Gentian Diagnostics ASA
OSE:GENT
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Earnings Call Analysis
Summary
Q4-2023
The company achieved record sales of NOK 37.5 million in Q4 and NOK 135 million for the year, signaling robust growth. Working capital normalization is anticipated in 2024 as the company impaired NOK 6.5 million from its books due to the obsolete SARS-CoV-2 assay. Capital expenditures stood low at NOK 1.5 million in Q4, reflecting the non-capital intensive nature of the business, while operational expenses (OpEx) are expected to rise to support increased sales. The company plans to enhance its U.S. presence through strategic partnerships and improved logistics. Gross margins are projected to grow from 50% to 60% in the long run, driven by scale advantages and raw material optimization.
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[Audio Gap]and welcome to this presentation of the fourth quarter and full year results for Gentian Diagnostics. My name is Njaal Kind. I am the CFO of the group. And before we get started, just some practical information. [Operator Instructions]With me today, I have our CEO, Hilja Ibert; also our Chief Commercial Officer Markus Jaquemar. And they will start off with explaining a bit about the business and I will be back later giving a rundown of the financials.So Hilja and Markus, please.
Good morning. Thank you very much, Njaal. And as Njaal mentioned, we would like especially for those who have not heard about Gentian Diagnostics before, introduce you to the company before Njaal takes then over and speak about the performance of Q4 and for the year and that third part will be then the Q&A where we are all of us, the 3 of us are available.To start with is our mission statement. Efficient diagnostics for better treatment decisions indicates already in which market we are playing. Gentian Diagnostics is fully focused to the clinical diagnostics market. And our aim is to improve the efficiency of diagnostics which happens on the laboratory basis to enable clinicians ultimately for you to take better treatment decisions. And throughout our introduction, we aim to introduce you more to the concept and understanding of what is behind that mission, how powerful this mission is.So Gentian Diagnostics has its headquarter here in Moss, Norway. We have as well and sales and an R&D office in Sweden. Most recently added the R&D office through an acquisition. We have a representative office in China and a sales office as well in the United States. So despite the fact that we are a relatively small company with NOK 142 million revenue in 2023, we are covering the world. We have global reach and that is as well driven by our go-to-market model which is very well presented to you by Markus today.We are proud about our growth rate. Five years compound growth rate has been our most recently with these '23 numbers being finalized, 30%. So we continue to increase as well this. And as most of you know, we are listed at the Oslo Stock Exchange and our market cap had been, by the end of December, NOK 640 million. So for the ones who don't know well the diagnostics market as this is a small sister in the life science market of the pharma industry, the diagnostics part is the diagnosis having the attention to diagnose a disease, not to treat a disease and the diagnostics can be differentiated in vivo diagnostics like X-rays or the in vitro diagnostics and that is this famous IVD market in which we are the player.The IVD -- the in vitro diagnostics part is conducted in laboratories. And you see on this picture on the right bottom, an example of an instrument which is positioned in the laboratory and these instruments are looking more and more like factories and huge amounts of samples are produced and managed in laboratories all over the world every day and we are reagent supplier in this market. It's highly technology-driven and segmented into different technology categories. Our category is immunoassay part where we are detecting and quantifying biomarkers to detect disease to support clinicians to identify disease, to monitor treatment performance.And there is within this part, the need to improve the productivity and -- which means that reagents should be used on instrumentation which is as fast -- runs as fast as possible, as easy as possible. And there's the so-called PETIA technology. Don't go further into the details of that. That is our core expertise enabling immunoassays to be run on the most efficient platforms you can find in the laboratory.And with this, we are allowing laboratories to shift immunoassays biomarkers from less efficient platforms to the most efficient platforms, hence efficiency and as well providing results much faster to clinicians, hence the outcome on a clinical level as well being improved.And that drives our value proposition and the value proposition is somehow confirmed by our compound growth rate. It's a strong value proposition from our point of view. We enable, as I explained before, fast results from laboratory to the clinician who has to take a treatment decision and at lower cost for the laboratory, but ultimately be a good treatment decision is driving as well lower costs on a clinical level. And we have proof sources, we have references which confirm that on a day-and-day level. So our productivity gain is about 3x to 10x higher throughput on the laboratory level.And again, we have health economics, for example, with a GCAL test about how much resources can be saved and money can be saved by introducing this biomarker and getting patients earlier from the intensive care unit into a normal ward or even avoiding intensive care unit at all. So all of this is available if you're interested to see those results. But what I wanted to say, our available