Q linea AB

STO:QLINEA

Earnings Call Transcript 2024-Q2

[Operator]

Welcome to the Q-linea Q2 Report 2024. For the first part of the conference call, [Operator Instructions] Now I will hand the conference over to CEO, Stuart Gander; and CFO, Christer Samuelsson. Please go ahead.

[Stuart Gander, executive]

Hello, and good afternoon, everyone. This is Stuart Gander, here, CEO of Q-linea. I'm joined by my CFO, Christer Samuelsson for Q-linea's Q2 report. So thank you for taking the time to join us. We'll do this similar to previous. I will make some opening comments, give you a general sense of where we are in the business, some of the highlights from the last quarter. And then I'll make -- I'll turn it over to Christer, who will walk us through the financials for the quarter.

So with that, just a quick flash of our regular disclaimer here. So you've read that with respect to any forward-looking statements. A few of the key messages I wanted to make sure that you hear during our discussion today. Number one, following the FDA approval at the end of April, we're now in full commercial push mode in the U.S. I'll speak to it more in detail. But obviously, this is a very large market with a large opportunity for rapid AST. So we're being very thoughtful in terms of how we approach it and segment it so we utilize our relatively small commercial team on the ground where we have the most opportunity for early-stage traction. So I'll talk a little bit about that.

Second piece related to our commercial expansion is on the geographic side. We've had a presence now in Western Europe for some time. And with the expansion into the U.S., our focus is now shifting to a global and steady expansion of the ASTar opportunity around the world. Obviously, there are a great number of geographies and potential partners. So we're being thoughtful in terms of again, how we deploy resources and which markets we enter at what time so that we don't get too far over our skis, but at the same time, open up new opportunities for ASTar to reach patients.

Thirdly we've talked about this before, but the cost saving program that was initiated at the beginning of this year has completed. Christer will speak more to the details, but all of those changes have been done as planned and on time. And in fact, on the cost side, we're slightly above the cost projection that we anticipated or that is to say slightly more savings than we anticipated. So we will see those coming through the back end of this year.

And then finally, again, as communicated previously, we're very pleased that we've had an extended financing arrangement with Nexttobe, our largest shareholder, and that will carry us through into the back part of this year. So some of the key messages and with that, I'll get into the next level of detail here. So 4 areas of focus for me since joining in -- stepping into role roughly 4 months ago: number one, that commercial acceleration, right? So we have now shipped our first instruments to the U.S. with dedicated U.S. software and specifications, so with the FDA approval, we now have a U.S.-approved menu. And those instruments that go in now can essentially stay on site when customers signed the contracts. So previously, customers have had opportunity to use the ASTar platform under early access programs and for our clinical work, but these are now commercial instruments going to the U.S. for evaluations. The second main point here is we continue to receive endorsement from the CMS with respect to the NTAP reimbursement funding, we've not yet got final approval from CMS on this, but they have communicated the recommendation for reimbursement coverage at $97.50 per patient. So this would be applicable for any Medicare patients that have a rapid AST test done on the ASTar platform, and this will help labs in hospitals to free the costs of rapid AST. And we expect, therefore, to not only accelerate the adoption of rapid AST, but specifically to encourage the consideration of ASTar by hospitals and labs. We have continued to make commercial traction in our other core markets as well. We've shifted additional units to Italy. We did communicate another tender, which we are participating in Belgium. And then there are several other markets that continue to progress in terms of customers evaluating and contracting on ASTar. So hopefully, more to communicate on those soon. And then as I mentioned previously, considering our geographic expansion thoughtfully here into new markets.

