Gentian Diagnostics ASA
OSE:GENT
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Okay. Good morning, everyone, and welcome to Gentian Diagnostics Quarter 3 2024 Earnings Presentation. My name is Matti Heinonen, and I'm the new CEO of Gentian Diagnostics since October 1st.
And before we jump to the presentation, a little bit housekeeping information. As usual, we have a virtual Q&A session in the end, but you can already during the presentation submit your questions through the chat box.
And also because this is my first time on this forum, a couple of words of introduction about myself. My background is in science, in molecular biology, and I have done also basic cancer research early in my career. After that, I have spent 26 years in the industry with 3 diagnostic companies: Pharmacia, or [ Phadia ] afterwards; and Thermo Labsystems; and most recently, Medix Biochemica. And then I have spent 20 years in pharma, working with Roche and Amgen.
I have lived and worked in several countries outside of Nordics, including Switzerland, Greece and the United States. And obviously, I have had many roles during that time, including sales leadership, country GM roles in two different countries with full P&L responsibility. I have been in a global strategic marketing role. And most recently, I served as Chief Commercial Officer before joining Gentian.
What I really am passionate about is Life Science and what we do for patients and society. I also feel strongly about sales, commercial execution and commercial excellence. And I love building strategies, but I, at the same time, know that no strategy is good if it's not implemented well and if it doesn't come to our everyday life here in [ companies ].
And lastly, when I'm now approaching my fifth week with Gentian, I have to say that I am impressed both with the people and the level of innovation and technical competencies we have in the company. We have a versatile team, high professionals. And for the size of the company, I have to say we have really robust processes also in place. And our value proposition is compelling and really strong in our focus area.
And taking this together, I'm really proud to be in this role, and I'm ready with our people, our staff to take Gentian to the next level of growth and towards global success.
But that's about me. And now let's move to Gentian. So for those of you who don't know Gentian, just a couple of words about us. We are a fully focused clinical diagnostic company, and we operate in the segment of immunoassays. And even more specifically, we develop ourselves and manufacture diagnostic tests that can be used on highly automated so-called clinical chemistry instruments, and these instruments mainly serve the big central laboratories.
We are, like said, an established company enough, but we are a fast-growing company as well. We are headquartered here in Norway, but we have presence also in Sweden, for the Nordics, in the U.S. and in China.
And what you see on the screen is our mission, which is really clear and appealing. And our mission is to enable efficient diagnostics for better treatment decisions.
So what does this mean in practice? What is that appealing value proposition? What we do is that we convert existing biomarkers typically that are used in larger volumes that are at the moment available only on slow and inefficient platforms to Gentian tests that can be used in automated high-throughput analysers. And that results in two meaningful benefits for our customers. First of all, and most importantly, for physicians and patients, it means faster results leading to better treatment decisions. And secondly, to labs, it means higher productivity and cost efficiency.
So building on this one -- these, and then looking at the recent years success, that tells us that our proven business model is the right one. What we have is 7 tests commercialized, or 6 tests commercialized and one about to be launched. We have entered partnerships with 5 major global companies already. We have in-house industry-leading team and know-how, and we have delivered on average 30% annual growth during recent years. And yet, this is only the beginning of the journey.
We are relying on these 6 strategic KPIs to realize our long-term ambitions. First of all, we operate in a serviceable market of size USD 1.8 billion. And what we want to do and achieve is to grow our established products on average 20% or more every year. We are on the path to prove the clinical relevance of GCAL in inflammation and infections. And we are about to bring soon NT-proBNP to the market, or we are working on that.
Of course, we also, going forward, want to bring a steady stream of new products to the market, and we have a pipeline for that. We want to secure on average one new contract with a global partner per year. We want to take our gross margin from 50% to the level of 60% in the future, and last but not least, reach EBITDA margins of 40%.
So that's about Gentian as a company. And now let's move and focus on quarter 3 results and highlights. If I were to summarize this quarter and simplify a little bit, I would say that it was a quarter of strong bottom-line performance, but with a bit soft top line.
We delivered sales of NOK 32.7 million, which was a -- up 2% from the year before and EBITDA of NOK 5 million, that was a significant increase from the year before. A key message here -- and we will go into the details of regional and product sales soon. But I already want to say now that this softness in top line can be and is attributable actually to one product and in one region, which is China.