position sounds very simple, fast results at lower costs, very powerful and extremely needed in this market, which is suffering every day with running more and more tests at the same or even lower resource availabilities.To introduce you to our strategy. We have summarized it in 4 blocks. The number one and we can always debate, is it the product or the people? Let's start with the product on the left side. We have 7 products contributing to our ambition to achieve NOK 1 billion in 5 to 7 years. These 7 products address a serviceable market of USD 1.8 billion.So real room to get there and as well this market is anticipated to grow 5% to 10%. I have mentioned products and people. Absolutely these products would not exist without the people we have here assembled in our company's industry leading team. You need expertise, technology expertise, you need commercial expertise, logistics expertise to serve the world with highly sophisticated products from China to the U.S. to Alaska, down to Africa.And how do we reach the world, especially the laboratories all over there? We cannot travel from Norway to all these parts of the world. We have the go-to-market strategy of partnering with the IVD companies, in vitro diagnostic companies, who are supplying the instrument platforms to the laboratories. And the ones they sell with the instruments normally as well or in this case are reagents.But they never have all reagents available the laboratories would like to have. And therefore, they are looking for partners like us to add menu, to add more reagents to partake and sell to customers, which brings them as well a competitive advantage. And that is where there is a win-win for the partnership with these instrument platform providers. It's a win-win for us that we cannot invest in sales force all over the world. And with this, we all together reach the customers and being able to sell the product all over the world.We have achieved, as I mentioned before, 30% average annual growth rate and we assume that with 2 products which are in product development and in market development, this growth can be even further accelerated. Yes, 7 products in place. We have categorized them into established products, means products which are ordered every day in bulk on all continents, or at least in parts of the world and very well understood what their clinical value is and the benefit is very individual. From a clinical point of view, it is always the same on a product or productivity level for the laboratory.But we are addressing here several disease areas. We have one product in market development, which is a different stage. So that product is not yet fully established in the protocols of hospitals to order such a test under certain conditions and that is part of market development, running clinical studies, working with key opinion leaders to get them to put that as a routine into their local hospital and automatically on a country and hopefully as well one day on a worldwide level. And we have as well a product in product development which is addressing the cardiac [indiscernible] and I will speak as well in a minute about it.So having Markus here with us today, I was wondering if we would like to give you an idea about the -- some of these products from a commercial point of view. Last time, we had Aleksandra there talking about the clinical parts, the clinical benefits. The clinical benefits have to drive as well commercial demand. And you will hear later from Njaal about the great performance of Cystatin C throughout 2023.So Markus, I was wondering if you could give a good -- a little bit of a summary why the demand has increased so significantly?
Thanks, Hilja. So Cystatin C is really our current star in terms of revenue contribution. It's the first product that the company introduced. But what's really the importance of it? Cystatin C is part of the diagnosing of kidney state, kidney health. And if you think about it, there's close to 1 billion people on the planet which suffer from kidney failure, kidney disease, and it's a significant cost burden on the health care system. In the U.S. alone, it's more than USD 100 billion due to treatment of patients, dialysis and kidney transplant.Now Cystatin C is a biomarker and an assay that in combination with one other test provides you a more exact assessment of the health of the state of the kidney. Now this is not a very new biomarker, but the adoption of the biomarker is something that is typically a time-dependent process. And we, as Gentian, have supported many key opinion leaders and institutions to actually prove the benefits of Cystatin C and what we're seeing all over the world is a very significant increase of adoption and requests for Cystatin C testing. And this is also what we see in our results that Njaal will actually present later. So it is a very significant product for us, but we see also a growing demand in the future.Hilja, thank you.
Hence, again, back to our value proposition, making this biomarker now being available on the highest throughput, which is as well as the lowest cost instruments and receiving fast results to the clinician is enabling now to fully value the clinical benefit. And Cystatin C is a good example of our go-to-market model. We partner with Beckman Coulter since many years. We are partnering in the meantime with other companies who don't want to be named. And that works quite well.
Very well.
Very well. We have, with fCAL as well a very important product for us in not only in absolute numbers as well in terms of growth, where we have even a slightly different go-to-market model. Maybe you want to mention there, the go-to-market model difference. It's an exception because the sample is a different one and as well why -- as well this partnership works so well.
