Q linea AB

STO:QLINEA

Earnings Call Transcript 2023-Q1

[Operator]

Welcome to Q-linea Q1 report 2023. [Operator instructions] Now I will hand the conference over to CEO, Jonas Jarvius and CFO, Christer Samuelsson. Please go ahead.

[Jonas Jarvius, executive]

Thank you very much for that, and welcome everyone to our report for the first quarter and 2023. So we go right into the presentation, but we start with our disclaimer slide in case me or Chris will make any forward-looking statements during this call. I will then present a little bit high level of what we have seen activities in the first quarter. I will then go in a little bit deeper on why we are developing the products we are and the value of those products. I would then actually make a little bit of a resume of our actions that happened since Thermo Fisher and we decided to end our partnership up until today, then give a little bit look on the future. Here, you can see on the first slide, we are basically summarizing what has happened. And as you know, we are developing solutions for disruptive infectious disease diagnostics. And we have been working hard during this first quarter to implement our new commercialization strategy.Part of that strategy is, of course, also to have sign up distributors for key countries, also build our own sales force in selected regions. It is also very important to participate in customer-driven evaluations of ASTar. We have seen that this is a very important activity in order to support sales. We have also actually seen that the work that has been done last year is now actually moving on to tenders. So we see the first ones coming out in Italy. And of course, we as a company hope that we can answer to those tenders and hopefully win them as well. We also, in February described that we did some additional testing on our 510(k) application for the U.S. market approval.This is, as you know, very common that the FDA asks for additional clarification, some more testing. Some would say that it is not unusual, we are very familiar with that. We are in the very last phase of this testing to be completed. And then, of course, we will gather all these data and move them into an updated application here in the summer time. We have also announced a large cost saving program that was after the period end. And the focus is really to focus on commercial activities, but of course also to have our pumps last longer. We expect the savings to be around SEK 4 billion to SEK 5 million annually, and we are expecting to see effects already coming into place 2023.We will then move into a little bit on the importance of what we do. I mean ASTar, the first product, is released for large stream infections, sepsis being the most severe BSI we have. We can see that even if we compare it to the most common causes of cancers, lung, prostate and breast cancer, both of that combined is lower than it is in sepsis. We also know that it is the #1 cost driver in the U.S. healthcare system. There is an absolute and imperative need to improve the diagnostic for these severely sick patients. We also know that the time to correct treatment, it is critical. And we see that if you move into septic shock, the survival rate actually decreases quite dramatically for every hour that you are on the wrong treatment. And this is, of course, where ASTar comes in.If we just look at the next slide here, we can see, you have seen the slide before, but the world has not really changed. On the top part, you can see the traditional diagnostic workflow for septic patients. You can see that it is a multi-day multistep process. And the real problem is that for around 20% of the patients, they will have actually died before you get the current diagnostic answer on how to treat that particular infection.So with ASTar, of course, what we want to do is change the workflow for the labs in a sense that they need to do very little hands-on time, less than 2 minutes or very much fewer steps, that also, of course, provide a broad answer on how you should treat that particular infection much, much faster. What we have seen so far is that during our evaluations and early customers, we see that the system is very positively received.We can see that the coverage of our panel is very broad, so above 95% of everything you have actually loaded in ASTar, you have been able to act on that result, and that is a very, very high number. And that, of course, increases the value of the test, if you know that the likelihood of receiving an answer that you can act upon is going to be high. We also see that the use of the system is very simple and people are very, very much liking the workflow of the overall system as such.Of course, why is this important? Well, apart from saving money at the hospitals, which ultimately could be that you save the days in the intensive care bed, the most expansive beds we have, we also know that we can fight antimicrobial system which has been posed as the largest threat to mankind by providing more select and directed antibiotic treatment instead of broad spectrum. It is also life and death scenario. There is also an image we have shown before, but I think it is a very telling image. This is in Sweden. We do not have high resistant rates here. It is just one case on elderly gentleman, but neurosurgery, developed sepsis because of that, so also coma infection.And we can see that already the day after you had a diagnosis with a positive blood culture, ASTar could deliver the same result and say, the current treatment that this patient is on is likely not going to be effective. So I could provide options with a much better outcome. I could also do that on 30 more antimicrobials compared to traditional care. And in this particular case, also did it much, much faster. So this is the real reason to have rapid AST to be able to provide the correct treatment much, much faster than we can do today with our traditional methods.I then go back to a little bit going before the first quarter and also expanding a little bit after. So this is more or less a time line of what we have seen, basically, we start the time line in October when we jointly decided with Thermo Fisher to terminate our distribution agreement. That was really the starting point for us within the management and Board to think about what is the best new commercial strategy with what we have learned during 2022, but also how we think we can approach the market in a very effective way. That was really the starting point for that.Almost immediately in November, next to be our major shareholders that announced that they provide a SEK 100 million loan facility, which was, of course, are good for the company seeing that big support from our largest owner. Then as I mentioned, these customer evaluations, we could announce that we started one of them in December. And this evaluation is really comparing ASTar with other systems on the market. So far indicative, very happy with the results, but we have to wait to the conclusion of that study and that's, of course, can be published by the site itself because Q-linea is, of course, not participating apart from providing ASTar and kits to the study.February was a very active period. And there, you could start seeing the first announcements from our new commercialization strategy. We signed a very important distribution agreement with Pro-Lab Diagnostics in the U.K. And so far, I am really happy with what I have seen Pro-Labs engage in the U.K. market, how they participated in ECCMID and how they are actually working in the U.K. So I am very happy about that partnership. Also, we could announce full IVDR certification. As you know, this is of paramount interest if you are going to provide new products for the market and continue selling the products we already have.Then as I mentioned in my first slide, we announced additional testing for the U.S. market. And as I said, we are now closing up, having the last samples coming into that before we can file an updated application. And also in February, we described our go-to-market strategy in more details. It is really a mixed strategy, where we use distributors, where we see we have a good track record for certain regions, and for other regions, we extend with our own sales force.And primarily, we want to go ourselves in Italy, in the U.S. and also in the Benelux, and in the other geographies in Europe, we would like to work with distributors. Of course, a part of that strategy is also to have a discussion with a bit larger strategic players. I think we have very positive discussions there and see how we can move forward in those as well. At