We reached a gross margin of 52%, again, a clear improvement from a year ago. And we are in a cash position of NOK 93.8 million and again, up from NOK 76.4 million quarter 3 last year. Other highlights include sales of fCAL turbo that increased 76% over the year before. And also related to fCAL, BUHLMANN, our exclusive commercial partner for both fCAL and fPELA turbo announced a worldwide collaboration with Beckman Coulter for both products.
When we look at the pipeline and the development program, a significant milestone, further one was achieved in Q3 when we moved NT-proBNP to clinical evaluation. We are using first 220 patient samples in collaboration with Norwegian experts in cardiology to test the performance of the test -- of this [ analyte ]. And already, the initial results indicate that we have a good clinical performance.
And then, last but not least, Gentian was also awarded a patent in Europe for a novel NT-proBNP reference method. And this is a testament of our innovation and dedication to this area of research.
With these highlights, I want to actually hand over to our CFO, Njaal Kind, who takes us to the regional sales and other numbers. Njaal?
Thank you, Matti. Good morning. So, as you already heard this morning, we announced sales revenue of NOK 32.7 million. Breaking this down, we can start on the geographic level. We see that we grow nicely in the U.S., although from a low level. We are adding new customers, and we have also recently expanded the sales organization in the U.S. That's not reflected in these numbers.
Europe shows 46% growth compared to quarter 3 last year and 27% growth year-to-date compared to the same period last year. So a strong and solid European growth. In Asia, as you can see, we have sales -- recorded sales of NOK 3 million in the quarter. That is down from NOK 11.5 million in the corresponding quarter last year. And you also see that year-to-date, we are also lower than we were last year.
This is solely due to the sales of Cystatin C in China, which we already at our Q2 presentation said, would be weaker in the second half. And this is again related to a new tendering situation in China. Markus Jaquemar will come back to -- with more details on that later in the presentation.
So in fact, if we look at the product split, we see that Cystatin C is down for the quarter from NOK 16.5 million in quarter 3 last year to NOK 9 million this year. Adjusting then for China, we see that it's actually growing in the U.S. and Europe. fCAL, very strong performance in the third quarter and also year-to-date, 76% growth in the quarter isolated and 45% growth year-to-date. So that's a very, very nice performance on that product. And we see also that third-party products increased compared to both the third quarter and an increase compared to year-to-date last year.
Going from revenues to margins, we have for the last quarters managed to obtain a gross margin, let's say, in the mid-50s. This margin will show some variation depending on product mix or sales mix, and also to what extent the production here is running with outflows. But mid-50s, that is where we expect to be at this revenue level. As Matti mentioned, when sales grow into a substantially higher level, we think that this gross margin could increase to 60%.
On the fixed cost side, on the operating expenses, we show a decline from NOK 18.6 million in quarter 3 to NOK 15.3 million this quarter. If we also adjust for capitalization, we are about NOK 1 million lower this quarter than the same quarter last year. Taking into account that we do see cost inflation, more than 60% of our cost is related to salary. We believe that this OpEx development is quite strong.
Putting this all together, cost and revenue, we have an EBITDA year-to-date of NOK 16.5 million. Setting that in perspective with the last few years, or the past few years, we see that this is a significant improvement and that we have sort of turned the corner from being EBITDA negative now being EBITDA positive.
Cash. We report a strong increase in the cash, NOK 17.4 million addition of cash compared to where we were at the same time last year. So we now have almost NOK 94 million in cash. Bear in mind that we had a very strong reduction in receivables during Q3. We received some chunky payments towards the end of Q3. We are, of course, satisfied with that, but we are at a level where we do see that we are below the normal level for receivables and working capital in general. So this might increase a bit during the fourth quarter.
CapEx still at a low level, NOK 2.7 million, and we have no interest-bearing debt. So our equity ratio is high, 85%.
I think that's where we are. I'm happy to take questions, more details regarding the financials in the Q&A session. Please use the Q&A box that you have available to you on your screens.
And I will hand over for a product update to Markus Jaquemar, our Chief Commercial Officer. Markus?
Thank you so much, Njaal. And I'll actually start with Cystatin C as it has been brought up before already in a few slides here. And our top line growth and the softness of the sales in Q3, as Matti mentioned, is really mainly attributed to the slowing sales in Asia and specifically China.
And let me take that point first because there was also a question already in the Q&A box. We have mentioned the new tender process, which is value-based -- is a value-based pricing process that the Chinese government has put into place, which is not a Cystatin C specific event. It is impacting the whole diagnostic industry as such. And when one follows company reports, they have all seen, or many diagnostic companies have seen a certain impact as a result of that.