We are very happy to be associated with Buhlmann Laboratories, Swiss company, with an exclusive relationship between Gentian and Buhlmann, which is a co-development project for the development of fCAL, by the way, also the fPELA product, which you see on the list also addressing the fCAL testing market. So the growth, which is 20%, you will see the details, continues to be as this fCAL testing segment is making its way into the core laboratory into routine diagnostics.We don't see any slowdown of this trend. We're also very well-positioned also through the activity of Buhlmann, of course, for the product within the commercial space and we have also significant partnerships like with Roche, distributing the product on a global basis. So...
Via Buhlmann.
Via Buhlmann and that we continue to see significant growth.
Yes. Thank you very much. So you see that we are -- this go-to-market model, we are acting flexible where our expertise is. And the fCAL samples require a dedicated way of handling. And here, our partner has brought all the expertise, which we haven't had. And that is what we highly appreciate. Going back then to our core, which is plasma and serum samples, like we have with Cystatin C, we have in market development GCAL and we anticipate GCAL to be an accelerator of our growth going forward. That's an ambition.We have had Aleksandra explaining the great development in terms of clinical studies and not only driven by Gentian, but as well as the recognition of the power of this biomarker by universities. So the number of studies are going -- increasing significantly from a commercial point of view. Are you happy with the performance?
You can never be happy enough.
No.
Of course. But good. We're very positive about GCAL and its opportunities and the way forward. calprotectin and we call it circulating calprotectin is really a very important biomarker. It is really the earliest biomarker indicating an inflammatory process. So we are addressing 2 segments, which is the sepsis severe infection market and the inflammation market like autoimmune diseases.What is super encouraging is the fact that there is a very high level of publications and studies being performed with us, but also independently, proving the benefits of the marker and we already have global partnerships with large and leading IVD companies and we are in the process of actually developing more of those. So we are very positive about the future of calprotectin.
Thank you so much. And it is definitely worth to spend a minute on the progress we have made with our core product in product development, NT-proBNP, a biomarker which is addressing the cardiac market. Measuring NT-proBNP in plasma and serum helps clinicians to diagnose or to exclude heart failure. It is a significant market and well-established marker. Gentian has engaged on this product development because there was -- is no marker available on the high-throughput instrument platforms, while it is a highly demanded and high-volume marker.So the need of the laboratories to gain productivity and become faster is significant. And on the other hand, there is as well an increasing concern about the lack of standardization and normalization of the different assays in the market, which by nature, a product which is meant to be used on different instrument platforms on all instrument platforms will support that in addition to effect that we have a new generation of NT-proBNP assay which is addressing an issue in the market which is so-called [ glucolization ]. And with this as well most likely improve the performance of the assay in the market.The development of this assay is -- was very challenging. It checks and it took longer than we anticipated, but it's the nature of the beast because we are breaking the barrier. Nobody ever achieved an assay in that sensitivity level, which is required for such a marker because for healthy patients or as well for early stage, you have very low volumes and amounts of this biomarker in your plasma in your blood, but it need to be detected by the assay and therefore, that had never been achieved before. And therefore, it took longer to get there. We have never given up. And I cannot say we are there, but we have made significant progress throughout this 2023 and as well during the last quarter.So we have a prototype which has been -- which has demonstrated reproducible results. In general, that is very important that you test the same sample and you receive the same result again and again. So very good news. The other element is the results of samples should address the clinical status of patients means the number one goal of this biomarker is to exclude healthy from potentially sick patients. And therefore, healthy patients should never be false positively and never happens in our market, but that should be the number one goal.And we have tested in the meantime, both cohorts, samples from patients with disease, patients -- non-patients, healthy people and have very promising results. Of course, by far, not enough to celebrate or to launch a product, this is a journey and especially clinical testing will be the main work for the phases after optimization is finalized.But with the current prototype, we are very satisfied with the results. And being satisfied with these results, we were encouraged to assess as well and prepare ourselves for the next challenge, if I may say so, can we produce such an assay, which is a highly sophisticated assay, in high volumes because that is what we expect that there will demand and there will be high demand and then you better can produce a product as well in high volumes.And that is where we have prepared now to study the scalability of that assay. And that was as well one of the achievements during this quarter that we have very good plan in place now. And I think it is important to know that when we have finalized the prototype development, which is we conclude the design and the recipe of the product to be finalized and the early clinical samples to continue to confirm good performance, optimization will be finalized and then we enter into verification and other phases, later phases, mainly driven by clinical studies and as well by production efforts.And all of that, we anticipate will take another 6 to 9 months before we then have finalized the product development, plus another 6 to 9 months for the most recently introduced IVDR regulation, which added a significant amount of time to suppliers like us to have the approval to sell the test in the regulated markets. But it is good. It is a good thing to do because it is for the safety of patients.Having that said, we are semipublic on the product and we have as well mentioned that we have via this communication achieved interest from potential commercial partners. And sometimes, I feel being late helps as well. Maybe you want to mention how we are doing there on the commercial point of view.
