Gentian Diagnostics ASA

OSE:GENT

Earnings Call Transcript 2023-Q3

[Njaal Kind, executive]

Good morning, and welcome to this webcast for Gentian Diagnostics Third Quarter 2023. My name is Njaal Kind. I am the CFO. Also presenting today is Hilja Ibert, CEO of the company; and Aleksandra Havelka, Chief Scientific Officer. [Operator Instructions]. Lastly, we will make a recording of this webcast. So if you are not able to participate to all of it, you can access it later. It will be available shortly after the presentation. So with that, I would like to introduce Hilja Ibert, which will start off the presentation... Good morning. It is my pleasure to introduce our session today with the introduction. Ibert?

[Hilja Ibert, executive]

[indiscernible] We have Mr. Alexander today with us, who will give a little more deeper information into selected products. And then this will be followed by Njaal with the results of Q3 and obviously as well as year-to-date. Yes. Gentian Diagnostics is fully dedicated to the [indiscernible] statement, which is our red line, which drives our decision-making processes. And this mission is about the innovation of efficiency for the diagnostics market and with this, allowing clinicians in new hospitals at the general practice offices to take better treatment decisions. This sounds easy. It is not easy, but it is very, very relevant. And with relevance, we carry from most a little bit south of Oslo here in Norway, where we have our headquarter. We have as well sales offices in Sweden. We have a sales office in the U.S. and a representative office in China. And from all of these sites, we serve more or less all laboratories all over the world, we can. We have not yet all laboratories as our customers, but we are able to serve the world with our products and services. The company has achieved DKK 112 million in 2022. And looking back over a period of 4 years, we achieved a compound growth rate of 28%. And I hope that make curious why we have achieved that. And we continue to be able to achieve such a similar growth. Since 2016, we are listed at the auto Stock Exchange. And end of September, our market cap was about NOK 660 million. For some of you, you may not be so familiar with the diagnostics industry. We are part of a big life science industry and big is mainly the pharma and biotech part where it's about treatment of patients. The diagnostics industry can be split in 2 parts, in vivo diagnostics and in vitro diagnostics. In vivo diagnostics, just for your information is, for example, XR, in vivo diagnostics, IVD is our space. We are helping laboratories to examine samples of patients. So not at location, but blood or urine samples are taken from a patient and transported to a laboratory. And there, the examination is taking place with all kinds of technologies. Our current focus is the immunoassay technology and even more specific [indiscernible]. And the Peter expertise, which we have developed during the last years enables us to achieve a significant value proposition or to propose a significant value proposition to our customers and our partners. Because we are addressing an eminent challenge in the market, and that is efficiency. The laboratory is all over [indiscernible] over the world are faced with increasing numbers of samples with same or less resources. So therefore, they are looking for efficiency or productivity gains. In addition to this, they have challenges from clinicians to provide results for relevant biomarkers faster and more often and at lower cost. So with this, our contribution is to allow laboratories to drive or transfer biomarkers from currently unefficient low throughput instruments, which require a much higher amount of work fourth time, to instruments which have a much higher throughput possibility and which are as well providing results much, much faster. And with this, the benefit for the clinician is that they, as the clinicians achieve results or receive results significantly earlier, which is very important for them to take those results into account when they take treatment decisions. And for the laboratories themselves, it is, let's say, achieve a productivity gain as they can run biomarkers now with a 3 to 10x higher throughput. So going back to the value proposition, we achieved faster results at lower cost. So more for less, and that is a very powerful value proposition back to why have we achieved a 28% comfort growth rate during the last years. So these last years, we had followed a strategy which has been, of course, constantly evolved and improved. But all in all, the strategy is built on 3 pillars. Number one, are obviously our products, the products which are driving this value for laboratories. We have the aim to have a product portfolio which is constantly growing. So since this quarter, we have increased our product portfolio by one. So we have now -- our strategy is now based on 8 tests with a servable market of about USD 1.8 billion. The growth of this market is estimated by the research company, which we have used 5% to 10%. We will speak later a little bit more detail about the products but to be mentioned and important for our success now and in the future is our team. We assembled since the first hour when the company was founded until today, first-class talent in the field of PTL, but as well in other domains like production of high-volume products biological products, regulatory affairs, commercial affairs.So all of the expertise you need to work in this highly sophisticated diagnostics market. And talking about the Commercial Affairs, our go-to-market model was quite realistic about the nature of our products, which are reagents, which can be used on all instrument platforms you can find in laboratories. So these instruments are [indiscernible] by many companies, but you can say there are top 10, top 20 companies, which cover probably 80% of the market. And those companies are attractive partners for us to add our regions to their instrument portfolio and their selling our regions as part of the total portfolio. So while we are still serving customers directly, but we do that very selectively to keep in touch with customers and to know what the trends are in the market. The majority of our sales is coming from the collaboration with these commercial partners. As we had reported in the last years, we have, all in all, 5 major global IVD companies, contracts like Beckman Cuteness, like our partner, Burman, who has achieved a partnership with Roche or as well an earlier collaboration, which we have started with a well-known company, Siemens. We believe this is a good model. And all in all, the strategy we concluded is working.And I mentioned it before, because when we are looking back the last 4 years, we achieved a high 28% compound growth rate, which is encouraging. And especially as we believe we can maintain at least that level as we have as well to blockbusters and potentially even accelerate that growth. We call it blockbuster products because they have individually a significant potential in the market. And we will speak today at least about one of this product. in more detail. So all in all, our products are categorized into 3, I think, well-known categories, the so-called established products means those products are part of the medical routine in many or maybe all countries of the world. Here, for example, we have [indiscernible], our #1 product, our first product as well, addressing kidney disease and has a more and more recognition in the market, as you can see as well from the growth rate. [indiscernible] third product on this list is addressing a different kind of disease, inflammation of the bowel, the absence or the presence of an inflammation in your bowels, and as well the availability via our technology to clinicians.It has increased the demand for this and is as well part of our growth success that we had in the last years. Another example of the established products is now our new product, RBP, retinal binding protein. And Alexander will speak in a minute a little bit more about our new value product. The other category is market development. We have -- maybe starting with the second task contributed to the pandemic with an antibody assay, which is our core business. All companies supported governments with whatever is in the expertise. This product -- the markets need to develop in this direction. The funding pandemic is over. We will not actively work on market development, but the product is available in case the need for such antibody detection is required. But more important is the product detail, which we launched in 2019 with a severe market development program, mainly under the lead of Alexander, who you'll meet in a minute. We will not speak today. We had last quarter, I spoke with a little bit more in detail about Carl. This market development efforts are mainly based on clinical studies proving the value of [indiscernible], which has been scientifically clearly confirmed and the awareness in the market is increasing month after month. So we are very positive. While the sales is still not where we want to see it. But knowing market development, we know as well, this will come one day as long as you see that the science is positive and confirms the clinical value and the clinical relevance. Last but not least, the third category is product development. And here, we have [indiscernible], cardiac marker in development since many years. And this reason is that this is breakthrough development as we are going into areas of sensitivity, which no other scientists or a company has ever achieved with this technology. But it is important. We believe it will drive a lot of value for laboratories to have such a high-volume marker available on clinical chemistry analyzers. And Alexander will give an update as well where we are standing with this. And having that said, I'm ready to hand over to you, Alexander, starting to speak about new baby. Thank you.