On the customer engagement side and scientific engagement, we -- I mentioned in last quarter's report our presentations at ECCMID, which were very well received. We have interim results for our Health Economics and Outcomes Research study that continues in Italy. We shared some of those highlights as well at the ASM conference in the U.S. and continue to get strong customer interest for those publications. And also happy to see that the broader industry continues to invest in publications for the benefits of rapid AST, which we now see as both a hot topic and increasingly getting a body of evidence and support of the practical and clinical advantages of hospitals in going that route. So my second area of priority after the customer acceleration has been really around innovation and product development. The aforementioned FDA approval was a very nice culmination of a huge amount of effort from the team to secure access to the U.S. market. Our work doesn't stop there immediately after getting that approval, we have submitted for version 2 of our menu, which will provide more drug bug combinations to our U.S. customers, further strengthening our offer there. I would note that throughout this period of restructuring, which obviously has its demands on the organization, we have managed to keep all of the internal milestones for our development projects. So I think that speaks to the commitment of the team and the capabilities in our development team. So we continue to make progress in terms of expanding the capabilities of ASTar for our next-generation software and for the menu expansions down the road. Third area of focus for me has been around the organization. So as I've mentioned, we've now completed that restructuring process and settling into the new organization now going forward. We continue to make targeted investments, including in the U.S. market, where we've added a couple of team members really to help turbocharge our U.S. launch, giving us more commercial firepower in that market. And then the other area of focus for us is really strengthening that end-to-end customer care and service support experience. We anticipate placing a number of ASTar instruments around the world going forward, and this will place more demands on the service team. So this is one of the key areas of focus for the team in the months ahead. And then finally, on the financial side, overall, tracking ahead of the budget that was set, we see those costs coming down slightly faster than anticipated, which is good news. Christer will speak to that more in detail. My focus and that as a team really remains on driving the top line growth. Keeping in mind that in many of the markets, we will expect to see reagent rental models, which means when instruments go out, it does take a little bit of time for the revenues to come in as usage of those growth over time and customers buy and use kits for their patients. So with that, maybe I'll just jump into some further comments for those that are new to Q-linea, new to rapid AST. It's worth reiterating our core proposition, which is, in our view, a market-leading one. The ASTar platform promises a less than 6-hour turnaround time for critical blood infection diagnosis, which both in terms of clinical impact has a clear benefit in reducing the impact of sepsis and saving lives. It also saves time and money and critically lab time in managing patient workflow. The actual workflow in the instrument is second to none. It's less than 2 minutes of hands-on time, very simple interface and critically is continuous access and random access platform with very minimal training need for a user, making it very easy to plug into any microbiology lab around the world. And then finally, with respect to that menu, very comprehensive menu and continues to demonstrate very strong performance in the field with respect to consistency, reproducibility of test results. So here's a quick view of our U.S. cleared ASTar panel, we received that clearance on April 26, we're very proud of that. This panel will continue to be strengthened, as I mentioned earlier, with a version 2, we will leverage the clinical data that's been gathered over the last months for that resubmission, and we'll expect to see that in the quarters ahead. So with respect to the U.S. market, as I mentioned, there's -- it's a very significant size market, geographically large and relatively complex in terms of the makeup of different types of hospitals, labs, configurations, et cetera. So the first order of business for us is to be very thoughtful and structured. The team has done a great job segmenting the roughly 1,600 or so labs that we think are relevant for the ASTar platform and really focusing on the top 50 to around 100 of those centers. These are the labs both that have the volumes that make it very interesting to start there. But also crucially, are ones that have proven themselves to be early adopters of technologies. They often have what we call key opinion leaders, thought leaders in the field, the types of decision-makers that can move quickly with their lab to bring new and beneficial technologies to their patients. So we're having active engagement with several dozen of these and are now setting up evaluations over the coming months. So we'll expect to see the contracting periods for those commence after the evaluations. The main thing here for us is to really demonstrate the performance of ASTar by getting the instruments into the hands, the lab techs and the lab managers who use it day to day. And we see consistently very strong feedback once the instrument is in the lab that folks see the benefits and the usability advantages on the ASTar approach, and this, we think, is going to lead to a very strong reception post the evaluations that we're now setting up. So attention will eventually shift from getting those evaluated patients going to the conversion and contracting over the coming months. In support of that customer engagement, I had the privilege of joining the team in Atlanta in June for the ASM conference, which is the largest U.S. based microbiology conference, sort of mirrors, in some ways, the estimated conference that happened earlier. We were able, obviously, to leverage some of those similar scientific findings for our poster presentations. And it gives us an opportunity to interact with more than 5,000 clinicians and scientists in the field across the U.S. It was interesting to note that as with estimate rapid AST remains a focus area for research and scientific endeavor in the field. We're also not the only players talking about this space. So there, as I mentioned, our number of studies and poster presentations coming out that really further support the clinical benefits of rapid AST. So speaking to that, it's worth highlighting again the interim results from our health economics and outcomes research in Italy. We've talked about this previously, but the numbers are worth highlighting again that we see up to 34 hours improvement in time to result in using ASTar versus current standard of care and the sepsis environment where our accounts, every hour leads to increased mortality. This has tremendous benefits for the outcome of the patient.