Thanks, Hilja. The commercial team is truly excited about the product and its potential, definitely. It's a significant market, as you'd see and also in the moment by the numbers. So we have early started to address potential partnership. Hilja was talking about the business model that we have. So we work through partners. And early on, we thought that its potential partners would rather be large, smaller companies in this segment since the major companies already typically offer NT-proBNP.But they don't offer NT-proBNP in the format which we are proposing, which means that what we have seen is an increased interest also from larger partners in that product as it is also differentiated from the current product on the market, which also in our value proposition will provide differentiation to existing products. So we are in constant exchange, right? And the potential and the interest remains to be there. So we're excited to continue to discuss that.
Thank you so much. Yes. Talking about the product, there are commercial demands and why customers are interested. It's probably good to conclude the part on the product with talking about the numbers behind it and a little bit long-term outlook to it.
Yes. The diagnostic market in which we play overall is $100 billion market. It's been inflated through the COVID pandemic, of course. But without this inflation, it's still $100 billion market. Where is our role in this market? And so we are addressing a service and market of about $1.8 billion globally, which we can address with our assays. By the way, I'm using U.S. dollars because we use Kalorama, a well-established market resource -- market research resource as for our market assessments and they provide the numbers in U.S. dollars.So we're talking about established products, Cystatin C being one of them, for example, fCAL talk of being another one. It's addressing this, what I call the protein market where you have, for example, autoimmune disease type of segment included. So this is a market of about $250 million, $240 million in which we play. The nice thing is that with Cystatin C and as I explained before, this is really at the higher growth rate now which is above the average growth rate of the overall market, which is low to mid-digit growth rates and this market -- this segment is growing 5% to 10% with Cystatin C more around the 10%.The other product which we talked about GCAL is actually part of 2 markets. One is the inflammation market and the other one is the infection market. We play in both markets. They're both significant as you see and we see great potential in those markets. The third one we're also talking about NT-proBNP is a very well-defined market. It's a growing market. It is very significant and there is definitely a segment for a product like the one that are being developed by Gentian. So there's enough space for a focused company like Gentian to play in the market successfully.
Great. And so all in all, we aim for all products together a market share of about 15%.
Yes.
Within the next 5 to 7 years, obviously, very much depending on the launch -- final launch date of NT-proBNP and how fast the ramp-up of GCAL is coming. Everything goes too slow as we are always saying, we would like to have everything happening faster. But this is the reason for our NOK 1 billion ambition is a 15% market share on the serviceable market. And our go-to-market model cost us 30% to 50% of revenue because that is what we have to give to our partners.And that brings us ultimately to an argument why we have a reasonable belief that this ambition is reasonable. And again, you need to have a good strategy. You need to have good content and you need to execute this content. And this is why we can conclude now after 5 years with a 30% compound growth rate year-after-year constant growth, an increasing number of commercial partners who value our service and our interaction and many don't want to be named here. We believe that our strategy is working, that the execution is working. Congratulations here as well to you, Markus and the team, but as well to the entire Gentian team who have to support such growth rates.And that brings me to the conclusion of our long-term ambition and what we aim year-after-year to develop and to achieve from the established products. We have a great -- we have the potential to grow these products 20% on an annual basis. We have to further work on the demand for GCAL. And here you are positive. We just need to hang on. And our partners will be a big accelerator as well for this.And NT-proBNP needs to be launched and brought to the market. We have as well a pipeline project ongoing and our aim is to bring new product on a regular basis to market, additional products to market and in addition to new products as well, having more and more reach to the market with new partners. So that is as well one of the major tasks of Markus and his team.From a financial point of view, our gross margin to be improved year-after-year. Up to 60% is what we believe we can achieve. And as well then, on an EBITDA level to have after years of negative EBITDA ultimately [indiscernible] 5 to 7 years, our aim and our ambition is to achieve 40% of EBITDA.So -- and with this, let's go to the now and what we have achieved in Q4 and through the year. And I hand over to -- we hand over to Njaal.
