Gentian Diagnostics ASA
OSE:GENT
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Good morning, and welcome to this presentation of Gentian Diagnostics fourth Quarter and full year results. My name is Njaal Kind, I am the CFO of Gentian Diagnostics. And with me today, I have Hilja Ibert, the CEO of Gentian Diagnostics. Good morning, Hilja. Before we start, I just want to make you aware that you have the possibility to ask questions during the presentation in the Q&A box, the questions box on the right-hand side of your screen, and we will come back and try to answer as many questions as possible towards the end of all the presentation. And for those of you who are not able to join for the full duration of the presentation, please be aware that we will also record it and make it available on our website shortly after the presentation is finished.So with that practical information, I think I will leave the microphone to Hilja. Please, Hilja.
Thank you very much. Good morning. I hope you can hear me well. I would like to start our presentation today with the value proposition of Gentian. If we can go to that slide, Njaal. Thank you very much. We have a strong belief that no company can be successful without having a good understanding of what kind of value we provide to the market. Our end users are clinical laboratories, in fact, all over the world. And these clinical diagnostic laboratories have a problem into -- as they receive, every year, more and more samples, which they have to process, and that very often cost or a resource-constrained environment. So they are aiming to improve their productivity. In addition to this, there is a demand for their customers, which are clinicians, to provide more relevant information for biomarkers, who are often available on slow and inefficient platforms only, and that is not supporting their productivity efforts. Gentian's mission is to innovate diagnostic efficiency. And we, based on our technology, enable laboratories to convert biomarkers from these inefficient platforms to the most efficient and automated platforms you can find in the laboratory. And with this, adding tools in -- to increase productivity, but as well providing biomarkers results, clinical relevant information fast to clinicians. And by doing so, Gentian contributes to the health care providers all over the world to save cost and to protect lives. Let's go to the next slide, please. This translates into a growth plan. Our ambition is to achieve NOK 1 billion revenue within the next 5 to 7 years. This is based on 7 tests, which we have in the market or in the different stages of development. In addition to the tests, our growth and our success is as well dependent on the people in the company. We have assembled an industry-leading team with unique know-how, which is required to serve the demand and the growth we aim in this highly sophisticated and regulated market. But we are very confident about our ambition, and that is based on the success we have achieved. Throughout the years 2018 to '21, we have delivered 27% average annual revenue growth, and therefore, we believe we are well-prepared for the years to come. So next slide, please. I have talked about 7 tests. Here's an overview of what we have in the market, and we aim to bring to market. So we have 3 categories. Core products are belong to the so-called Established Products, means they are part of the medical records, as the routine use. Clinicians knew the value and asked for those assays and the laboratories have those assays in their portfolio -- in their standard portfolio. We have 2 products in market development, one already commercially launched; the other, soon to be launched in Q1 2022, SARS-CoV-2 antibody. With GCAL, we have the inflammation and infection marker, who is understood already to be of high value for infection and inflammation diagnostics. But it is not yet fully introduced into the medical routines, and therefore, market development efforts are required. And for SARS-CoV-2 antibody detection, we have as well as the evidence from key opinion leaders [indiscernible] since pandemic, the need to understand the immune status of patients will increase, hence our support of management since pandemic. And the third category is our products in development. And here, we would like to highlight the NT-proBNP assay, a cardiac marker, which is in development and the launch date to be decided. Next slide, please. Translating the -- these tests into the market in terms of U.S. dollar and the value of the markets we address and serve, the addressable market based on the technology and the disease areas we are addressing is USD 7 billion. If you peel the onion and look into those areas in the disease and in the technology, which we specifically service our biomarkers, we are getting to a serviceable market of USD 1.3 billion. The average assumed growth rate per year is 8% to 9% of the serviceable market that's coming mainly -- the higher values in the addressable market is coming mainly from the infection and inflammation market, which we address with GCAL. So USD 200 million of this USD 1.3 billion is stressed by our 4 established products. USD 300 million only is the potential market we serve with GCAL or infection and inflammation marker. And USD 800 million is the cardiac market, which we address specifically with the NT-proBNP assay. Our