Vistin Pharma ASA

OSE:VISTN

Earnings Call Transcript 2024-Q3

[Operator]

Good day, and thank you for standing by. Welcome to the Vistin Pharma Quarterly Report Q3 2024 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Magnus Tolleshaug, CEO. Please go ahead.

[Magnus Tolleshaug, executive]

Thank you, and hello, everyone, and welcome to this third quarter 2024 presentation in Vistin Pharma.

My name is Magnus Tolleshaug, CEO of the company. And with me, I have Mr. Alexander Karlsen, the CFO of the company, and we will be doing today's presentation.

I will start with the highlights from the third quarter. The quarter ended at NOK 106 million in revenue compared to NOK 120 million in the third quarter of 2023. It was a revenue decrease compared to same quarter last year, driven by lower sales volume due to safety stock build and somewhat lower global metformin prices compared to the third quarter last year.

Year-to-date, we've had NOK 316 million in revenue compared to NOK 328 million year-to-date last year.

The quarter ended at a record high EBITDA of NOK 29 million versus NOK 27 million in the third quarter last year. The EBITDA was positively affected by the product mix, favorable material cost prices and good cost control in the quarter.

The EBITDA year-to-date is NOK 76.6 million compared to NOK 61 million same period last year, an increase of 26%, reflecting a high operational performance.

We also had an all-time high production volume in the quarter of 1,500 metric tons, reflecting a good operational utilization of both manufacturing lines.

A cash dividend of NOK 1.25 per share has been distributed so far in 2024 and an additional cash dividend of NOK 0.5 per share will be distributed in Q4.

Vistin Pharma, we are a pure-play metformin company supporting patients worldwide in a growing market. The market demand for metformin as a drug is expected to grow by 4% to 6% annually if you look at the compound annual growth rate. And Vistin's global market share is today approximately 10%, and as we also grow in a growing market, we also expect it to be around 10% when we have the 2 lines fully operational and optimized.

Diabetes is one of the largest health emergencies in the 21st century, and metformin is the gold standard baseline treatment of type 2 diabetes. So being a leading global producer and supplier of premium quality metformin, we see good growth opportunity for Vistin Pharma.

For those of you who have been following us, you've seen this slide before, but it's an interesting slide. It shows the predicted number of people with diabetes in the different regions of the world and how the growth is estimated to be going forward.

So the number of people with diabetes is expected to increase by 50% in the period 2019 to 2045 to more than 750 million people. It's actually closer to 780 million.

So you may know that type -- you distinguish diabetes in type 1 diabetes and type 2 diabetes and about 90% of everyone with diabetes is type 2 diabetes, and metformin is used to treat type 2 diabetes.

Some key facts about diabetes. In 2021, about 540 million adults between the age of 20 to 79 years were living with diabetes, so about 1 in 10 persons in the world. It's predicted to rise to about 640 million by 2030 and up to, as mentioned, 780 million or so by 2045. So over 3 in 4 adults with diabetes within low- and middle-income countries, that's about 3 out of 4 adults.

This is relevant because metformin is an affordable drug with high efficacy and very few side effects. So it's therefore affordable as an out-of-pocket expense in low- and middle-income countries compared to more costly type 2 diabetes combination treatments.

Back in 2021, diabetes was responsible for approximately 6.7 million deaths, so it's really a high health emergency.

It also cost close to USD 960 billion in health expenditure, which has been a 316% increase over the last 15 years.

We also know that around 540 million adults have impaired glucose tolerance in the world, which places them at a high risk of getting type 2 diabetes.

Vistin Pharma, we sell globally our API. We have 100% export from our manufacturing plant in Norway. We sell all the way from Japan in the East to U.S., LatAm in the West. The majority of sales and volume is to Europe. We typically sell our API to medium- and large-sized reputable pharmaceutical companies who then transforms our API, the active pharmaceutical ingredient, into granules and tablets and then distribute those tablets around the world.

We know that Vistin Pharma API is sold and registered in at least more than 100 countries in the world.