Thank you, Hilja and Markus. Before I get started, just a reminder, please use the questions box on your screens if you have any questions that you want us to address during the Q&A session. As some of you probably have seen today, we are announcing record results in terms of sales, NOK 37.5 million sales in the fourth quarter and NOK 135 million for the year as a whole. This represents growth rates of 34% for the quarter and 33% for the full year.Adjusting for the currency tailwinds that we have experienced, the growth has been 23% for the quarter, organic growth and 21% for the year as a whole. So needless to say, we are obviously satisfied with the top line here. EBITDA, minus NOK 1 million. We believe that it could have been somewhat better, but we experienced some irregularities in our raw material supply during the quarter, which we have estimated an effect -- negative effect of NOK 1.8 million. These negative effects have been resolved and we are back on track in terms of raw material sourcing as we speak.Also happy to report that we have added NOK 6 million of cash during the year. So positive cash flow, always good. This -- and I will get back to the details. It's influenced by a strong reduction in working capital.Looking at the highlights in the sales, we still experienced strong growth for Cystatin C with a 49% increase in sales for the quarter, 41% for the year as a whole. So that product continues to grow. And also our distribution business, which is run out of Stockholm in Sweden, continues to grow strongly where we had 96% growth in the quarter and 67% growth in the full year. As Hilja mentioned, we are also making good progress on NT-proBNP.So breaking up the sales. First, we see that we have increase in sales and in all products and all geographic regions. Europe is our biggest market and we had growth of 35% in the fourth quarter and 30% in 2023. U.S., still small numbers, but it's catching up relatively speaking, 81% growth in the quarter; and Asia, 23% in the quarter, but 41% for the full year. So I would say, geographic performance strong in all the markets, but we see some variations from quarter-to-quarter.And then when we look at the products, the biggest contributor to the growth in absolute numbers is still Cystatin C and -- but all the other products are contributing to the growth. fCAL turbo, 90% for the year. This is also a strong performance. And as we mentioned, third-party products is the highest growing in percentage.So all in all, we report then NOK 37 million for the quarter and NOK 135.2 million for the year as a whole. Other revenues in the quarter, so that are grants and tax incentives are very low in the quarter and that has to do with the fact that we are accruing on a yearly basis and we had over-accrued a little bit in the first 3 quarters. So there was an adjustment here in the fourth quarter. But still, without significant other revenues, we have a record of NOK 37.8 million in the fourth quarter.Looking at the cost, very stable cost development for the year as a whole. We have been around NOK 17 million, NOK 18 million, NOK 19 million in cost of around NOK 20 million, if we include also R&D cost that is capitalized. I think it's important to see the cost development in view of the sales growth that we are experiencing. So minus 4% compared to fourth quarter last year, sales growth organically up 20%. We also see a shift in the mix where we have less corporate overhead or admin expenses and more sales and marketing expenses. So we are funneling the cost in the right direction.Also to mention here and to give some flavor on the cost is that more than 50% of our OpEx is related to salaries where we do see an underlying increase of about, let's say, 5% in 2023. So it means that the costs, non-salary-related costs have been reduced by somewhere between 7% and 10%. So that's strong.As we mentioned, we have improved the cash position by NOK 6 million. And this is driven by, yes, a positive EBITDA of NOK 3.3 million for the year, but also that we exit the year with a very low working capital.We have previously communicated that our target for working capital is about 30% of sales, while at the end of Q4, this number was 21%. So it shouldn't come as a surprise if this working capital number is normalized somewhat during 2024. Another piece of information is that the SARS-CoV-2 assay, we are recognizing an impairment of NOK 6.5 million on the assay. And it is due to the fact that we have not sold anything of that product and we don't see a market for antibody testing for SARS-CoV-2 going forward either. So we have chosen to take that impairment and take it off the books.Lastly, CapEx. We had NOK 1.5 million related to CapEx in the quarter. That's a low level. We are not very capital-intensive. But I think going forward, we need to expect the OpEx to increase, but not -- hopefully not in the same speed as the sales. But the stable cost development that we have seen, we are sort of approaching a new step here quite soon where we need to add on some costs in order to fulfill even more sales.Yes, that's it from me. We are now in the Q&A session. So I will ask Hilja and Markus to join me again. And I will try to moderate it as good as I can. Again, if you do have some questions, please use the questions box that you have on your right side. We have a few questions on the screen already.