ambition is to achieve a market share in average of 15% to 20%. As we are technology innovator, we have not as a goal to establish a sophisticated commercial team all over the world, therefore, we are collaborating with the instrument platform providers. These are the global IVD players which I think in all over the world and as well, a well-established distributors in our area. Therefore, from this market share ambition, our revenue take is between 30% to 50%. Next slide. And this has led us to the ambition of achieving NOK 1 billion within the next 5 to 7 years based on the following strategic [ focus ] areas that is, first and foremost, our Established Products which have proven to enable us to grow double -- high double digit. And we -- there is potential in this market to continue this high growth ambitions and to achieve that with additional commercial partnerships, contracts and as well as access to industrial countries via regulatory approvals. We will continue to prove the clinical value of GCAL for the patient management of septic and COVID-19 patients. We continue to aim to launch one new product per year with SARS-CoV-2 antibody the next in our agenda. Commercial launch is planned for Q1 2022. For all these products, we aim to secure at least 1 new contract with a global commercial partner per year. And from a financial point of view, we aim to grow our margin to up to 60% or even more, and that is currently only based on volume production. There could be as well other measures in the future. And with cost discipline in our plans, we will aim to achieve, on a long-term basis, an EBITDA of 40%. Next slide, please. So in context of this long-term ambition, what have we achieved in Q4, we have reported sales of close to NOK 22 million, which is a 26% growth versus Q4 '20. On an organic growth level, currency adjusted, 33%, and this is mainly coming from our Established Products. From an EBITDA point of view, we have not improved in comparison to Q4 '20, and that is based on a special event, which Njaal will go into during the financial part of his presentation. We have a solid cash position, and Njaal will elaborate on that as well later on. And as mentioned before, we have finalized the development of the SARS CoV-2 antibody. As we speak, we are completing some regulatory documentation and aim to launch the assay commercially within this quarter 2022.And as a post-quarter event, we had announced already the contract signature with Siemens Healthineers, one of the top 5 in vitro diagnostics player in the market, and our aim is to rollout this contract throughout 2022.In addition to these achievements -- next slide please, as promised, an update on our NT-proBNP development efforts. While we have achieved the development of the reference method, we have focused all our efforts on the optimization of the assay. This is breakthrough technology, means we are going with this turbidimetric technology into sensitivity areas, which [indiscernible] before. That is not unusual that for such breakthrough technology, you have to realize that this optimization phase is more complex than assumed. Hence, in comparison to our reports from end of last year, we have made very good progress with particle coating and stability, which have demonstrated then with those pilot assay reproducible results in controlled environment means we have achieved the sensitivities we need. We have moved them into a clinical plasma material experiments and have identified a new challenge, which is likely interference, but in all honesty, can be as well something else. So here is now where we have all effort to better understand the challenge and obviously find solution against it. And until we have done that, the timing of the NT-proBNP launch remains uncertain. And before we hand over to finance, let's go to the next slide and conclude on the entire year '21. We have achieved, for the total year, growth -- reported growth of 31% on an organic sales growth level. Adjusting for currency and in divestiture adjustment, we have an organic sales growth of 43% in a market where routine diagnostic has been quite constrained with Corona. This growth came mainly from Cystatin C and fCAL turbo, our established products, and, as I mentioned before, we have a strong assumption that this will continue with those products -- 2 products and more. We have achieved as well the expansion of our direct commercial footprint as a Norwegian company in the Nordic countries, Norway, obviously, Finland and Iceland, with direct sales of our products, but as well third-party sales. We have, as mentioned before, completed the SARS-CoV-2 antibody assay that happened in Q4, and we see an increase -- throughout the year, we have seen increase momentum for GCAL with several new routine users, especially the prestigious university hospitals. And based on that, we have secured interest from several global distribution partners. The first contract is signed as a good start of 2022. And as I mentioned before, throughout '21, we achieved the development of an independent reference method for NT-proBNP, which was the -- which was milestone, as this is absolutely required to finalize the assay development for NT-proBNP. And by mid of '21, we had successfully transferred the Gentian shares to the Oslo Bors. With this, I hand over to Njaal, who will speak more about our financial results.
