a long-term relationship. That is what we try to get with all of our customers here. So we lock them in for a long time when we have -- when we are part of their -- in their product range.

[Jethro Holter, Interim Chief Executive Officer]

And that's particularly in ArcticZymes because, of course, we have -- we are a B2B OEM business. So what that means is we serve companies who develop products. They have to go through a long time, maybe 1 to 4 years to develop a product. And with that, they select you as a supplier, which you work with. They take your safety and enzyme as a component that they integrate into their product. They've invested a lot of money to do that. Some of those companies then have to then take their products and get regulatory approval in order to sell it if it's a diagnostic. So then you're already locked in and -- as a supplier, and you become a critical raw material supplier. That's often the status we have with our customers. We're a critical raw material supplier. So that means that you are locked in. It's that marriage I talk about. So for a lot of the business, particularly in ArcticZymes, it is all about that. It's that long-term value. So we do get the reoccurring turnover. It's different to an end-user business. If we were just having -- selling the end-user business to universities, that's a very transient business. Research at the bench will -- sometimes they will use the -- what's the flavor of the month. They might buy this product now for a few months for projects, then move on to something else. So your sales are -- with individual customers are very transient in that world. So I think that's the kind of difference. It's really about understanding the dynamics we have with our customers.

[Unknown Analyst]

And finally, regarding Woulgan or the divesting of Woulgan, have you started this activity? Has there been an interest? When do you expect things to happen?

[Jethro Holter, Interim Chief Executive Officer]

Yes. I sort of talked about that. So one thing is we're working with hiring. We're hiring somebody who -- it's their day job to divest. It's what they do. So we're hiring a consultant. We're very -- we're in this process right now. We've spoken to several consultants right now. And now we're selecting the one very shortly here, who we think will be the best to drive this process. And I think everybody we've spoken to is very positive about this project. These people you hire and these consultants, they won't take this project on unless they think they believe they're going to be successful here. So I think what we're seeing is we're very positive, and they're positive to what we've ever seen. Now it's deciding who is the best one to hire moving forward. So that's where we are. And we have had already some parties come to us directly about interest in buying Woulgan. So I think it's positive out there.

[Unknown Analyst]

Any value assessment on Woulgan?

[Jethro Holter, Interim Chief Executive Officer]

That something is -- not at this stage. And of course, that's something we would -- it would be foolish to disclose that publicly because we have -- there's a negotiation that needs to happen with interested parties. So I think it's not smart to put something on the table anyway. Even if we did know it [indiscernible].

[Unknown Analyst]

So I just wanted to say that prospects for ArcticZymes is looking even better. And just wondering, the SAN products, the lifespan of this product, is it for many, many years to come? Or how is that?

[Jethro Holter, Interim Chief Executive Officer]

Most definitely. A very good question. So -- and thank you for that. When you look at the gene therapy market, it has actually been around for a very long time. It started out in the 1990s, where there was -- there -- actually, there was an experimental gene therapy that was done. But unfortunately, the patient died. And they actually stalled the market for many years. But since then, the kind of technology and the understanding has improved. So now I think we're at a different stage, a different thinking. And I think the regulatory authorities are also important to have because they really control what you do, and they have a different mindset. .They really see that -- they're changing the way in how they regulate that. So I think here, we have all the stakeholders. The regulatory authorities have a different picture of this. The investor community has a different picture. The science is advanced. We understand more about making good-quality, safe products. Remember, SAN who's used to make that product safe. SAN, when you make the virus, SAN is used to clean up the contamination on the outside of the virus to avoid adverse effects. So I think here, we -- the industry is new. It's sort of when you look at growth of some of the new companies out there, they're growing over 100% annually, some of these. And now we're starting to see the real commercial, real-life examples coming to market. Spark Therapeutics was the first company to commercialize a viral-based gene therapy. And if you have a look, they've been acquired by Roche. And we've been seeing every day new companies coming up. I think, every week, we have a new customer who wants to try SAN. And so I think the momentum is there. I think there will often bumps in the road. There are going to be -- like with any -- even in traditional medicine, when you're developing drugs, patients have adverse effects. Some patients die. That's the nature of developing a drug. It's the same -- it's going to be the same in this -- in the gene therapy area. But it's not going to be like the '90s where one patient died, everything stopped. Here, the -- it's accepted, this technology. The only thing right now, it's in the early stage. It's very expensive. It's $1 million to $2 million for a therapeutic. But of course, that cost is being driven down, and that's what makes it accessible. Companies like [ Allstate ] Bio-Medical, they already said, "Look, in the future, our technologies, what we want to do is bring this down to USD 200,000 per treatment, eventually get it down to maybe USD 20,000." And these things are achievable because these happen in the sequencing world. In a sequencing world, it costs millions and millions of dollars to sequence the first genome. Today, it's under $1,000 to sequence a genome. It's going to be the same in the gene therapy space. So I think we're just at the beginning here. So I believe future medicine, in 20 years' time or 15 -- let's say, 10, 20 years' time, new era medicine will be genetic medicine. So that's my phrase with genetic medicine. But I think now you're modifying your genome. It's going to be something very acceptable in 10, 20 years' time. Today, it's a bit Star Trek or science fiction. But really, it's -- this is the reality we're in. So I think, long story short, we are beginning, and that's why we're there. That's why we're developing more products. We see where this market is going, and our sales is demonstrating that. I don't see it going away. So.

[Børge Sørvoll, Chief Financial Officer]

Any other questions? I didn't have anyone online either. Online -- any questions online. Well, I don't think we have any more. So I think we're done.

[Jethro Holter, Interim Chief Executive Officer]

Thank you.

[Børge Sørvoll, Chief Financial Officer]

Thank you for today, and have a good day, everyone.