Maybe if you put us up with the question, just to your point that we may need to increase OpEx going forward, it's worth to be mentioned that our strategy and our ambition is fully funded with the current status.
Yes, yes. That's great.
Okay. Let's try to do some questions here. And I'll start on top of the screen here. And it's a question related to GCAL. And it says you have announced that you had commercial partners a while ago. And the question is if we can comment on that progress, I guess that's you, Markus.
Happy to comment on that. In fact, one of the partners that doesn't want to be named at the moment, we are in full planning of a rollout. So that's definitely progress and we expect a response in the market very, very soon. We are working on additional partnerships. One has been already announced publicly which is Siemens, of course, that is actually expanding. We're expanding the business in terms of regional expansion to make the product available in other regions, which is typically related to registration of the product. And that's ongoing. And we see also an increase of revenues associated with that.The second partner which we have announced, but not named, we're working on the launch of the product. And we're working on additional partners as well.
Okay. Thank you. Sticking to the product, RBP. So in the third quarter, we announced a launch of a new product called RBP or retinol-binding --
Yes.
-- protein, if I remember correctly. And the question is, can you explain our expectations for this product?
RBP or retinol-binding protein, it is actually an established product to a certain extent, but it's a low-volume product. However, the reason why we've also introduced it because it's very nicely complementing our existing portfolio, namely Cystatin C because it's also addressing kidney -- certain kidney disease areas, but it's also relevant for vitamin A deficiency, under-nutrition. And as such, there is no product available again as a high [indiscernible] format.So this is really the reason why we said let's really complement our portfolio with that product. And in fact, it's also a product that can relatively easily be distributed globally. It's FDA-exempt for certain conditions. And we are in full discussion with potential partners to bring also the product on to [ clear menu ]. So our expectations are moderate, I would say and -- but a nice addition and it will also support our cost.
Okay. Thank you. Two questions on the U.S., and I'll just put that into one question. So first, the U.S. is a small market or our activity, sorry, in the U.S. is small relative to Europe and Asia. And the question is, would you say that you are lacking sales resources or partners in that market? Or is it a harder market to penetrate? And I would just add on, if you offer to, in general, comment on our U.S. activities.
I can comment on the U.S. activities. Very happy. We have recently actually added a resource in terms of a more senior individual in the U.S., which helps us not only with direct activities, but also with the relationship to our existing partners that are based in the U.S. At the same time, we're increasing our discussions with potentially additional partners in the U.S. It's fair to mention that the U.S. market is 40% of the global IVD business.It is -- to answer that question, yes, it's a hard market to actually access because it's not just like starting to sell, but the accessibility of the market, reimbursement of the market and the right partner is a critical element to access the market. But we are actually also in 2024 adding an additional resource to further benefit from the potential in the U.S.
But we have to mention that via our go-to-market model, we have access to the U.S. market. It is, I think, quite successful for Cystatin C --
Yes.
-- [indiscernible]. We have -- definitively, it takes time to get the registration for additional products. That's why RBP is, from my point of view, a nice add-on into the portfolio because it's FDA-exempt. So I think having there a local representative or several local representatives supporting our partners in promoting our products will be a strong addition. And yes, it is -- U.S. is part of our growth strategy.
Important to mention, we have actually established direct shipment from the -- within the U.S. with a U.S.-based warehouse, which made a big difference in terms of customer loyalty and trust. And therefore, I think this has been an important step. You've seen the numbers. We have very good growth. It's a small number, but we expect more to come.
Yes. And it will be part of this controlled OpEx increases we anticipate for the years to come. U.S. will be part of that.