We have obtained in the meantime much more additional detail. So first of all, the slower sales on our side is not due to lost business. It is really a result of the new process, which impacts a few things. That means now the process of delivering product to the customers -- a more direct process from our partner to the customers, which actually means reducing intermediates. And as a result of that, stock at intermediates, distributors and partners has been reduced, which again impacted the temporary demand back to us. That's another reason.
We are working very closely with our partner in China. Looking at the forecasts, it does look that quantities are slowly coming back to traditional historic levels. But we keep monitoring that, but we are carefully optimistic about an improvement of the situation with China.
On the very positive side, we have mentioned the new global guidelines, the KDIGO guidelines. We just attended a U.S.-based conference with 14,000 nephrologists, the ASN Week. And it is very obvious that the demand and understanding the benefits of Cystatin C is clearly recognized amongst clinicians, and it is now about actually bringing the test into the laboratory, which we see as a very promising event, of course.
From a regional perspective for Cystatin C, U.S. has been growing very nicely and continues to do so. Also reflecting what Njaal mentioned, we have added a resource in the U.S. to actually be able to respond to the demand and support our partners in the U.S., but also Europe has seen an increase in demand and deliveries for Cystatin C. So overall, positive, with the exception of China where we carefully monitor the [ situation ].
Very successful product in Q3, fCAL turbo, thanks to BUHLMANN, our partner. We continue to see the adoption of this test, [ fecal ] test in the main laboratory with the benefits of an automated process, which includes sample collection and 76% growth in Q3 is obviously an outstanding performance and almost 30% from a year-to-date performance.
One element that's contributing to the growth are increasing volumes from strategic partners like Roche Diagnostics, that was announced some time ago, and we just see growing demands and order sizes from these partners. And as Matti mentioned, they have announced a new global distribution agreement with Beckman Coulter which is significant because fCAL turbo is an IVDR, but also a 510(k) approved product. That means it is truly an implementation at global level. So that's a very promising development going forward as well.
Third-party products, which is the sales that go through our, this subsidiary in the Nordics with Aleksandra. And what we have seen is a very nice high level and continuous and stable performance quarter-by-quarter, and we expect this to continue at the same level. And we have a strong and solid commercial organization now in the Nordics and looking forward to future growth there.
We already had some slides regarding the regional distribution of our sales. And what you see here is the distribution over several quarters now. And you can see Q3. So typically, Q3 has some phasing effects as well. And when you compare Q3 last year and this year, what is very, very transparent is the difference in sales to Asia. So you see an NOK 8 million difference here, and that is solely contributed to those already mentioned Cystatin C sales to China, which make up the difference.
As Njaal mentioned, the U.S. sales are increasing nicely, and we expect this to continue at that level, but they are from a smaller base. And obviously, we have seen very nice growth and -- compared to last year in the European sales for essentially fCAL turbo and Cystatin C, but also some of the other products, which are not specifically mentioned.
With that, I'd like to turn it over to Aleksandra.
Thank you, Markus, and good morning, everyone. I will summarize progress and achievements related to NT-proBNP assay. So as we have informed last quarter, the assay development has been successfully moved from optimization to verification phase. And in the verification phase, our team is working on further improvement of the assay prototype and verification of the assay performance. And this process is ongoing and progressing according to the plan.
This quarter, we have also entered into collaboration with leading hospital and cardiologists in Norway. And with that collaboration, we have secured access to relevant patient cohorts, but also to top-level expertise within the field of cardiology.
In Q3, we have get access to patient samples with suspected heart failure. And we have so far analyzed approximately 220 samples in order to evaluate clinical performance of our assay in patients with symptoms and suspicion of heart failure.
Results so far are very encouraging and indicate very good performance of our assay in diagnosis of heart failure. We will, of course, continue this clinical evaluation of our assay with more cohorts, and we have initiated discussion with key opinion leaders and cardiologists, not only in Norway, but also in other countries outside of the Nordics.
Another achievement this quarter is that a patent for NT-proBNP reference method has been granted. And this really confirms our commitment to participate in harmonization of NT-proBNP assays, but it also strengthened our competence and expertise and competitive position in the field of cardiology and cardiovascular diseases.