Thank you, Hilja. Yes. So I will try to give a deeper review of the financials, both for the quarter, fourth quarter isolated, and also for the full [ year ]. So on the P&L side, we today report NOK 21.7 million in sales for the fourth quarter. That is a 26% increase compared to the fourth quarter of 2020, and if we adjust for currency, the underlying organic is in fact 33%. Total revenue, so that's also including grants and tax breaks, came in at NOK 26.2 million, and that compares to NOK 23.8 million, so a 10% increase compared to the fourth quarter of 2020.Our EBITDA for the quarter is negative with NOK 8.5 million, and as you can see from the overview, we have a significant increase in what's called Other Operating Expenses. The reason here is that -- a lot of the reason can be -- for this increase can be explained by booking the cost of a new ERP system directly to the profit and loss account. That accounts for NOK 4.4 million of the NOK 12.8 million. So adjusted for that, we still see an increase in OpEx, but we feel that that is well-controlled and reflects also the growth that we have in sales and also the investments that we are making to increase sales further going forward. For 2021, revenues are NOK 83.1 million, and that is a 31% revenue growth. Again, adjusting for currencies and also for the divestiture of the company that we did at the end of the third quarter last year, organic growth has been calculated to 43%. So that's something that we are satisfied with. For the first time, we also reported total revenues above NOK 100 million, so NOK 101.3 million, that's a 28% increase compared to 2020. If we look at the COGS, we have a COGS margin or COGS in percent of sales was 49% in the fourth quarter and 52% for the year, so it's going in the right direction. We still believe that we will increase our gross margins going forward with increasing sales and also new products that could contribute to higher margins. Looking here at the sales in a bit more detail. We can see that both for the year as a whole and for the fourth quarter, the product actually contributing most to the growth is Cystatin C. We have seen a 40% growth in sales for the full year, and we had almost 60% growth compared to the fourth quarter last year, so a very strong quarter for Cystatin C and also a good year. When we look at where this growth comes from, clearly, Asia, and that is basically only Cystatin C being sold into Asia, and also good growth in Europe. That is mainly fCAL turbo. So for fCAL turbo, we see also another very good year, 34% growth, and we are quite satisfied with the performance of these 2 markets, and we also happy about the performance in Asia and Europe. As you can see, the U.S. is still not a large market for us. If we adjust for currency, I would say we are very close to the same performance as last year. Difficult to really to break into this market in, let's say, lab-constrained market for COVID. I'm sure Hilja can speak more to that later, but that's one of the explanations here that it is difficult to establish new products or becoming a new supplier in a market where lab capacity has been quite constrained over a long period. If look at the operating -- the OpEx for the fourth quarter, as I mentioned, it's quite high NOK 24 million, and that compares to previous quarters where we have been more in the range around, let's say, NOK 15 million, as you can see from this bar chart. But we have special bookings in quarter 2 and quarter 4. In quarter 2, we had an uplisting, but we transferred the listing of the company from Euronext Growth to Oslo Bors, and that was a NOK 3.5 million charge. And now in the fourth quarter, we directly expense an investment made in a new ERP system. This is an investment for the future that will enable us to run the business more efficient as we grow. So it's going to enable us to harvest a scale advantage of what we're doing here. So the cost is not related to running the system. It is related to implementing the system and transferring from an old ERP system into a new ERP system. If we make the corrections to quarter 2 and quarter 4, you will see that cost, yes, it's still increasing. It's a result of the growth we are experiencing. But those 2 quarters won't stick out to the extent that that is seen on the graph. I would also like to make a comment on R&D expenses. So we see a steady increase in R&D expenses. In fact, for 2021, in addition to what we show as an operating cost, we have also capitalized NOK 10 million. That's a lot related to SARS-CoV-2, which is close to launch now.But very important to see the revenues that we book in R&D, and they are a function of the cost. So for 2021, we have received or will receive grants and tax breaks amounting to NOK 18 million, so that's out of a total R&D spend of NOK 36 million. In fact, we harvest about 50% of that back in revenues. Yes. The cash flow, I want to make some comments there as well. We have, for the fourth quarter -- we have a strong negative cash flow from operating activities. And for the year as a whole, we have NOK 30 million or NOK 28.9 from operating activities. Investing activities of NOK 12.2 million for the year as a whole, relates NOK 10 million to capitalized R&D expenses, and NOK 2.2 million in other fixed assets. That is machinery going into the plant -- production plants, for instance. In total, we have had a cash burn of NOK 42.9 million for the year, and this is higher than what we would consider to be the underlying cash burn. First of all, we have -- as I've spoken already, we have made significant investments this year in, for instance, an ERP system, transfer of the listing, there you have NOK 8 million. On the operating activities, we saw in the fourth quarter an increase related in -- to public receivables, so that is receivables mainly related to the payback for getting paid for these R&D programs that we are running. We accrue the revenue as we book the costs and then, at a later stage, depending on which program it is, it will be paid by the organization that has granted us the funding. But if we, for instance, look at the tax breaks that we are enjoying, so the payout of that tax break will happen in October this year, for instance, so it's been a significant increase there. So on the account receivables, we have not seen a big increase, so it's related to public receivables. On the inventory, we also have a significant increase, and that is more a decision that we have made consciously to move more raw materials further down the value chain to have a higher stock of finished products and intermediates so that we can respond to the increase in demand faster. We have been able to respond well to increase demand so far, and we have to make sure that we are able to do that going forward as well, so -- but I don't really anticipate the stock increase to continue at the pace that we have seen in 2021.However, summing all of that up, we exit the year with NOK 114.9 million in cash, and that is a solid cash position. And if we manage that well, we can say that we are well-funded -- fully funded on the current business plan going forward. That ends my financial review, so I will leave the word back to Hilja.