We've noted in the interim results that almost half, just under half of patients had adjustments in therapy. That means that these patients are either receiving in many cases, an escalation and therapy that would suggest that their clinical outcomes may have been worse had they not received a different and appropriate therapy. So that that's out to around 1/4 of the patients. And the remainder of the patients are able to de-escalate, which means that there's less topological impact on the patient and also some savings for hospitals as well and crucially improve stewardship and retaining the ability to use our most impactful drugs for patients truly when it matters rather than driving that antimicrobial resistance challenge.

So this is just some of the data that's coming out into the market and encouraging that shift towards rapid AST. So just to round off a little bit here, we continue to focus very much in the immediate phase here on the commercialization of the ASTar platform in Europe, in the U.S. and now increasingly globally. Our development pipeline is focused on further strengthening the proposition of the ASTar with menu expansion. We've mentioned, for example, gram positive, which is another roughly 50% of the patients with bloodstream infection. So that we would expect to expand that menu in the future. And then there are down the road for their applications in terms of other test types and modalities going forward. So with that, I'll turn over the comments to Christer to highlight the financial developments for the quarter.

[Christer Samuelsson, executive]

Thank you, Stuart. Thank you, Stuart. I'll start off by some -- with some financial highlights for the quarter. And as Stuart already mentioned, we have completed the cost savings program that was initiated earlier this year. and it has been a really good savings program, and we can see the full effect from the SEK 50 million savings in Q3 and onwards. And we are happy about that one. We have also been offered an additional loan facility, as Stuart mentioned. And the total loan facility from our main owner, Nexttobe now amounts to SEK 101.5 million. The unutilized part as of 30th of June is SEK 60 million. Looking at the cash and available loan facility as of 30th of June, the amount in total of SEK 80.9 million. Looking at the operating result for the quarter -- for the second quarter, that is 57 -- minus SEK 57 million if we exclude the restructuring cost of SEK 8.4 million, and the restructuring cost refers to personnel costs, 100%. And then we will have SEK 19 million minus result for the month in the second quarter, which is in line also with the first quarter of this year.

Switching to the equity side. I just want to highlight that the parent company equity amounts to SEK 163 million as of June 30. And the equity includes SEK 70 million from the valuation of the Podler technology. And that only goes for the parent company equity. It doesn't affect the group equity.

Switching to our consolidated statement of profit and loss for the second quarter. The top line was fairly low, as you can see, it's SEK 1.6 million as compared to last year, SEK 1.9 million. And as Stuart mentioned, we have a reagent model in many of the markets, especially in Europe and in Italy, where we are very active right now. And that explains that we have a low top line even though we have delivered a couple of instruments, we don't see the income coming -- will come later. And in short, if you don't know the reagent rental, we will get paid when we sell the consumables. So the consumable price will include everything from both the consumables and the instrument. The operating result, as I've stated before, was minus SEK 65.4 million or SEK 57 million minus when we take away the restructuring costs, thanks to this cost savings program. Earnings per share minus SEK 0.56 for the quarter, which is a lot less than last year, which is explained by the rights issue we had last year, which increased the number of shares quite a lot, as you can see. Consolidated statement of financial position end of second quarter. As stated before, we have SEK 20.9 million in cash and cash equivalents. Starting off the year with SEK 81.9 million. We have utilized SEK 41.5 million of the loan facility from the main owner. Looking at the average monthly burn rate. For the second quarter, it amounted to SEK 16.7 million, which was slightly lower than for the first half year when it amounted to SEK 17.1 million. And as stated before, we now have SEK 80.9 million or as of 30th of June, we had SEK 80.9 million available funds. Inventories is going in the right direction, we -- is lower than last year, the SEK 40.4 million and is also lower than the end of Q1, which is positive. And we still have a large number of instruments, which is positive in the phase we are now in. I talked before about the parent company equity and now switched to the group equity, which amounted to SEK 68.1 million end of second quarter. And we have had SEK 18.9 million average monthly decrease on the equity side. And I covered already the parent company equity, so I'll skip that one. Switching to the last page and future financing. And I just will summarize a little bit on the financial side here. As I stated before, we have SEK 80.9 million available funds. We have a total loan facility of SEK 101.5 million from our main owner and is approved by the AGM, 30th of June. And our average monthly operating result for the second quarter was minus SEK 19 million, excluding the restructuring cost of SEK 8.4 million. And as stated before by Stuart and myself, the cost savings programs will have full effect starting with Q3 and Q4, and we feel confident that, that will happen. And as some of you might have seen, we have reported that we do not have a going concern. And on that topic, but we are still just to summarize where we are. We have -- we're still in an early commercialization phase. U.S launch started with NTAP funding and our sales funnels are growing and maturing, but we have to be engaged in pursuing alternative financing options. And those include, as stated before, strategic partnerships, capitalization of existing assets with Q-linea and negotiations with new and existing owners, investors and financiers. It is the Board of Directors' assessment that the group successfully will be able to finance company operations going forward. Stuart?