Vistin Pharma, we've had a long and successful growth track record. This slide shows the revenue development of Vistin Pharma in past years. And in 2022, we invested in our second manufacturing line and spent close to NOK 100 million in such an investment. So it's nice to see now that the volumes are ramping up and materializing into sales.

And with that, I think I'd like to hand over to our CFO to go through the financials.

[Alexander Karlsen, executive]

Thank you, Magnus. Let's start with the sales volumes as that's the presence for the revenue. Due to the unplanned stop in the first quarter, we have basically had no finished goods safety stock on hand until the third quarter. This was not sustainable, and to make sure that we can deliver on time in full for our customer orders, we have used approximately 150 tons of the material produced in Q3 to inventory. And we plan to keep the finished goods safety stock around this level going forward.

Due to that, we have around 1,300 metric tons sales volume in Q3, which is down from the third quarter last year where we sold around 1,440 tons. Year-to-date, sales volume is around 3,800 tons.

And driven by the safety stock build mentioned on the previous slide, the revenue came in at around NOK 106 million this quarter compared to NOK 120 million Q3 last year. This is also driven that we have seen a decrease in global metformin prices for the last 12 months, driven by lower raw material prices, which was very high after the -- or post pandemic levels.

Year-to-date revenue is NOK 316 million compared to NOK 328 million last year.

Having a look at the gross margin, which was, I would say, exceptionally strong in the third quarter. Positive due to economies of scale in raw material purchasing and stable production volumes. Vistin do have ambition for our gross margin above 60%. 68% is well above that, but it's high and I would say it's likely not sustainable over time with 68% gross margin.

Looking at the EBITDA, record high, NOK 28.8 million compared to NOK 27.3 million in Q3 2023. We have a favorable product mix. We had favorable material prices, and I would say, good cost control in quarter that contributed to the record high number.

We also had an incentive plan expense of NOK 3 million, which is -- booked in the quarter, which is slightly higher than NOK 2.7 million booked in the third quarter last year.

Year-to-date, EBITDA of close to NOK 77 million compared to NOK 61 million in 2023, which is an increase of 26%.

Having a look on more the details in the income statement, we've been through the revenue and EBITDA. Depreciation, around NOK 4.8 million compared to NOK 4.4 million same quarter last year, mainly driven by capitalization of financial MEP and also some larger investments, yes.

Earnings before interest and taxes, NOK 24 million compared to NOK 22.8 million last year.

Net finance, negative NOK 2.8 million, compared to a positive NOK 7.3 million same quarter last year. The positive net finance last year is driven by mark-to-market value of future FX cash flow hedges, which do not have any cash effect, but do vary with the euro-NOK fluctuations throughout the quarters.

Net profit for the ended at NOK 16.6 million compared to NOK 23.5 million for the same quarter last year.

Moving on to the balance sheet. Looking at the assets first, total long-term assets, NOK 244 million, small increase compared to NOK 237 million same quarter last year, mainly driven by some investments in more fixed assets and the investment in CF Pharma partly offset by a decrease in the tax assets, which is, I would say, very soon fully utilized.

Current assets, there's a decrease in inventory. As I mentioned, finished goods are up. However, we have significantly lower raw material stock now than previous. We have seen for the last 3 to 5 months significantly increased freight lead times due to the issues in the Suez Canal. However, we have had a significantly safety stock locally to buffer when we have these events and we also have a lot of raw materials at sea coming in, in the coming weeks. So there's kind of no risk that we do not have raw materials for production. But we see that it's important to have local safety stocks to buffer these events.

Total current assets at around NOK 143.8 million compared to NOK 149 million same quarter last year, which give total assets of NOK 388 million compared to NOK 386.5 million last year.

Looking at the equity and liabilities side of the balance sheet. Total equity, close to NOK 311 million, up from around NOK 301 million last year.

Equity ratio of 80%. So I say we have a strong balance sheet.

Noncurrent and current liabilities rather stable compared to same period last year.

