Vistin Pharma ASA

OSE:VISTN

Earnings Call Transcript 2023-Q3

[Operator]

Good day, and thank you for standing by. Welcome to Vistin Pharma Quarterly Report for Q3 2023. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the call over to your first speaker today, Mr. Kjell-Erik Nordby, CEO of the company. Thank you. Please go ahead.

[Kjell-Erik Nordby, executive]

Thank you, and welcome to Vistin Pharma's third quarter reporting. We are happy to present another strong quarter for the company. We achieved all-time high revenue and also EBITDA and sales volume in the third quarter. The revenue and that NOK 120 million, which is a 30% increase compared to last year. The main driver for the increased revenue is that we had more volumes available for sale from second line that we installed in Q1 last year. Year-to-date, the revenue is NOK 328 million compared to NOK 194 million last year, and that is a total of 69% increase sales. EBITDA ended at NOK 27 million compared to negative NOK 3 million in the last -- in Q3 last year.

The main drivers for the positive EBITDA effect is the -- first of all, the increased sales volume, which also give us scale economy benefits, the competitive electricity prices from the long-term agreement that we signed with Statkraft last year and also a strong currency effect, euro versus NOK. In addition, we also have booked NOK 2.7 million in bonus accrual for the quarter, and we had nothing in bonus accrual last year.

As I mentioned that we see the positive economies of scale effects materializing now as the net volume continues to ramp up. Year-to-date, the EBITDA is NOK 61 million compared to negative NOK 16 million last year. In addition to that, we had a net profit positively affected with approximately NOK 10 million in the quarter by fair value of future FX cash flow hedging contracts. That is an unrealized gain and have no cash effect in the quarter.

We have a strong balance sheet, equity ratio of 78%. And the company has no interest-bearing debt by Q3. Then we would like to also to present Magnus Tolleshaug appointed as the new CEO of Vistin Pharma from first of January 2024. Since I have decided to step back at the end of this year.

Magnus, he is coming from position as the Chief Commercial Officer in Vistin Pharma. He was -- he started his career in Vistin Pharma in first of March 2020. Before he joined Vistin Pharma, Magnus worked several years in Takeda as Head of Global Launch Excellence and Product Lifecycle Management. And he has been an important contributor to delivering our ambitious growth strategy and also to fill the expanded volume in our plants.

We contribute with -- that we are in -- we are a pure play metformin company. As we have [ mentioned ] several times during the last quarters, diabetes is 1 of the largest health emergencies in the 21st century. There is no sign that, unfortunately, for the world, that diabetes is going to ease or that is going to be less diabetes patients going forward. There's still a lot of patients out there that are not diagnosed. And metformin will continue to be the gold standard treatment of diabetes to mainly because it is an extremely cost-efficient treatment and also with very few side effects compared to other medicines out there.

And that means that also that the demand for metformin is growing. And the last report that we have received indicates that demand for metformin will grow by almost 23,000 metric tons by 2028.

The -- metformin is the first-line treatment for type 2 diabetes. Type 2 diabetes is the most prominent indication of diabetes, it's more than 90% that suffers from diabetes that have type 2. And we are very proud by contributing to deliver metformin to more than 50 million patients every day. So we contribute to global health every day. The total number of diabetes patients is expected to rise to more than 780 million by 2045. And as I mentioned that already by 2028, the demand of metformin will increase by approximately 23,000 metric tons.

Then we go to the financials, and I give the word to Alexander.

[Alexander Karlsen, executive]

Thank you. Thanks, Kjell-Erik. And looking at this historical graph of revenue in [ MNOK ]. We -- as you can see, we continue to deliver strong growth for 2023, it's only first, second and third quarter accounting here. So we still have 1 quarter to go. Having a look at the sales volume in the third quarter, we had a new record. We sold 1,440 metric tons in Q3 compared to 1,200 tonnes previous quarter and 1,030 tonnes in Q3 2022.