the same time, as we announced our strategy Nexttobe and increased the loan offering with another SEK 100 million. So it now totals SEK 200 million. And I think that really demonstrates the view Nexttobe on the company going forward and the belief in the growth of our company.If we then move up to the end of the first quarter and into April, we can present another customer-driven evaluation, but with a more focus on clinical impact, we know that it is very important to be able to guide therapy using the MIC values, so the concentration that kill or inhibit bacterial growth and to be able to then select not only the antibiotic to choose, but also the concentration of that antibiotic because in the case where we have more resistant infections, actually knowing the MIC value can be very important for guarding that treatment in that particular patient.And also in April, we saw the first orders coming in from our work together with Pro-Lab. Of course, only be used both for demonstration purposes, but also evaluations. So of course, that is going to be important for future sales in the U.K. And then we extended our partnership with Integra Diagnostics for the Polish market, and I will come back to that. I think that is a very interesting event rolling out in Poland as we can see it right now.Then, of course, we participated in ECCMID in Copenhagen, the largest exhibit for these type of infectious disease diagnostic tests and of course, Pro-Lab did as well and we had very positive feedback in ECCMID. Then we announced the cost saving program. And as I mentioned at the beginning, it is of course both to focus the company's resources and efforts to the sales to be able to do that efficiently and also, of course, to extend runway with current funds. What we have also seen over the past 4 months typically is that we have seen we have a very strong support from a number of our key shareholders, and I am of course very happy for that.We also see that a couple of other shareholders, for various reasons, have decided to sell shares in the company. And if we just look at these are 2 big owners putting out more than 1.5 million share in the market and that, of course, put an immense pressure on the share. We have a relatively low liquidity. We had that before. And you can also see on the pink line, the value developing on our share. Of course, this does not mean that the share will be continued to be sold in the market, but I think that is also, to some degree, an explanation of what we have seen with the share price development because what I see and look at the company, I really do not see that the value of Q-linea and its product has changed so dramatically over this period of time. This is my personal point of view naturally.Another thing which is more of a tentative market outlook, I mean, you have seen our market outlooks before. If we assume that we have a CAGR of around 5%, which most market surveys support, we could see that the market for this type of test for sepsis could be in the order of 20 million tests in the key geographies, mainly Europe and U.S., some degree, maybe 20% in the APAC region. If we then have a very strict requirement saying that only around 20% of these tests will go into a rapid AST system because you have [indiscernible] patients who might have contaminants and then look at the current players in the market.So this is, again, my assessment that we have a handful of players in the market that support similar type of products or for them to the market. That would still equivalate to around 1 million tests each if we divide it equally among us. So I think that when we look at the need for these tests and the size of the market, I think there is a huge market to be captured for these products. And of course, we, as a company, have an ambition to be best in class, of course, but even an equal share and even a very strict requirement on segmenting, I think poses a very, very interesting market opportunity for the next coming years.So if we then take a little bit look on our commercialization strategy, we can slowly see that Europe is becoming more and more orange. So we have Poland, of course, now as well and U.K., and we are, of course, actively in discussion with further distributors to extend the coverage even more. And we are also talking to strategic partners if we can find a good collaboration, for instance. So the strategy we set out to do, I think we are making very good progress in following that strategy. And of course, our goal is that this will then convert to additional sales for ASTar.Now I said I would talk a little bit about Poland. I think this is very interesting for the field in general. We really see that this is the first country that now really commit resources. We know that, for instance, the U.K. have been a strong advocate for sepsis and education around sepsis, but in Poland, we actually see that you are now putting funds to support the move and improvement on infection diseases. So the focus is within sepsis for this year and a sub focus will be rapid AST technologies, so of course, very much in line with what we developed here at Q-linea. This was really the reason we signed a partnership with Integra to be able to then, of course, respond to the upcoming tenders that we do expect to see in Poland over 2023 and onwards. But I think it also demonstrates is that rapid AST is needed and it is becoming prioritized.So I really see this as very encouraging signal that maybe Poland could be the first country out and I do expect other countries to follow because when I look at the current care for septic patients, when I see the cost for them, the number of death, I cannot see where in a number of years where every major hospital will have to provide some sort of testing capabilities for rapid AST. I do not know if it is 3 years, 5 years, 7 years or 10 years, but I cannot see, that is not going to happen. And of course, Q-linea want to be a very prominent player in that market.So if we sort of summarize a little bit, but I think we have learned and some parties frustrating for me, and of course, also for you is that we see that not just the sales cycle, but the purchasing cycle is also very long for the hospital. I mean, say that you have performed a very good evaluation at the customer site in April, and they are not managing to get that into the hospital budget for the next year. It might still be very close to a sale, but it will take 1.5 years more before you can actually have that tender be put out.And of course, when you start selling a product, this is a really, really tedious process, but when you are in it after a number of years in, I mean, then you closed deals that you started 1.5 years ago and you start new deals that will be closed 1.5 years in the future. So this is really very, very frustrating as we are right now. And one reason for that is, of course, also that it is a new technology, and we see that everyone, and I actually would say everyone, every single hospital that we are in touch with would like to test the technology first and see the benefits. So that is why these evaluations are a key, I think, for the early growth, of course, in a couple of years.I do not think that everyone will need to test it because then you have enough data from colleagues in the field that you can bet on that to move on instead. And as I said, also initially, we are actually now seeing tenders coming out, both in Italy and of course, we expect to see it more in Poland and also other countries. So slowly, but steadily, we are making good progress. Then, of course, we have to win tenders to be able to make sales, but we think we have a good opportunity there. And apart from that, we have set up subsidiaries in Italy and the U.S. We are hiring into those. And in the U.S., we are also doing a lot of pre-FDA activity before approval and starting up sites. So I think that is also going to be positive for this year.So I would say that where I sit, I see positive on the future for the outlook for 2024 and we said before, the sales for this year as we are moving into a new commercialization strategy, we are trading up a lot of distributors. We do not expect sales to be massive this year, more on par with last year. Of course, we would like to beat that, but I think that should be the expectation. And I think also after what we have seen now is that there is a clear interest and need for improved rapid AST diagnostics. So what we are doing is important, and we are now starting to see that. So with that, I will move over to the financial part of the presentation and hand over the word to Christer.