[Aleksandra Havelka, executive]

Thank you, Hilja. Good morning. My name is Aleksandra Havelka. I'm Chief Scientific Officer in Gentian and I'm happy today to present a new assay in our portfolio. The assay is turbidimetric, instrument independent and is used for measurement of retinal binding protein. So retinal binding protein is protein, as indicated by name, that binds retina or vitamin E. And it's involved in the transport of vitamin A from liver to organs and tissues in the body. Levels of RBP correlates very well with levels of vitamin A in blood and RBP can be used as a surged biomarker for measurement and assessment of vitamin A levels in blood. So this assay can be used for screening for vitamin A deficiency and also for estimation of vitamin A levels in the blood. Levels of RBP in blood are relatively stable. And this biomarker can also be used for estimation of nutritional status, basically for estimation of under nutrition. And prevalence for under nutrition is increasing in the world, partly because of the economical situation in the product, but also because of the increasing prevalence of elderly people and people with different food-related disorders. RBP is mainly produced by liver, but this can also be produced by adipocyte fat cells. And it has been shown that this biomarker is increased in patients at the risk to develop type 2 diabetes and in diabetic patients. So it can very well be used for assessment of the risk for developing of diabetes and monitoring of insulin resistance in diabetic patients. RBP protein is small. So it's freely filtered and reabsorbed in the kidney. So together with the cystatin C, one of our biomarkers and assays, it can be used to better understand renal insufficiency. As you see, there are many clinical areas where this biomarker and assay can be used and in line with our strategy and the proposal value proposition, with RBP assay, we will replace cumbersome and time-consuming methods that are used in laboratories today. We will provide fast results with easy integration of our assay to the laboratory workflow. The assay is ready for distribution in sales in U.S., U.K. and Europe today. I'm also happy today to report good progress on development of [indiscernible]. During third quarter, our team has reached a significant technical advance in development of the assay prototype that we are working with today. As you know, NT-proBNP is used for the detection and the estimation of congestive heart failure. And the majority of technical specifications with the working prototypes have been met during this quarter and current assay prototype. As previously mentioned, our assay will not be affected by glycosylation of NT-proBNP molecule. And we are currently working on understanding of the impact that will have on the clinical performance of our assay and other assays on the market. So as soon as we have a finalized optimization phase, we will start with the planning and execution of studies that will confirm clinical performance of our assay. We will, of course, underlie samples from healthy individuals in order to establish reference range in healthy population, but we will also study these samples from patients with confirmed congestive heart failure in order to establish and align our assay with the existing assays on the market. The development period after finalization of optimization phase will require 12 to 18 months for finalization of technical development, and clinical evaluation of clinical performance of the assay in order to ensure compliance with new regulatory IBDR standards. So that's all from me for now. I hand over to Hilja.