We have no remaining interest-bearing debt as of end September. And even that we have also paid out a significant part dividend of NOK 1.25 per share and also the 15% share in CF Pharma.

We do have credit facilities available if needed.

That brings total equity and liabilities to NOK 388 million compared to NOK 386.5 million last year.

I think that was all from me, Magnus. So I'll give the word back to you.

[Magnus Tolleshaug, executive]

Thank you, Alexander. I will go through the summary of today's presentation. We delivered a strong all-time high EBITDA of NOK 29 million in the quarter with a gross margin of 68%.

The metformin market is expected to continue to grow by 4% to 6% annually, at least in the foreseeable future.

Freight prices have started to stabilize again after the significant increase of the freight rates in the first half of 2024. So now it's stabilizing at a lower level.

And with only 2 months left of the year, then sales prices and volume for the remaining 2024 are booked.

I'd also like to mention that the long-term renewable energy supply agreement signed with Statkraft until 2032 provides a very predictable cost as we enter the winter season and also secures 100% green renewable hydropower energy long term, which is comfortable so that we have the power we need secured.

We see an attractive growth potential to be realized when the remaining manufacturing capacity is fully available and utilized.

We are, as a supplier of metformin, strategically well positioned as many European clients and customers prepare high-quality supplies, nearshore production and an attractive ESG and sustainable profile.

Vistin has an ambition to pay out 50% of the net annual profit as a dividend. However, the size of the dividend will be dependent on the company's financial capability and capital requirements for further growth.

Now for the purchase of 15% of CF Pharma in the first quarter, Vistin is exploring our strategic options for further growth. So we have a good dialogue with the management in CF Pharma, which gives valuable insights as we explore options.

And I think with that, we are -- we can end the third quarter presentation and open up for questions.

[Operator]

[Operator Instructions]

[Alexander Karlsen, executive]

Okay. I can see we already have received some questions. There are some questions around the recycling of the cooling water for reactors projects.

We have in 2023 and 2024 invested around EUR 1.2 million, EUR 1.3 million in recycling the water used in the production. This has been a significant cost to us as we previously have used the drinking water from the [ Kvænangen kommune ] in the production and they've also been accounted for a significant part of the municipality's water usage.

We did install during the summer the water recycling projects, and we are now financing the testing and starting the recycling. And we are on track when it comes to both investment costs and the expected savings on the products. So this will give us some good benefits on the cost side in the coming years.

[Magnus Tolleshaug, executive]

There's a question here about if we have any plans for further increasing ownership in CF Pharma or if we could elaborate a bit more on the plans with CF Pharma.

So as mentioned, we are looking into options. I mean, CF Pharma is a contract research and manufacturing organization, and both back in the Capital Markets Day and also in our strategy, we want to become a contract development and manufacturing organization so that is why we are looking into different options with CF Pharma to see how we can collaborate or other options of ownership.

We have a good dialogue with the management. Now this gives us access to understanding the business in better ways, and we're not going to be -- say anything more about our plans there at the moment, else than that we are looking into the different options as mentioned.

[Alexander Karlsen, executive]

And there is also a question of the planned dividend in Q4, if it will be a return of capital.

And I can confirm that's the plan.

[Magnus Tolleshaug, executive]

Yes. There's another question here about how the metformin price will develop going forward.

Okay. The metformin prices -- I mean, metformin is a commodity product. And the metformin prices in the world is typically driven up and down by the main raw material prices. So this is the correlation between metformin and the pricing and the raw materials.

Our aim is to have more than 60% gross margin. That's our aim. And if you look at the prices during the COVID period, it had a strong increase due to the strong increase in raw material and freight prices. That has come down again, that's why also the expectation for prices is obviously slightly lower now than in the past.

But I think, yes, compared to that peak we have seen during COVID, you can expect the metformin prices to develop as a commodity product, so to say. So it's important to keep high efficiency on the manufacturing and the sales, but we are expecting a normal development as a commodity product going forward on the metformin prices.

[Alexander Karlsen, executive]

Okay. I think that was all the questions we have received, and we can now close the conference.

[Operator]

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