[Unknown Executive]

Thank you, Jonas. My first presentation. I am looking forward to it. I will make a brief presentation of the financials for Q1, go through the P&L numbers and the financial position and the cash flow in 3 pages. Starting with the consolidated statement of profit and loss. As you see, the sales amounts to 0. As Jonas has pointed out, last year, 5.8%. We have a better operating result this year than last year, SEK 62.2 million as compared to the SEK 71.5 million, which is good. You can explain by lower external expenses or consultants basically. Moving on to the profit and loss. We have a SEK -61.4 million, which is better than last year as well which I explained just. And then we have the earnings per share also better, but still on the minus side, 2.10 as compared to 2.49%.Moving to the next slide on the financial position. End of quarter, we had SEK 20.6 million available, which is lower than last year, SEK 72.9 million. We have an inventory on par with last year basically. The equity has gone down from SEK 163 million starting this year to SEK 102.6 million end of quarter. And then we have a loan, which is new, we did not have that at the end of last year, of SEK 25 million from our main owner, and this is SEK 25 million, but it is reevaluated based on the IFRS 9, and that is down to SEK 24.8 million.Moving to the next slide, the cash flow. The cash flow is lower or worse than last year, basically due to an unfavorable change of working capital, that explains the whole difference, but it is partly offset with better operating result this year than last year.Moving on to the investing activities, it is all down to investments in production equipment, rather low as compared to last year in total also, but on par with the last year quarter. When you are looking at the financing activities, we have a SEK +23.2 million net, which is due to or thanks to the loan received by our main owner of SEK 25 million. That is basically what I am going to go through. You can read it on the page down there, but basically, what it says in the small print at the bottom of the page is that we have the SEK 2.6 million on our bank plus an unutilized loan facility of SEK 175 million, adding up to SEK 195 in total at the end of quarter. And the liquidity is not sufficient to cover our operations for the next 12 months. It is less than 12 months. I am through there.