[Hilja Ibert, executive]

I'm back. Thank you very much, Aleksandra. So you may be -- you may ask yourself, well, they are lifestyle-related or associated diseases, cardiac, their inflammation infection. So you may realize that we are not focusing on one disease area. We are focusing on our contribution to efficiency of laboratories. So like with original mining put in, the SA is mainly done currently with very composing methods. And having that now available as a TR-based reagent, which can run on the clinical chemistry analyzers, which will enable laboratories to increase productivity, but as well as serve commissions now with results much faster, and the same, obviously, with NT-proBNP, it is about the clinical and the laboratory efficiency, which we hope then to improve. Speaking now about the business potential of our product portfolio. We have estimated a total addressable market of 6.1 a little bit more U.S. dollar based on Kalorama market research done in 2022. Our total serviceable market, we have been, and that means that this is specifically those part of the market segment, which we can address with our product as these segments are often defined much larger is USD 1.8 billion. We have made the difference for us between the established products. It has been the 5 products I mentioned before. We have a company estimate of [indiscernible] market of USD 20 million added to the established product part and more to come on that when we do our next big today. But specific data have not been yet available until now, but we will continue to search. But currently, our estimation is it is a USD 20 million market. We have as well the category on GCAL itself and GCAL as infection sepsis marker, which is a product category or technology category in these market research data themselves, where we estimate that the serviceable market is USD 140 million. And then we have the other part of which address inflammation, which are [indiscernible], for example. And there the market is USD 250 million. And NT-proBNP, one of the reasons why we call it a blockbuster is USD 900 million total serviceable market, this brings us to the USD 1.8 million. We have a -- we believe a realistic as in made to be able during a period of time, which need to be defined. We have currently 5 to 7 years in mind, it can be shorter, it can be longer to achieve a market share of 15% in average. And as we work mainly with partners, we take from that 30% to 50% share as our partners are the ones who would sell the product. All in all, I mentioned before, we assume this market to grow by 5% to 10%. So with this, you can follow most likely how we got to our USD 1 billion ambition. It's an unrisked ambition. And obviously, as well when we look to the market -- service market size of NT-proBNP quite dependent when we are able to launch NT-proBNP, but all in all, there is big potential for us in this market and room to go for established products, GCAL and NT-proBNP and more to come. And last but not least, before I hand over to Njaal, a summary of our strategy, and this is our long-term ambitions to achieve NOK 1 billion, again, unrisked. We continue to aim the 20% annual growth of our established products. In addition to this, we are working hard to create more and more demand in the market for GCAL, Calprotectin and sinoplasma was focused on infection and sepsis and [indiscernible] and deep team to finalize the optimization of NT-proBNP and finish on the remaining part of development and regulatory affairs to have the product in Europe and later on in the rest of the world. In addition to this, we have projects in the pipeline, and the aim is to continue to bring new products to market on a constant level. In addition to this, we have 5 IVD, large IVD companies as partners and engage with them. Our aim is to have at least 1 more contract per year means one more product for the existing partners or a new partner. And for this year, I think we have achieved this very nicely. And from a financial point of view, we aim to achieve a gross margin of 60% coming from 50 these days, mainly with scale up with the volume growth, and we have, therefore, as well the ambition with some cost control and discipline to have a -- on a long-term period of time to achieve an EBITDA margin of 40%. Yes, let's see how we have done in Q3, and you can then challenge us how we are doing against our strategic plan. Njaal.

