Q linea AB

STO:QLINEA

Earnings Call Transcript 2023-Q2

[Operator]

Welcome to Q-linea Q2 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, who is listening into our presentation on earnings and accomplishments during the second quarter of 2023.

I will start by showing our disclaimer slide in case me or Christer will make any forward-looking statements during our call today.

I wanted to start summarizing the key accomplishments during the first quarter, then go a little bit more into detail around those accomplishments, and of course, press releases, moving into more what we are doing with our commercial efforts. And then, of course, hand over to Christer to talk about the finance position.

What we have been doing very actively since end of October last year is really implementing our new commercialization strategy. And we have seen during the spring, and I will come back to that, that our commercial coverage has really expanded during the spring. Of course, we also know that it's very important to have customers evaluate ASTar before they buy it. And we're also, of course, actively participating in several of these evaluations.

What we've talked about also earlier is that is our belief that in order to support the sales of ASTar primarily in the future, is to have health economic outcome research data to support that you may be able to have a cost saving if you implement rapid AST. And I also have to say that we start our lifetime studies very early on this quarter.

But apart from that, we, of course, need strengthening our commercial team, and we're also strengthening the Board in this phase we're in now moving into commercial activities more widely in Europe and also in the U.S.

So in the Board, Finn Sander Albrechtsen and Karin Fischer has joined the Board and Franco Pellegrini and Jim Kathrein had joined our commercial team to cover Southern Europe and USA, respectively. I'll come back a little bit more detail about these persons.

Of course, very important for us, the U.S. market. We have the discussion with FDA. They required some more extended testing. They want to see more data on the platform. We have now completed all those data that we started off in February, and we are in late phase of preparing a submission to the FDA. And of course, we then anticipate and hope that the submission would be considered complete, and of course, we can move on closer to approval and market clearance in the U.S.

Of course, we're also in the middle of a rights issue that was announced 1st of June and approved by EGM on 3rd of July. It's a rights issue of approximately SEK 263 million, which is 95% coverage, which, of course, makes me very happy. It shows a very strong interest in the company. The subscription price has been set at SEK 3 per share. And of course, all trading is actively ongoing right now from 10th of July up to 18th of July. We have seen a strong support from our current large shareholders. And of course, Nexttobe being our biggest shareholders have also, of course, going into the [indiscernible], but the loan facility that they offered earlier this year will also access a guarantee in the rights issue. But we have not needed to have an external guarantee commitments, no remuneration to Nexttobe for their guarantee commitment.

So of course, this is an active period, and I look forward to see that transaction coming to a close.

Another topic that we also announced earlier this year is, of course, now as we are progressing towards commercial, we put all our efforts in the commercial activities around ASTar. We have also accomplished a number of development activities. We initiated a cost-saving program. We have now completed that program. It will really focus more on the commercial activities, of course, still have some development activities left in the company. And we do expect to save around SEK 45 million annually, and we will see the impact coming out later this year.

I'm also very happy to say that we have received positive feedback from staff and from the unions on how the program was implemented by the company. This is, of course, a difficult thing to do, but the right thing to do.

And I also want to take the opportunity to wish all the persons that now have left Q-linea. Hope they have a bright future outside our company and maybe we'll meet again in the future.

If we then go into a bit more of the detailed news flow that we've seen during the second quarter, I will not go into detail here, but you have it for reference. And I think, as you can see here, it's basically all about commercial traction. We want to cover more ground in Europe. And we can also see that Pro-Lab, our first distributor has really made a tremendous progress in the United Kingdom with not only ordering evaluation system, but also implementing and starting their own evaluation. And I think that is very promising for the rest of this year and primarily for 2024.

You can see here that the coverage goes then, of course, beyond U.K. to Norway to France. And I think this is, of course, not -- and we will continue to add partnership in Europe, in other regions and also, of course, for the U.S. So that will be more news to come from the company as I expected.

We had a couple of things I wanted to include here after the second quarter end. And that's really that we're now strengthening our commercial team, both in the Southern European market and in the important U.S. market. So these news came out quite recently actually.

If we take a look at the persons coming into the company, we look at the Board first. Finn Sander Albrechtsen, I mean, he is a very, very renowned and good knowledge in the field. He was also active VP of R&D and Business Development for the Microbiology division at Thermo Fisher Scientific. So of course, we met Finn earlier at that time at Thermo Fisher. I'm also very pleased to see now that as our partnership and he would like to join us in the Board and thanking the Board. So very happy about that.

The same with Karin Fischer. She has a very good global experience from strategic and operative positions and a very strong sales focus. And I think that is really going to strengthen us now as we move along with increased coverage and also signing up more distributors throughout the world.

If we then look at the more of the commercial team, the day-to-day operation, Franco Pellegrini joined and will cover basic Italy in the southern part of Europe and also into the Benelux area. And he also had senior roles in Thermo Fisher Scientific over the last 13 years. So Franco has seen ASTar during his Thermo Fisher year. And of course, after that he wanted to join the Q-linea team and continue developing the commercial efforts around ASTar and I'm really happy about that.