As we mentioned before, our aim is to introduce research use-only assay in the second half of the next year. Time line for full commercial launch is planned in 2026, and it is highly dependent on the regulatory clearing institutions, availability and their processes, which is outside of our control, but this process typically takes 6 to 12 months.
With that, I will hand over to Matti again.
So thank you, Aleksandra, Njaal and Markus. So yes, to summarize, despite the softness in top line, which is, like I said, attributable to China, and Markus already elaborated on that, we had a good quarter and with especially strong bottom line. And we have -- we broke the profitability threshold, and we are growing there steadily, as you see. And really the highlights with fCAL and fPELA is an important one, so is our advances with GCAL and NT-proBNP. So we have two of our future growth drivers, actually both in very exciting and critical phase of their life cycle.
With this one, we conclude the presentation, and we are ready to go to Q&A. Njaal will actually run that one first.
Yes. Thank you, Matti. I think you can just be where you are, and we can run some questions related directly to you. So we have a few of our attendees welcoming you and maybe not, let's say, asking about your first impression, but more your thoughts about where you see Gentian going, taking the company to the next level and if you have any concrete plans now, knowing that this is your fourth or fifth week in the office.
Yes. Of course, one should not give any hard promises during -- after a month. But yes, I can elaborate a little bit here because, of course, the [ company ] -- this is a running train, moving train that is actually going quite fast and to the right direction, in my opinion. So there's a question about plans to take Gentian to the next level or expansions.
I would first start with our own development. So we are obviously all the time working to look at the pipeline or other ways to increase, or bring new products to Gentian.
And I think there are some things every company should do. The first one is -- sometimes overlooked, is to develop -- further develop our existing products. We know, of course, them the best, and we may also know if there's something there. So that's an area where we can always -- every company to look is there a possibility to develop a version 2 of existing product.
Second and the most traditional one is, of course, to look at the new targets, and that we do continuously. And we have a list there that we review quarterly and make decisions. I'm not going there to make any -- there's nothing to announce at the moment, but we have a list of products, obviously, we work with.
Then, of course, one can also -- and we are constantly looking, possibilities to develop our technology. So that's another area where we can be more competitive. But also, if we move to the right direction, that can bring even new products within our reach. If we, for example, can significantly improve the sensitivity of immunoturbidimetric technology. So that's something we are working on.
And then obviously, anything about M&As, what we state is that we are opportunistic there. Of course, we don't close our eyes. But at the moment, I have to say, with our own products and pipeline for the size of the company, we have absolutely enough to do.
I would almost say and conclude that I think what is really important for me and us as leadership team to look is that we put our resources behind the right products at right time.
And then the expansion part, by the way, yes, we are obviously doing that, but that's -- and mainly there's a lot to do through geographical expansion. And U.S. is a clear area there where we have -- it's the biggest market, and we have a lot to gain. So we are working and making plans for both regulatory and commercial presence plans over there. So in short, this is my first impressions probably.
I'll ask Markus to join us here for -- we have a few, let's say, more sales operational questions here.
And the first is, if you can give an update on what is called the value-based pricing system in China first, what is it? How is it affecting us at the moment? And I think, yes, what do you see as the end game, the final outcome when this system is finally implemented for Cystatin C?
And very good question. The value-based pricing approach in China was implemented not just now, but really at the back end of last year already from a process perspective. It's a tendering process by which suppliers provide an offer for a certain product or actually a menu. Give you an example, there's a liver menu, there is a kidney menu, there's a cardiovascular menu. And with the pricing offer, the suppliers are retained as suppliers within this value-based pricing system in the regions in China.
Now Cystatin C is not -- is already a very well-established test in China compared to actually most of the other regions globally. So Cystatin C has been established many, many years ago. So it's not a growing market, but it's a stable market. And in the process of the value-based pricing approach, so companies, including our partner, Beckman Coulter in China, proposed a certain price and was retained as a supplier as part of the value-based pricing. And now what happens under this retention of suppliers, regionally, procurement is performed within the Chinese provinces. And Beckman Coulter was retained with our product as part of the menu.
Now what I've indicated already as part of that process, our partner has reduced the number of local partners and local agents, which means a more direct interaction between Beckman Coulter and the end user customer, but it did result in local stocks being reduced at the partner side.