[Jonas Jarvius, executive]

Thank you very much, Christer. So with that, I am going to conclude our part of the presentation. I am really sure that we are still looking forward to the continuation of 2023. We are expecting to see that a lot of the work we have done since October will start materializing in further activities and respond to tenders. So with that, I would like to close our part and open up for questions from the audience. Thank you very much.

[Operator]

[Operator instructions] The next question comes from Gonzalo Artiach from ABG Sundal Collier. Please go ahead.

[Gonzalo Artiach Castañón, analyst]

Hi Jonas and hi Christer. I would like to start with a question here. You reported in the previous quarter that the zero sales was a consequence of the Thermo Fisher situation. But this quarter, now in Q1, this should have improved a bit, especially in terms of consumables. What are the reasons for sales to remain that low? And what about consumables and SEK 22000, it is quite a low number. What can you say there?

[Jonas Jarvius, executive]

Thank you, Gonzalo. I think that is a fair question. The reason that we do not see sort of instrument sales, I think, is very much expected during the quarter because we are setting up a new commercial organization and we need to have that in place. So that is not a surprise. We also said in the last presentation that we do see the sales to be backloaded. When it comes to consumables, as you know, typically, a customer will buy a box of consumables and how often they will buy them can be various stochastic depending on utilization of that system in particular. So I think in that case, it was more that what you can see, which is not uncommon is that you tend to stock up a little bit at the end of the year for various budget reasons, and that means that the first quarter traditionally in sales for consumables are the lowest quarter. So I do not see it as a big surprise. And of course, as I said, I do expect the rest of the year to change in a more positive direction regarding sales.

[Gonzalo Artiach Castañón, analyst]

Okay. And the second question. You have implemented now, not a long ago, a cost-saving program, and you reduce your workforce quite substantially. And how is this going to impact the development of your own sales force, let us say, for the Benelux and Italy regions? Is it going to happen slower than what you thought last quarter?

[Jonas Jarvius, executive]

No, not really. What we have done is really restructuring the company. And where we have decreased is primarily in the development part. I mean, as you know, we have a very long-term development plans. We are now focusing more on the ASTar success. So we do not see this affecting the sales force or our sales strategy. We actually do that to be able to put the resources in sales instead. And of course, what it also means is that some more forward-looking development projects are being paused. Of course, we are going to restart them again as soon as we find that feasible. So this all cost saving is really changing the company to be focused on sales and perform all those performing activities. So we do not see any effect on the sales for this year because of that restructuring.

[Gonzalo Artiach Castañón, analyst]

Okay. And one last question. You mentioned a few weeks ago, now in the report that Pro-Lab has placed an order for 2 instruments that will be used as demo instrument in exhibitions. And my question is, I was wondering how much are you going to guide in the future for ASTar placement? Is this something you will be guiding on a continuous basis? Or how can we expect this in the next quarters?

[Jonas Jarvius, executive]

Nothing, it is a good question. So I think with 2 parts. We will guide more on the quarter report, of course. But I think, as I said also earlier that during this year, when we do see that we either win a tender or place true customer evaluations, we will most likely press release that. So we are more transparent to the market regarding those activities. And then hopefully would be that in a year or in a year half from now, we will go back to only keeping it in the quarterly reports, but as of now, we will be more active in that communication. And as I said, also, I think it is important to still expect the year to be more backloaded because, of course, setting up a new distributor, there is a lot of training activities, they need to go out and approach the customers. So even looking at having worked a couple of month which is very little time. But we do expect to see that, and we are going to be much more open with that. And my answer is press release during this year and I am going back to quarter releases, when we see that we have a more of a steady flow. So it is also easier for everyone following the company to see the progress we make in these areas.