Likewise, in the U.S., we saw Jim Kathrein coming in here into July. Jim has really a solid background in infectious disease microbiology field, both in Biofire, but also bioMerieux. And of course, on our agenda now is before we have an FDA approval of our product, we really want to prepare the market before, doing evaluation studies, assessing customers and try to build a premarket value for the company, basically.

If we then move a little bit briefly into what we're doing. And of course, the first product is focused around sepsis or [indiscernible] infections. As you know, it's the most common cause of death in our hospitals, the #1 cost driver in the U.S. health care system and time to correct treatment is critical. And of course, these patients have -- if they have a bacteremia, we want to fight that with antibiotics and find that correct antibiotic as fast as possible, and this is where ASTar comes into the picture.

So when we look at the traditional workflow on the top part, it's a multi-day, multi-step process and that means that many of these patients are on inappropriate therapy for sometimes several days, and that results in a very poor outcome for these patient groups.

So what we want to do with ASTar is enable that answer to come much faster but also at the same time, reduce the workload for the staff in the lab. So simple, less than 2 minutes to start an ASTar and then you have the answer within 6 hours.

This is really our focus. And now we start seeing customers using it, and we've got a very, very good response from early doctors and from other customers. Not only that it's easy to integrate in the workflow, it's easy to use, but also the coverage from our panel is very, very high. So the likelihood of, if you load the sample into ASTar, we will act upon it, is very high. So above 95% in these studies.

So we think this is a very good base: having a system that delivers high-quality data that it's simple to use and now also, of course, extend our coverage with our distributors to be able to provide ASTar to several customers in Europe and in the future in the U.S.

When we look at the market overall, we believe it to be around 20 million blood cultures. There will be a selection of these blood cultures, maybe around 4 million tests initially for these unique positive blood sets. And when we look at the market, we see there's a handful of credible companies that we see as colleagues or maybe competitors depending on if we fight the same customers. And that gives an indication of maybe yearly a market of 1 million tests only for blood and we do see that this market grows with around 4% to 6% CAGR.

So if we then move on to our updated go-to-market strategy, we really see it as 2 phases. Where we are today is build the foundation for future commercial success. And that's what we are doing this year and plan for next year. And then, of course, we want to accelerate growth and market expansion, both with U.S. expansion, but also expanding their product road map. So today, we're really focused on customer experience, doing evaluation studies. We want to build a strong health economic scientific evidence for the product, which I think is going to be important in the future. And of course, we need to have a broad commercial coverage in Europe and in the U.S. So we are actively involved in trade shows, doing this type of evaluation studies now running our health economic studies. So there's a lot of activities, but I think they're also to have a very successful 2024.

And on the health economic outcome research study, our lifetime study, we could enroll the first patient now mid June. It will be around 160 prospective ICU patients, tested for Gram-negative bacteremia. It will include both adults and children. We have 4 major Italian hospitals participating in the study, and we have approximated to run for approximately 1 year.

We do want to see interim data coming out maybe end of this year, beginning of next year to give an indication on the study. And of course, we want to investigate how ASTar impact timed optimal therapy, ICU and hospital length of stay, the duration of the hospital stay, and of course, cost of antibiotic therapy.

So it's a multicenter study, and I'm really happy that it finally got started.

So if we then look at our commercial coverage, we can see that just during this first 6 months of this year, we have made Europe a bit more orange. We have coverage now in what we see is the most primary important geographies, so Southern Europe, France, U.K. But of course, we want to extend that coverage to the DACH region and also others. And we will cover Spain initially from our Italian office with Franco running that. So it's getting better, and we see more people now have access to ASTar but.. [Audio Gap] So I hope you have stayed on. And I was just sort of wrapping up my part of the presentation, and I really wanted to go into our focus right now and it's really focusing on ASTar for this year and then we look forward to extend panels. But we do have, of course, technologies such as Podler and others in late-stage development. And of course, that's something we want to come up with back again into the future.

So that will conclude my part of the presentation, and I will now hand over to Christer, who will go through the financial numbers for the second quarter. So please go ahead, Christer.

[Christer Samuelsson, executive]

Thank you, Jonas. First, I just want to repeat 2 important milestones we reached during the second quarter. Jonas has already talked about, but it's -- they are important financially: the cost-saving program, very positive now that we have concluded this activities and we have also taken cost in Q2 as we have said in the report, and we will see impact on this already from Q3; and secondly, obviously, the guarantee -- the ongoing guaranteed rights issue, which will strengthen both equity and liquidity. I will get back on that one.

Now on some details. As you have seen, we have a small [indiscernible] in Q2, which is really positive, although lower than in Q2 last year, but still -- and the result in Q2 is better than last year's quarter, but in line with first quarter this year.

Let's go ahead with the balance sheet items. We had SEK 25 million on the bank account as of June 30. That includes a loan where we have a loan from our principal owner of SEK 87 million.

Also, the inventories are in line with the quarter last year, and all these numbers are as planned. There are no things that stick out as we didn't expect.