Okay. Thank you. Next question, I will read it fully as it's there. It relates to our cost of goods sold. Says congratulations on great numbers this quarter and improved cash position in 2023. Thank you. Regarding raw materials, do you foresee the cost of goods sold situation to normalize going forward?Yes. So I will answer that question. Our cost of goods sold consists of raw materials and then direct production costs. So that is the -- our KPI for cost of goods sold. When it comes to the raw material cost, as I mentioned, we have solved the raw material issues that we have. So we do not expect that to occur in the near future. Hiccups in production or raw material supply is always something that can come up. It is a risk. We haven't had it for a long time, but we had it this quarter.When it comes to the direct production cost, we are convinced that we have great possibilities to achieve scale advantages on that production. So in fact, with a higher revenue, we expect to see gross margins going from about 50% gross margin in 2023 to about 60% gross margin in a longer-term perspective and this will be primarily driven by scale advantage. But of course, we are also looking into initiatives when it comes to raw material optimization. So short answer, yes, we do foresee an improved situation on raw material costs and cost of goods sold going forward.Yes. Again, last chance to pose more questions. I have one question left on the list and that is what was the impairment of NOK 6.5 million related to and it was related to the SARS-CoV-2 antibody assay. So during the COVID pandemic when that was in its early stages and basically no one knew where COVID would go in terms of severity and management of that disease, we asked ourselves the question, what could we do to contribute to, let's say, manage disease management. And we decided to go for an assay which could measure the antibody levels of an individual.So basically, what would your immune status be? We successfully developed a test that we successfully launched it. Here, we also have a lot of public support in terms of grants to develop this test. But -- and we have to say that's a good thing. The COVID pandemic developed in a very, let's say, favorable way. We see severity, the number of people dying, et cetera, have been greatly reduced. And because of that, there hasn't been a need in the market to have antibody testing on a large scale. So as a consequence of that, we don't see any great future for that product. So therefore, we impair it.
Maybe to add that we have been encouraged by key opinion leaders and local key opinion leaders, anticipating that especially post-COVID, the management of the population, if the vaccination required could be based on antibody testing. As usual, with science, there are different opinions. And therefore, the vaccination is happening regardless of the antibody, the regimes are depending on the country, on age or on other diseases you have. So this has been developed in a different way and that happens, especially when you are in this pandemic situation, unfortunately.But we learned a lot with the development because it's a different concept and definitely be something we can leverage in the future for additional products or new products. These will definitely be one of the advantages. And going forward, we have a template to react fast in the future for any other pandemic to come. That's our job to help.
And there was a prediction of the sizable market, if I can add, right? There was a prediction that this market would develop in some sort that type of USD 2 billion, which never materialized as such. We were always careful in assessing that opportunity to be quite honest. But yes, we have acquired experience and confidence how to develop such an assay.
Yes. So we have a few more questions in. Any acquisitions on the radar? Do you want to answer or me?
Yes, I think probably both of us.
Yes.
So we have -- we are very busy with the execution of our strategy and therefore, our organic growth. But we do not close our eyes for any opportunity. And so you may consider that as an opportunistic M&A strategy. And therefore, there are opportunities coming in. We find them as well during COVID, et cetera, and are discussions, but nothing concrete.
I mean, we constantly look at opportunities, but some of the opportunities that we have looked at recently are companies which would -- that I make a major -- or would contribute to deplete our cash reserves. We are very respectful of that. We are fully funded. And in the current market, we think that's one of our strengths. So that's my -- what I wanted to add on that.Let's see last question that we have on the screen. A good question. What are you most looking forward to in 2024? So that's one question there. And second, in time line on the KDIGO. So when will they publish their final recommendations, if we have any information about that. And that KDIGO is in relation to Cystatin C [indiscernible].
Maybe this big question, what we're looking for, we are looking for health. Has supporting health for our customers, patients and ourselves. And I hope that you have realized now the importance of our mission statement that we are the efficiency focus that we -- whatever we develop or maybe as well acquire one day, it will contribute to efficiency on a laboratory level to improve clinical outcome, improving those benefits and having testimonials of positive partners, which we have achieved, but we would like to have more in '24. So this positive word around Gentian all over the world, that is what I personally look forward to in context of that.
Yes. Great. Great.
And KDIGO?
KDIGO. So KDIGO is a global organization, right, and providing guidelines and recommendation how to test for assessing the kidney health. And the new recommendations and guidelines have been in draft version already published a month ago. It's under the review process or in an official review process which, as it is a global process, is a bit unpredictable. But everything we know also from authors as part of KDIGO, that is expected. So -- right? And we would certainly, as a company, benefit from -- we expect benefit from those new guidelines eventually.
All right. Thank you. I think that concludes our Q&A session. I think we have answered out all the questions we had on the screen. So with that, unless there are any concluding remarks here, I want to thank you for attending this webcast. And as always, if you have any follow-up questions or comments, please feel free to reach out and contact us and/or if you want -- like to schedule a call, we will do that as well.
Absolutely.
So thanks for watching.
Thank you.
Bye-bye.
Bye.