Thank you very much, Njaal. Let's have a look into the future. Next slide, please. What can you expect to see the growth to mid-future? From our established products, as I mentioned before, we assume to continue to see high double-digit growth mainly as well by gaining new large commercial partners, but as we're growing, we see already established partners. We will -- we aim to open up our business as well in other markets together with our partners, means we require regulatory approvals, and we have all hands on deck as well to secure the IVDR, which we are progressing very well against. And with this, as I mentioned before, we assume strong double-digit growth for the established products. With GCAL, we have achieved the increasing endorsement for the key opinion leaders, mainly the ones who have run clinical studies, many of them have been published, important ones are still ongoing. This has secured interest from end users and with this, as well the interest of global commercial partners. And together with Siemens and potentially other partners, the aim is to rollout the product in Europe and other countries then to follow. And with this, we expect that GCAL will contribute to our growth expectations significantly. With SARS-CoV-2, we aim to have the commercial launch finalized in Q1 2022. We need a push from the market, from the government to ask for understanding the immune status of patients, and we focus here our best efforts to start with as a Nordic company in the Nordics and in the -- to establish and partnerships with laboratories directly or as well with commercial distributors.And for NT-proBNP, we will continue to work on the optimization phase. We have uncertainty on the timing until we have finalized this phase. We have assembled a strong team around the leadership of Erling Sundrehagen, our co-founder, and so therefore, this project is in his hands. In context of the resources for NT-proBNP, we had announced earlier that we had 3 biomarkers in earlier product development phases. Two of those biomarkers have been put on hold in order to secure all resources, which Erling and team require to run mainly more experiments. This is, at the moment, is the key of course -- the key to ensure a good understand and run as many experiments as possible. And as reported in our report, we have good news for one biomarker, which we have moved now from the exploratory phase into the proof of concept, and we are seeking currently external input on the market position and the best -- with this taking good decisions for that project going forward. And with this, I'm happy to answer questions, it's the same for Njaal.
Yes. Thank you, Hilja. I will try to moderate this Q&A session. And again, if you have any questions, please use the question box in the -- on the right side of your screens, it should be.We have received a few questions during the presentation. And Hilja, regarding the GCAL contract that we have been to with Siemens, there's a question on how -- if there are any exclusivity arrangements? Or in general, how are exclusivity arrangements for these type of contracts?
Yes. For those kind of contracts, the exclusivity is linked to the instrument platforms. So Siemens has a very -- Siemens owns instrument platforms and on which they will sell our assay, and for those platforms, they have the exclusivity.
So in other words, we have no restrictions on entering into a similar agreement with other players in this industry.Good. On Cystatin C, I'm trying to group up the questions here. Could you elaborate on the potential for this market? I mean, we have seen now very strong growth over several years, although this market has been, let's say, established and sold by both us and other players for many years now. The question is, will this growth continue? And what is the potential going forward?
Yes. For Cystatin C, we see 2 growth opportunities. One is already an existing market for Cystatin C, means competitive conversions, and that is and was as well a part of our growth plan. And in addition to this, the other part of the growth will be enabled by an increased demand for that marker. We have seen new recommendations in the United States through accelerated use of Cystatin C, as it's a marker which is much more robust against individual differences like race. And therefore, we see already now an increase of demand with existing customers. And having competitive conversions combined with growth from existing customers, we see a significant growth potential, not short term. This will continue as this is a market which seem to develop as well now much stronger than it did before.