Our process with China is we're working on a rolling 12-month forecast. So we have a, let's call it, an indication long-term and we are reviewing this forecast on a quarterly basis that's changing every month. And so far, the indications are that we're returning -- slowly returning in '25 to higher levels of quantities required in China for Cystatin C, but we're closely monitoring that. The good news is that our partner was actually retained as a supplier in this value-based pricing tender process, which is not the case for some other companies. So that's the very positive news.
And just a follow-up on that, Markus. Do we -- I mean, now the supply chain has been reduced. Do we expect to see a rebuild of the supply chain so that we might have a stronger demand for a period here, sort of back to normal effect? Or do we see that the supply chain will stay, let's say, leaner going forward?
My expectation would be that the stock levels are more reflecting of the real market demand. I think that's what I would expect to see. And as a consequence, I think we may -- there is a shorter product to end user time period as such. And with the demand in the market being stable, I would just see the amounts and the stock level with our one partner in China now being just at regular levels.
I'll keep you here for another question, and it's related to GCAL. And the question is, when can we expect increasing sales of GCAL, and in line with the increasing interest in Calprotectin? So there are 2 questions or one statement, which we might want to elaborate on, and that is the increasing interest in Calprotectin and then how is that affecting our sales of the GCAL product?
Very good question. In fact, when the product was launched quite a few years ago, our intention to commercialize the product was with a very broad intended use. And it's a -- Calprotectin is an unspecific marker, right? So it is linked to the fact that you have a broad possibility. What we have been able to do is actually focus the go-to-market model in the last couple of months. And what we see is an increased market pull actually in the area of autoimmune diseases like rheumatoid arthritis.
And we continue to implement new marketing initiatives exactly around that area. And we -- in fact, in Q3, while we don't report on GCAL numbers separately, have seen a very nice increase of demand for Calprotectin and for GCAL specifically now, serum plasma Calprotectin. And we are working also with new partners to implement the Calprotectin product in new regions.
One question here relating to fCAL and fPELA and the geographical expansion that is occurring for this product. And -- let's say, capacity is always something that comes to mind. And the question is, if we would need to extend or increase our capacity or the facility here in Norway, we did in fact, expand the facility significantly a few years back. So we have already planned for increasing volumes. And we still have, I would say, at least 3 to 5 years of increasing volumes that we can serve with the existing capacity we have there.
So we should not be depending on CapEx to expand the facility here further for a while. We will have to continue to invest in upscaling equipment. So the facility, the footprint is large enough, but sometimes we need to increase the size of our equipment in order to serve these volumes. So that is basically what you have behind these few millions of CapEx every year related to equipment.
I think we can take a question or 2 on NT-proBNP. I would like Aleksandra to come up here. If you can stand on this side, then I can see the question better. And one question is, why is not NT-proBNP sold as a research use-only product already now? Maybe you want to clarify and explain a bit around the process here?
Yes, I can do that. So two last phases in the assay development are verification and validation phase. So right now, we are in a verification phase. In this phase, we are improving and optimizing the assay to reach the best possible performance. So we would not like to sell the assay yet. In the validation phase, when the assay is fully developed, we also need to perform clinical evaluation in order to, for example, suggest relevant clinical cut-offs and suggest the use of the assay. So when that is done in validation, we can start to sell research use-only product while we are waiting for the regulatory approval. So this will be in -- as we have announced in 2025. I hope that answered the question.
Just the last chance to post more questions here. We are starting to get on the list. But I think one other question here is, I mean, we have NT-proBNP in the pipeline, which is the most important product that we are working on, but we have also stated that we are in early exploratory phases with an IVD product that we are doing together with a partner. Do you think we can say something general about how that is working out? Aleksandra, of course, without naming the partner or the project.
Yes. What can I say. Yes. So the product is in proof-of-concept phase. It's very interesting product. It is a complementary product to already existing assay portfolio. So they will -- it will fit into already existing demand and fill the gap in the partners' portfolio. So yes, the progress is going well according to the plan. So I'm happy to inform a little bit more when the assay is out of the proof-of-concept phase.
I know that's a hard question to answer when we cannot say too much. We have not received any more questions here. So that basically wraps it up from our side. I don't know if you want to say goodbye or if...
I can say goodbye. So first of all. Thank you for all of you joining the call. I'm really looking forward to our next quarters, meeting you as many as possible personally, as soon as possible. And yes, now we are focused on finishing the year having strong Q4 and obviously planning already next year and [ outer ] years to really deliver the success based on our strategy. So thank you for joining, and see you again in Q1.
Thank you.