Having a look at the graph on the right side -- we have the annual sales volume. For the first, second and third quarter this year, we have sold approximately 3,750 tonnes compared to 3,480 tonnes last year, which is a full year and 3,740 tonnes for 2021, also that full year. So a significantly increase in 2023. Having a look at the revenue, more volume available for sale has increased the revenue to NOK 120 million in the quarter. And as Kjell-Erik mentioned, that's mostly driven by more volumes available for sale from the new production line. The revenue was also positively affected by a weaker NOK versus euro.

However, adjusted for FX, the currency neutral revenue increased by approximately 20% compared to the same quarter last year. We would also like to emphasize that to fill the additional net capacity going forward, more of the sales volume will be generic, which generally has a lower price than the payment volume. Looking at the gross margin. It's continuing to improve quarter-over-quarter, both nominal and also adjusted for currency. Comparing to the same quarter last year, it's important that last year had a onetime negative cost effect. And as previously, we still ambition for long-term gross margin is 60% or above. Having a look at the result and EBITDA, which was a new record for 1 quarter, came in at NOK 27 million compared to a negative NOK 3 million in Q3 2022.

This quarter has been very strong with good sales prices and high sales volume. In addition, the EBITDA is positively affected by a favorable FX, meaning a strong euro versus NOK and only partly offset by a strong U.S. dollar versus NOK. We also booked a bonus accrual of NOK 2.7 million in the quarter. Nothing has booked -- has been booked in Q1 or Q2 this year or in the Q3 last year. And as we say, we are very pleased to see that now that we are ramping up the volume, we are seeing great economies of scale, which is helping on the COGS.

Looking at some key figures. We've been through some of the numbers. However, I'll mention earnings before tax, NOK 30.1 million. Looking at depreciation, there's an increase up to NOK 4.4 million for this quarter compared to last year, and that's driven by the capitalization of the [ MEP ] project in Q4 last year. We are at positive finance income in Q3 and that is driven by the partner reversal of the unrealized loss for future FX hedging contracts in Q2. This has, however, no cash effect in the quarter. Summing up, this gave a net profit for the period of NOK 23.5 million compared to negative NOK 6.7 million Q3 last year.

Having a look at their balance sheet, there is no significant changes compared to previous periods for the noncurrent assets come in at NOK 237.4 million compared to NOK 229 million same quarter last year, increased mainly driven by MEP products in fixed assets. Total current assets NOK 149 million, mainly contributing is inventory and receivables. And the total current assets in Q3 last year was around NOK 133 million. That gives total assets of NOK 386.5 million compared to NOK 362.7 million last year.

There has been an increase in both raw materials and finished goods in the quarter, and we expect the inventory of raw materials to continue to increase in Q4 because we have purchased additional material at favorable prices. It was expected that increase to start in Q3 but has been partly delayed to Q4. Having a look at the equity and liabilities, total equity at around NOK 301 million compared to NOK 254 million last year.

Total liabilities NOK 85.4 million compared to NOK 108.5 million same quarter last year. And we continue to have a strong balance sheet since Q2 this year, we have had no interest-bearing debt. We have, however, a sufficient credit facilities if needed.

And as mentioned that we expect increased capital requirement of working capital in Q4 as we build up additional stocks of raw materials.

I think that was it for the financial year, Kjell-Erik, I bring the word back to you.

[Kjell-Erik Nordby, executive]

Okay. Just to finish off this quarterly presentation to say something about our strategy. We call it double volume double care strategy, which is also have -- we also have a very firm a strong objective regarding EV that this double volume should have no negative effect on the environment, whatsoever. Mentioned previously, we are strategically well positioned as 1 of the 2 European producers of metformin, so we can deliver what we call short travel at the same to our customers in Europe.

We produced 2 different qualities of metformin bulk API and also pre-granulated direct compressible material. What's important for us to actually to achieve our vision to become 1 of the leading metformin producers in the world is to enhance our capability to supply tailored-made products. That's important as a premium producer. We do that today, and we are going to continue to do so. Since this is extremely high, high volume kind of low-value product, cogs and to increase the productivity and efficiency in the supply chain is important to us.