[Njaal Kind, executive]

Thank you, Hilja. So I will give a financial review, and let's start with the headlines and highlights for the third quarter and also for the first 9 months of the year. So today, we are pleased to report sales of NOK 32.1 million in the third quarter. This is up 39% compared to the same quarter last year. So that's quite strong. And if we adjust for currency tailwind, we report an organic growth of 29% in the quarter. Year-to-date, organic growth is 21%. We are also pleased to report positive EBITDA, NOK 1.2 million in the third quarter and SEK 4.3 million year-to-date. So we are still in positive numbers. Year-to-date last year, we had an EBITDA loss of minus SEK 11.5 million. So the improvement in EBITDA year-to-date compared to the same period last year is close to SEK 16 million. If we look at the products, let's say, the champion this quarter, it is [indiscernible] where we have a 90% sales growth compared to the third quarter last year. And we have 39% growth on that assay of that market year-to-date. As spoken here and other highlights from our side is that we added a new product to our portfolio. It's called retinal binding product or RBT, and we look forward to update you further on the development -- sales development on that market going forward. But obviously, no sales of RBP in this quarter. So some details here on the sales. As you can see, overall, strong growth to SEK 32 million compared to SEK 23 million last year. Asia, if we look at the geographies, Asia is a big winner this quarter where we are happy to report $11.5 million of revenues. So this compares to SEK 2.8 million. So exceptionally low third quarter last year. The U.S., it's still quite small figures. So we have, in that respect, a soft quarter, but year-to-date, we are up 24% of sales in the U.S. And we are looking to invest more in our sales and marketing efforts in the U.S., so to bring sales in that region up towards the levels that we have in Europe and initially. If we look at the first 9 months, you will see that we have seen growth on all the products and through all the sales channels that we use to get those products out to the final customer. And also year-to-date, has shown strong growth. [indiscernible], when we look at the products, you will see that this quarter is actually down 10% compared to the same quarter last year. However, on a year-to-date basis, it is up by some 20%. The reason we have seen a decline in sales for [indiscernible] is that we had some orders, some order volumes being shifted from the third quarter to the fourth quarter. So this is just a delay of sales, and we really look forward to report the cancer sales for quarter 4 when we get there, and hopefully, that will have even up. Third-party projects, just a note on that as well, as you see year-to-date, 56% growth, very strong, driven by, to a large extent, some major accounts that we won in Norway and Sweden over the past year. So developing quite strongly there. Other products, as you know, is some of these smaller products contributing to growth as well. After revenue comes cost and we report SEK 17.3 million in cost OpEx before depreciation here. As you can see, we see a decline in admin expenses, we see an increase in marketing expenses. In total, we are, in fact, lower on cost than in the same quarter last year. So I would say, a quite decent cost control, especially in light of strong sales growth. So we are quite satisfied with that, and we believe that this shows to a certain extent, the scalability we have in the business. Having said that, on OpEx, as we continue to grow, OpEx will increase over the longer period. We need to invest in scaling this business properly to the sales volume, which we also have a question about later, we also see inflationary effects. But for the moment, we are able to, let's say, offset those effects with productivity gains. Cash, NOK 76.4 million. So that's still a healthy and strong cash position. Year-to-date, we have had a cash burn of NOK 5 million. In the quarter, it was SEK 4.3 million. So the majority of it came now in the third quarter. But as I said, year-to-date, down a cash burn of NOK 5 million. That compares to a cash burn of NOK 21 million for the same period last year. So we have, in fact, reduced our cash burn significantly compared to last year. Equity ratio remains at the same level in the mid-80s, and there has not been any significant CapEx. And we do not foresee any significant CapEx going forward. It will be a few million per year. I think that wraps up the financials. Please use the questions books. If you have any questions here. It actually takes us to the Q&A session.

[Njaal Kind, executive]

And I've written down a few questions while Hilja and Aleksandra spoke. I will take my notes, and I will try to moderate the session. Let's get into everybody's in the picture. Good. I think let's start with some of the products here. So Systems, very strong quarter in Asia. We also spoke last quarter about some changes in the recommendation process that we can see. And I think the question can we summarize how do we see the growth and the prospects for Systems going forward?