[Operator]

[Operator instructions] The next question comes from Johan Unnerus from Redeye. Please go ahead.

[Johan Unnerus, analyst]

[indiscernible] a few then. Is it possible to say anything in regard about how many [indiscernible] evaluations right now.

[Jonas Jarvius, executive]

I think I heard you a little bit bad, Johan. If I repeat the question, I think that your question was really how many systems do we have out for evaluations and testing. We have not announced a precise number, but we have several instruments in Italy, also several in the Benelux areas, and we are also having instruments in the U.K. So it is currently, I would say less than 10, but it is between that 5 and 10 type systems that we are currently doing evaluations on.

[Johan Unnerus, analyst]

Excellent. That was helpful. And what about this savings or priority program that you are going to roll out SEK 45 million in savings? When can we see that effect? Should we see the most of that effect towards the end of the year on the run rate? Or is it further into 24?

[Jonas Jarvius, executive]

No, I think that first of all, yes, we see that as a steady state effect in 2024, but with the current plans we have and see it, we do expect to see that already in the last quarter to see those effects coming into play.

[Johan Unnerus, analyst]

And apart from this program, is it other savings or priorities changes you are thinking about doing?

[Jonas Jarvius, executive]

Well, I think, of course, what we are doing is really focusing on the sales-driven activities, both in development and of course, in the commercial team. So that is the primary focus. Really, I think the team at the company has done a good job in the restructuring of the company to really have a solid organization that in the future could grow in the commercial aspect. We do not really see or plan to do more savings on this. I think this is a good program, and we expect to see them coming out already this year and into next year. So this is the primary reason. Then, of course, what we are looking at for in the climate are thinking that some of the projects that we might put on pause, are we going to try to find some different type of business relationships or agreements with them. But that is something I cannot go into more detail, but that might actually be one opportunity that is not necessarily saving, but it could look at a different type of income coming in earlier from both projects, so to speak.

[Johan Unnerus, analyst]

Yes. And of course, it is very important with launch preparations and I am thinking about the U.S. rollout eventually. Of course, the first step is to submit fully then towards possibly June? And what are you thinking about stepping up the launch activities or preparation for ahead of the launch activities?

[Jonas Jarvius, executive]

Right. That's good question. So what we are doing is we are, first of all, in late-stage hiring our commercial leader for the U.S. We have had very good candidates, and we expect to come closer to an agreement on that ideally before [indiscernible], which is mid-June. But what we are also doing is we are now moving forward with this pre-FDA approval evaluation. So we are moving forward with one in Washington. We are having several discussions ongoing with additional pre-FDA valuations. And I think the interest we have seen there is very positive. So what we are trying to do is prepare the market at very good hospitals, key opinion leaders to be able to run evaluation studies, of course, R&D studies at that stage before approval, so that the product will actually have some traction already when we see the clearance coming from the FDA. So that is what we are doing. We try to manage how many we can run. But so far, I think it looks good for the U.S. market and also very positive that a lot of the feedback we received from tentative customers is that they absolutely love this full automation, 24x7 operation of ASTar, and that has really been important after the pandemic. So I think that what we have designed and built might be even a better fit for the U.S. market, although it is still a good fit for Europe.

[Johan Unnerus, analyst]

And during '23, then to close that hiring and to start a number of evaluations ahead of approval in the second half and a slight buildup to support these evaluations commercially, clinically. Is that what we should expect roughly?

[Jonas Jarvius, executive]

Yes, exactly. Yes. That's what you can expect.

[Johan Unnerus, analyst]

And in the report, you are pretty open about that you are evaluating and considering different growth capital alternative, of course, it is a necessity to address these situations. Is there anything more you can add to that?

[Jonas Jarvius, executive]

No, you are not in detail, but of course, you are absolutely right. You can just look at the financial statement to see that, but I think, first of all, we have a very strong support from Nexttobe, and I think that is very clear. We are also actually seeing some market traction coming in. So what we are doing and of course, what the Board is always assessing is what is the best next step for the long-term funds of the company. And there are several alternatives and discussions ongoing. And I look very positive on that, to be honest, but I cannot go into the details. Some are you are probably very familiar with, but there might be also other alternatives on the table.

[Operator]

There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

[Jonas Jarvius, executive]

Well, thank you very much for that. Thanks for listening in. I do hope you will continue to follow us. I do hope you share your view that Q-linea is an exciting company and that we are going to turn this boat around. I am confident that, so keep following us, and we will be in touch at least for the next quarterly report. Thank you very much from us. Bye-bye.