Looking at the cash flow activities. We had a positive development of the working capital Q2, which explains the better quarter number as compared to last year and also as compared to first quarter this year. They are investing activities, are in fixed assets in our production and development, and we do not invest in any financial assets this year so far.

Also, the cash flow from financing activities of plus SEK 60 million is due to our loan in the second quarter from our main owner of SEK 62 million. And then there are some IFRS 16 activities as well that lowers that amount.

Again, I want to highlight that the rights issue, together with the funds available today, will make us have -- we can run the business for 12 months ahead, which is very positive.

Also, obviously, the equity will be strengthened very much. Looking at the rights issue, the liquidity will be strengthened by some SEK 175 million before transaction costs.

Jonas, please go ahead.

[Jonas Jarvius, executive]

Thank you very much, Christer. With that, we would like to conclude our presentation. I would like to open up for questions and answers.

[Operator]

[Operator Instructions] The next question comes from Johan Unnerus from Redeye.

[Johan Unnerus, analyst]

Johan Unnerus here. I hope you can hear me reasonably well.

[Jonas Jarvius, executive]

Of course, it's good, Johan.

[Johan Unnerus, analyst]

Yes. And we noticed that you have this testing order for -- from the U.K. distributor. Is there something to be said about the outlook and pipeline of further ASTar tests and DMO orders?

[Jonas Jarvius, executive]

So thanks for the question, Johan. Well, I mean, we -- I think we signed up Pro-Labs in March. So I think to see these first 2 orders were very positive. Of course, what's happening right now is that these systems are put to use at British hospitals, and of course, being an evaluation. And the purpose really of the DMO evaluation system is, of course, to be able to move them from one hospital to another, so you could have sort of more customers test and try it out.

So I don't -- would not say I would expect some more evaluation system this year. I think they have enough for start. What we do, of course, look forward to is if we can see some of these evaluations turn into customers this year and then, of course, we would see more commercial orders. But that would probably be my outlook for this year.

[Johan Unnerus, analyst]

Useful. Yes, and you are sort of guide and yes, you can call it guide, I presume of sort of sales roughly in line with last year, given the rather soft start of this year with testing and building this framework for further growth and experience in the market. It's slightly challenging to meet this, you have to make up for the first half of the year now.

[Jonas Jarvius, executive]

Right. No, I think what we said was the guidance was to expect similar numbers this year as last year. And we still are firm according to that. Of course, now when we do sign distributors, it will take some time for training before we see an effect of that coming into sales.

So as we also guided earlier on this year was that it will be a backloaded year for many reasons. But so far, I think we see good traction. We also responded to our first tender in Italy. We did that a couple of months ago. So I would say that, yes, it's going to be backloaded year. And a lot of the activities we're doing right now is really to have a strong 2024 when our distributors are, of course, more to the number, but they are also much more active in their respective markets. So I still look similar as next year is our -- so we don't make any change there.

[Johan Unnerus, analyst]

And also a related question then. We've seen a good momentum in signing additional distributors. And of course, U.K. and France is very important. Spain is included, I presume, and you're very active in Italy. Have you got a pipeline and discussions of additional distributors?

[Jonas Jarvius, executive]

Yes, we do. So we have a pipeline of distributor, and we are in discussion with several. What we want to do is we want to make very sure that, one, what we do select are properly qualified for the process. So to us, it's really important to find the right distributors. And we're having quite a good level of interest in being -- partnering with us and distribute ASTar in Europe, but also elsewhere.

So we do expect to see more news and more distribution partnerships being announced during this year as well. So we have not stopped. But I think we have covered couple of real key geographies in Europe for early adopter size, and of course, problems with AMR. So I'm happy where we are, but we are not sitting still.

[Johan Unnerus, analyst]

And finally, then from my -- our part, U.S. is, of course, very important, and you're in the process of compiling analytics and some additional tests supporting the application process. What can we expect the time-wise on that topic.

[Jonas Jarvius, executive]

So we are now sort of in late stage preparing of the new application or updated application. So of course, we want to submit that. I would expect that to be in the near term. Then, of course, we do assume that after discussion with the FDA that we will consider the submission as complete. And of course, we want to see us move into the autumn in discussion towards approval.

But to give a guaranteed time line, it's, of course, very difficult because we know that the FDA has been very busy and very occupied. We have a good discussion. So I'm very positive about that. And I would more -- like to say that if it's on this end of New Year's Eve, I would be very, very happy to see the ASTar coming out in the U.S. But nothing we can guarantee, of course, as we are dependent on availability of the FDA.

[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]

Thank you very much for that. So I would like to thank everyone who's listening, and perhaps someone will listen afterwards on the web.

And I would just like to summarize this quarter as a very active commercial expansion quarter both regarding staff evaluations and reach. So I do look forward to see the next quarter being a bit more positive on sales. But as I said, you should expect it to be a backloaded year. But I think we are moving quite fast in the water and in the right direction.

And of course, if you haven't subscribed for shares in the rights issue, I would, of course, encourage everyone to do so. I think we want to conclude that on a positive note. So with that, I would say thank you from me and Christer and wish you all a great summer. Goodbye.

[Christer Samuelsson, executive]

Thank you.