[Stuart Gander, executive]

Great. Thank you, Christer. That concludes our forward comments here. Any questions from the audience, also in written form?

[Operator]

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

[Johan Unnerus, analyst]

I have a few if I can, here. Double sound. And yes, what about the prospects of the U.S. commercial partner. Obviously, the U.S. launch is very important during the early stage with the approval and the reimbursement is -- seems to come along later this year. Any engagements with potential U.S. commercial partners?

[Stuart Gander, executive]

Thank you, Johan. Good to hear from you. So on the partnership side, we continue to explore partners around the world. We've chosen a partner-led model for most geographies outside Europe and the U.S. On the U.S. side, there's certainly benefits to that. We continue to engage with different potential partners in discussion. At this point, no decisions or nothing to specifically communicate on that one. I would comment that in these early days right now, it's beneficial for us to be able to engage directly, both if we get immediate feedback from the market on ASTar and -- its benefits and how we might further develop that. And also the opportunity to shape the market growth directly with our message and our version of rapid AST. That isn't to say that going forward, there wouldn't be a clear benefit from engaging a commercial partner. But at this stage, we're very satisfied with the internal team that's opening the market.

[Johan Unnerus, analyst]

Yes. And to follow up on that, you're pointing out some 50 to 100 prioritized institutions, then give you providers with a feel for the process, even if it's early days, I mean, even if there is substantial interest from some of these institutions early on, presumably, there is a process of engagement and decision taking and implementation?

[Stuart Gander, executive]

Yes, great question. And this is the key thing that defines the shape of our funnel and the timing and so on to getting to patient tests in the end. So typically, we would see a process in 3 or 4 stages four. Well the first stage is fairly open and vague. It's just around that initial assessment in 2-way engagement, Basically, the dating process, if you will, of trying to figure out for the right solution for them, and they are the right customer for us. And that process is about understanding the current lab situation, their volumes, the types of patients they have and also what stage of their own financial economic cycle there and are they in a capital buying cycle right now? Or is this something they'll be interested more in the reagent rental. So that can be as short as a couple of months or I can say, half a year or more, depending on how high the level of interest is here. I would say that right now, the types of customers we're engaging in that period is relatively short because again, we prescreened for those that are likely to be of most interest right now. And we have the luxury of picking and choosing a little bit here in the beginning, who we engage with and folks are coming up to us at the conferences and so on. Moving on from that phase, you have one of evaluation. And typically, customers will want to see the instrument working for a couple of months in their lab. It can take a little bit of time to set up that evaluation. Labs have different information systems and different requirements and space requirements of the lab. So it can take 2 to 3 months to set up and run that evaluation. And then there's a period, again, can be -- can vary from anything from a few weeks to a couple of months where they evaluate the results of those -- of that in-lab evaluation and present that to their peers and decision makers. So again, 3 to 4 to 6 months at the long end for an evaluation. And then from there, you move into commercial contracting and negotiation. Some of this leg work has already been done well in advance. The team will have given the customer some indicative quotes, but now post the evaluation and with further review of their volumes and more discussion, you can have more specific conversations on the pricing model and volume discounts and things like that. So that can be as short as 1 to 2 months if the site is already set up and keen to get going or this phase can take quite some time for multisite, large reference lab groups with potentially dozens of labs [ who ] want to take some time here and take that through. But some customers can move fairly quickly through that. And then the final stage is just the setup in the final installations of connecting that over to their regular standard of care and LIS, full LIS integration and final checks internally before they flip the switch and go live with a new standard of care for their clinical protocol. And that's usually fairly quick, short as a month. It can take a little bit of time if they need to get some final approvals and whatnot operationally. So that whole end-to-end cycle, you would typically expect 15 to 18 months. The initial phase, as I said, is very hard to determine. But once you're into that evaluation, we would expect to see 12- to 15-month cycle times until full deployment and large patient volumes.