And as I'm sure the viewers are aware of, we have a long-standing, strong cooperation with Beckman Coulter for Cystatin C, but could you comment on whether we are targeting additional sales agreements for Cystatin C? And also, is this something we could expect or should -- is there a plan for that in 2022?
Yes. We have a plan. As I had highlighted, our growth with Established Products, including -- especially for Cystatin C is to gain additional commercial partners, and that is where our commercial team is focusing on. And as soon as the contract is signed, we will inform the market.
All right. Thank you. I will move to question on geography, and yes, we haven't seen any growth. In fact, we saw a slight decrease in sales in the U.S. And the question is why are we still not able to show growth in that market?
Yes. This is often the crooks. You see, we have a lot of good news from the United States. Increased demand for Cystatin C because of the recommendation of the kidney foundation, in our collaboration universities, only good news. We are praised for the quality of our product there. So this is qualitative and doesn't translate yet in numbers, and that is mainly due to the fact that the U.S. is, at least for us, in our perception, harder hit in their routine laboratories than in our interaction with the rest of the world, Asia and Europe. So the willingness to look into a new project -- so converting Cystatin C from their low throughput to the highest throughput platform, et cetera, is much, much lower in the United States currently, and that is only Corona-related. So is there light at the end of some tunnel? We assume, yes. We have the ambition to demonstrate as well now financial results in U.S., but Corona is here creating a level of uncertainty.
Okay. Thank you. Let's move. I have a question on NT-proBNP and also one question relates to the proBNP. And first one, straightforward, do you expect NT-proBNP to move into the verification stage in 2022?
I would wish I could tell you. There is really -- the word uncertainty is meant like that. It is a step-by-step process. As soon as Erling and his team identify the reasons why we see certain results in clinical samples, different results than expected, we can find a solution or explain them, address them and move on. And how long that will take is here the level of uncertainty, which unfortunately, I cannot give you any further information on it.
Okay. Thank you. So related to that, we have shown in the previous company presentation from 2021 that we already had one biomarker in proof of concept. And in this report, we are saying that we have reallocated personnel from early research to the NT-proBNP project. Could you provide a status of this -- of that particular marker, which we mentioned in -- earlier in '21?
Yes. This marker has been worked on in proof of concept phase, and it's still in that phase. We have recently decided to put the efforts on hold in order to even further strengthen the NT-proBNP team and depend on lab to run all the experiments Erling team need to run.
Okay. Thank you. See, let's say, a straight -- not easy question, a straightforward question. When are you expecting to become profitable? What we have said earlier is that when we have sales revenue exceeding NOK 100 million and then we consider ourselves to be around a breakeven level. Of course, there are a lot of moving parts going forward here, but we still need to increase sales by some, let's say, NOK 20 million compared to 2021 before we are there. Because we also make investment into new products, and that is the biggest uncertainty we have, both in terms of timing when those new products come to market and can contribute to the revenue, and also, let's say, the final cost of development. Then there is another question, so back to the pipeline here, Hilja. When do you expect to announce the new marker, who recently moved into proof of concept? So that is probably the market that we are mentioning in this report -- in the fourth quarter report.
We expect latest to inform the market when we move that marker into the optimization phase. So when we have finalized proof of concept. There -- this project has significant potential for the company, so therefore, we are in the moment in an external phase, gathering input from external experts. And it might be that proof of concept phase takes longer or shorter, this is depending now on the positioning of the product and specifically our remaining task we have to do.
Okay. Thank you. A new question regarding Cystatin C and then to the U.S., but it's more a regulatory question. So it reads that FDA, or the Food and Drug Administration, also appears to have increased focus on Cystatin C when reviewing safety and efficacy of new drugs. And the question is, is the increased focus in the U.S. something that could increase the estimated market size of Cystatin C?
That would be a logical consequence of increasing increased demand. As I mentioned, one growth driver where we're converting existing market, competitive conversions, and the other is we see increasing demand. But we have to follow, obviously, now this trend before we conclude that the market has significantly increased -- the market potential has significantly increased, but it is not [indiscernible] would not exclude that.
Okay. That was the last question we had on the list here to review today. So if nothing pops in here within a few seconds, I would like to thank all the listeners and viewers for participating through this webcast. Obviously, you are more than welcome to reach out to either Hilja or me should you have any additional questions or comments.But with that, I wish you a good day, and goodbye for now. Thank you.
Thank you as well from my side. Goodbye.