And we have achieved a number of benefits already, but this is a relentless focus on improving COGS by, for example, investing in cost-efficient supply raw materials, waste handling, in operations, et cetera. So this is part of our daily life to really focus on these aspects. As you know, as we said, the metformin market is expected to grow going forward by 4% to 7% depending on which kind of market analysis you read then to take part of that growth and also to take part of our customers' expected demand -- growing demand going forward.

We [indiscernible] to invest approximately NOK 100 million increase the capacity up to 7,000. By year-end, our capacity is close to 6,000, and we believe that this volume will continue to -- the manufacturing volume will continue to grow during 2024 and also 2025. Quality is 1 of our sales argument as a premium producer. We sell to reputable international pharma companies. We have a state-of-the-art, fully automated manufacturing plant in Kragero that's certified by all significant international regulatory bodies. And for residual solvents like DMA, et cetera, is very, very, very low in our products compared to many of our competitors.

I think that sum up a little bit of our strategy. Before opening up for questions, I would like to say just a few words. This is sadly my last quarterly presentation. I would say that, first of all, I'm proud to being the CEO of [ first ] Weifa. I started my career as CEO in Weifa in 2009. And from the day we still was established in 2015, I've been the CEO of the company. Vistin has had more than 300% revenue growth during the last 7 years.

We have become 1 of the leading metformin players, and we have made fisher bucket to the most modern environmental-friendly global metformin plants. I have enjoyed every minute as the CEO in Vistin. So I would like now to take the opportunity to thank board, my great colleagues and our shareholders for your great and valuable support during my watch. I believe we can have a really great future ahead, and I look forward to closely follow the company's development when I retire. Now I think we should open up for any questions.

[Operator]

[Operator Instructions]

At this time, there are no questions from the phone line. Please continue.

[Kjell-Erik Nordby, executive]

There is a question. Do you have any plans for Line 3 at the plant? And I will say that I think that the most important thing for us to focus on now is to fill the second line with volume so that we achieve the full scale of common effect. And that we can produce and sell the 7,000 metric tons. When we have completely sold out the 7,000 tonnes of volume and that we see that there is still a demand and a possibility for us to sell more than 7,000 metric tons, we are prepared to look into a Line 3, if that makes economic sense.

And there's a question of -- there is new products coming to the market, which is not playing metformin products, but it's metformin in combination with other APIs. And we sell metformin to these patented products. Will they have an impact on the demand for metformin going forward? We do not think so because this product is already marketed and since metformin is such a cost-efficient treatment, and there is already quite a burden on help us globally.

We think that metformin will continue to be the first-line treatment and that the more -- much more expensive combination products or other products will be other second or third-line treatments.

[Alexander Karlsen, executive]

And then there's a question on dividends. The Board of Directors did receive a power of attorney from the Board to pay out up to [indiscernible] of dividend per share. The power of attorney is valued until Annual General Meeting in 2024. So the Board will come back if and when they potentially decide for a dividend. But I think just noticed that we did receive grants for electricity, the high electricity prices in 2022. And if we decide and pay out a dividend in 2023, we have to pay out -- sorry, paying back the grant we received. But if we however, decided in beginning of 2024, dividend and payouts, then there is no repayment of the grant.

[Kjell-Erik Nordby, executive]

The last question is that if you can comment on potential new contracts, either in the [ PM ] or generic segment. This is something that we, of course, can't comment on in detail, but we are optimistic that we will drill the 7,000 metric tons volume in the plant going forward.

It takes some time before you actually start to engage with our customer and that you have commercial volumes to that customer, and that is due to regulatory issues, time lines, et cetera, with authorities. But we have many leads ongoing and we are quite certain that some of these lead will materialize into contracts. I think that's -- that is all for now. So again, thank you for your listening. Thank you for your support, and we look forward to the Q4 presentation.

[Operator]

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.