[Johan Unnerus, analyst]

Great. That's useful. And in terms of providing an external feel for investors and the likes, can we expect you to present a number of valuations or any other feedback from this process going forward?

[Stuart Gander, executive]

Yes, I think it's a fair question. And we're -- we've actively discussed this, right, what form of guidance to give. As Christer pointed out, financially, it's very difficult even if we place an instrument, exactly what the pull-through rate on that is up to the customer, and we're still at the level we're in early stages and don't have that installed base is generating a very predictable routine revenue. But you're right, the evaluation should be forward indicators of contracting. I think it's a good point and one we're thinking about should we make that information more available? Obviously, conscious about not mentioning specific customers and so on. And in evaluation is itself, not necessarily indicative of commercial opportunity. We have evaluations with customers that have 500 or 1,000 patients a year, and we have evaluations with customers that are well in excess of 5,000 [indiscernible] systems that would represent tens of thousands of customers. So some of the realities, let's say, in us as we try to be thoughtful on providing more visibility on the forward development of the business without also misleading one way or the other. So just to understand our thinking there.

[Johan Unnerus, analyst]

That sounds reasonable, and it should be a good starting point in a way without necessarily providing narrow indication for sales prospects at that stage.

And moving on to Europe, then what about the level of dynamics and readiness to engage in ASTar solution as perhaps a complementary system to begin with. You seem to have making progress in the markets of Italy and Belgium. For example?

[Stuart Gander, executive]

Yes. So we see the process is moving along as expected. Tender-driven processes are always longer in my experience, for example, the U.S. tends not to have tenders and they can run a little more dynamically. We see both an increase in the number of tenders that are coming in now and also seeing those moving forward. In general, I think I mentioned previously in my comments, I see Europe developing slower and longer just by the nature of those markets than the U.S., which has already been primed for rapid AST previously. There has been a competitor in that market with a previous generation for some time and just the dynamics of the U.S. market. And for example, our NTAP funding mechanism specifically encourage adopting novel technologies quickly, whereas Europe is a fragmented market. It takes different approaches in the funding and reimbursement mechanisms for labs can be quite complex. So we continue to work through those questions, but we see progress across our core markets. We expect to see that growth progressing, again, slower than the U.S., but slow and steady.

[Johan Unnerus, analyst]

Yes. And finally, from our side. On the financial side, you have completed the restructuring process. It seems like we can expect you to expand the commercial U.S. team somewhat on the support side on that side. What about the run rate in terms of OpEx and cash burn once the restructuring is in place towards the end -- well, during Q3 and towards the end of the year. Is it possible to give a feel for that?

[Stuart Gander, executive]

Christer, do you want to take that?

[Christer Samuelsson, executive]

Yes, I will take that one. It's a good question. Thank you, Johan. I mean, we have given some guidance here basically that we have the run rate in Q1 and Q2. And we basically say that the SEK 50 million savings program will have full effect in Q3 and Q4 on annual savings. So I mean, you can always divide that SEK 50 million by SEK 12 million and I think you will be pretty close to where we will be in Q3 and Q4 on the OpEx and the operating results side, that's the guidance we can give.

[Johan Unnerus, analyst]

And there is no reason to expect any difference in sort of cash flow and result impact of the SEK 50 million?

[Christer Samuelsson, executive]

I would say the risk is low, it's fairly low. There's always -- in the ramp-up phase we are in, we have the working capital to handle and manage. I think we are on top of that. That means that we have to actually purchase and increase the purchases on the commercial side. So that will tie up some capital, but I think we are on top of that one. So no, I think the risk is fairly low, as I see it.

[Operator]

[Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any written questions and closing comments.

[Stuart Gander, executive]

All right. I don't see any written questions. So if there's nothing else, I think we can conclude for this quarter. So thank you all for joining and look forward to speaking with you again in roughly a few months.

[Christer Samuelsson, executive]

Thank you.

[Stuart Gander, executive]

Great.