[Hilja Ibert, executive]

Numbers, the recommendations, maybe just a short reminder, Alexandra and then I can probably take a little bit of the numbers. Yes. So [indiscernible] is acknowledged and recognized in several recommendations in U.K., in Europe and the U.S. showing the advantages that we see compared to other biomarkers, mainly gain used in routine today. So we foresee increased use of this biomarker in these areas. And having that said, we have made a company guesstimate, if I may say so, we know that out of 1,000 patient samples on a global average, four are tested with [indiscernible]. The other 1,000 are the [indiscernible], which has a lower performance, but cost us very much less and it's part of the hugest more done on every kind of patient. So [indiscernible] is already tested when it's more specific than the questions are already when they are suspicion. But we believe we this recommendation as they are very concrete that from the 4 becomes 20 over the next years, next year to be defined 5 to -- we don't know, yes.

[Njaal Kind, executive]

Okay. Thank you. Another further question [indiscernible] once it was down a bit this quarter, up 20% year-to-date. Any concerns here, anything to note from that?

[Hilja Ibert, executive]

No concerns. The normal life of the diagnostic company. You have raw material supply delays, you have a stronger demand than the forecasted and therefore, you cannot produce as fast as you should. So this is an order fulfilment challenge, which we had in Q3 and resolved. That is what we can report. So therefore, it would be not professional to say that this never happens in the company. But most important is that we have resolved in costs so that we can ship the products and customers are -- have not suffered from this. I think that is the most important. Yes. And they have received the product at the beginning of this quarter. So we will see that in the sales for Q2.

[Njaal Kind, executive]

Continuing here with a few projects with one additional product questions. So it goes on our new product, RBP or retinal binding protein. Would it possible to shed some light on the business potential and maybe how do we see the revenue ramp up? Will it be fast or slow?

[Hilja Ibert, executive]

Currently, I also see this product being in a niche market. I mentioned it before in the USD 20 million global. This is what we estimate is the current market, and that is definitively a niche market. But for us, as a small company, an attractive market. And we know that we drive value with having now Peter SA. We assumed, as I mentioned before, to get into the 15% market share in that market, you can make your estimates and taking the global partner, 50% of this, we are lending into a EUR 1.5 million product or NOK 15 million product over a period of time. So with this, the sales for the next quarters and years, I assume, will be under others.

[Njaal Kind, executive]

Okay. Thank you. I think we've covered most of the product-related questions here. One question about inflation. Do we see any inflationary effects? I can answer that. Yes, we do. We do see raw material prices increasing. We also have in our cost base, a lot of personnel costs, which, to a large extent, follows inflation. What we are doing is, on one hand, where we have the opportunity, we increase prices. And on the other hand, as you have seen, we work strongly on maintaining the cost base at a similar or lower level than we have done previously. And so far, we have succeeded, but as I said, going forward, you will see an increase in OpEx, but it will be more driven by sales volume and ramp new growth more than inflation growth. And it's a good challenge to us. It put us on the edge of our seats obviously. And obviously, we are not experts in this area, but hopefully, we will see then also inflection pressures coming down or softening a bit as we go forward. Yes. Lastly, we can take a question on the screen here. Would you see being on track for the SEK 1 billion revenue goal that we have announced?

[Hilja Ibert, executive]

I would say, yes, 28% [indiscernible] growth rate year-to-date as well above 20% need to be accelerated to get into the period which we have in mind. We have products in our pipeline, which can and has the potential to be an accelerator. So I would say the variable is a time rather than the amount.

[Njaal Kind, executive]

And just to add on that, this revenue ambition also then includes a significant contribution from NT-proBNP not yet developed, but good news this quarter. Absolutely. Yes. I think that concludes the...

[Hilja Ibert, executive]

When we talked about RBP, an element when I estimate is USD 1.5 million. We should mention as well that this product was not developed by Gentian. I think that's an important information as well. We are creative and as well looking for a highly valued partner in that area. And with this, we have been very efficient from a cost point of view, and therefore, [indiscernible] a relatively small market being attractive for us as we produce the product but have not invested into development.

[Njaal Kind, executive]

Good comment. We have no further questions. So unless anyone has some concluding remarks, we will close the webcast now. We will be back again in February with our fourth quarter and full year results. So until then, thank you, and please do get in touch with us if are any additional questions or comments or if you have anything you would like to discuss with us.