Q linea AB

STO:QLINEA

Earnings Call Transcript 2023-Q3

[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]

Nice introduction. And welcome, everyone, to Q-linea's report for the third quarter of 2023.

We will, of course, start with our disclaimer slide in case me or Christer will make any forward-looking statements during the call.

After reviewing that slide, I suggest we go into the top highlights of the third quarter. As you know, we are developing solutions for faster infectious disease diagnostics, and the first product is targeting bloodstream infections where sepsis is the most severe condition.

I think we had a very active quarter. As we see here, we could announce happily that we now extend our commercial coverage into Finland and the Baltics, of course, all in line with our business plan to get a good coverage in Europe and then, of course, also continue to build our team in the U.S.A.

We've also been very active together with our distributors to perform several of these customer evaluations of ASTar in real-world settings and the results are coming very strong. And I will actually focus a bit of this presentation to review some of these results, to present how ASTar performs in the clinical settings, which we are very happy to see.

We're also completely in line with what we announced early on this year, is we see that 2024 will be backloaded, as well as this year, but we are making good progress.

Also, we could start our health economic study in Italy in late summer and we are progressing according to plan there as well.

I think perhaps one of the most important part for us to get coverage in the U.S. is, of course, a 510(k) clarification from the FDA. And the discussion has really progressed over the last month or 2 and they have intensified quite a lot. And I will, of course, also talk a bit more about that in this presentation.

Another area that has been a focus for the company during the third quarter is discussing different alternatives for Podler, but of course, also ASTar. So I will also come back and talk a little bit about what we see as the way forward with Podler and we see what will build the value for that product.

But just very briefly, of course, the focus here is sepsis. As you know, it's the most common cause of death in our hospitals, and it's more common than our main forms of cancer. And time to correct treatment is critical. And this is, of course, what ASTar would like to provide. So if you look at the workflow, traditionally it takes 3 to 4 days to get the susceptibility answer, meaning what antibiotic to use during treatment, and ASTar can dramatically reduce that time, but also the amount of work needed in the hospital.

So this is what we set out to develop: a system that is easy to use, comprehensive and really can cut time for effective treatment in the hospitals.

And when we look at the markets, I think we have the same view on the market now as we had a couple of years ago. It's a large market in Europe and U.S. primarily, but of course, also the APAC region. And when we look at the unique number of samples that we see primarily in Europe and U.S., we see around 4 million tests annually. And we also see a number of colleagues or competitors, we would like to call them. But I think that when we look at the market, if we can capture a 1/4 of that market, of course, our goal is higher, it's a very sizable, addressable market for these type of tests. So if we are successful, we see a bright future development for our company.

If you come back to the coverage in Europe here, you can see the Finland and the Baltics are also now orange. We are focusing quite well in the regions we are now addressing. Iberia might be the next region to further turn orange on the map. But maybe then I would say that we have a good and solid coverage for Europe and instead will support and help our distributors to get the traction that we are starting to see coming up here.

And in the U.S., we are building, according to plan, a small commercial team with a big focus. And of course, that team will grow after FDA clearance, but we want to prepare and we are doing also a lot of work with pre-evaluations. So customers have expressed an interest to test ASTar even before approval. And I'm also going to be able to come back for some news regarding those studies during the fourth quarter of this year.

So what have we learned over this sort of first year as being our own commercial entity? Well, it's much in line with what we saw during the Thermo Fisher time. There are long sales cycles or buying cycles and we can probably divide them in these key steps. I mean, the first part is, of course, an initial discussion with the hospital that they express an interest to rapid AST and particularly ASTar. We or then our distributors will set up an evaluation with an agreed protocol that typically takes 1 to 2 months. And the time really depends on how many patients did that particular hospital have, how many samples can they put into the study.

When that has been finalized, next part is really for the hospital to sit down, compare and contrast how did ASTar integrate in their workflow or how does it perform with their current standard practice. That should take anything from 2 to 4 months, and of course, also depends on the size of the study and also the amount of time the hospitals have to put into this.

Following this, if assuming that they are happy with the performance and the value they see, they, of course, need to build their own business case internally. And the reason for that is to go to the finance department and ask for budget allocation to raise a tender. And that can take sort of anything between 2 to 4 months and then -- 1 to 3 months, sorry for that. And if we then see a tender being approved and announced, that's in the order of half year to 9 months.

So it's a long process. And of course, since we really started this, this year and some of our distributors started more or less during the end of first quarter and into the second quarter, the key focus is really in the evaluation and analysis phase if you look at this time stamp.

So on a high level, what we see is very strong results. We can see that they can change from empiric therapy, I mean initial therapy, to a more targeted therapy much faster than they have today. We also see that the breadth of the panel of ASTar enables them to have actionable results at a very high degree of patients that they actually of samples they put onto ASTar. And we can also see that the way we design it with the ease of use means that it's easy to integrate.

So now that we have been doing this for half year, a little bit more, I would just like to include some highlights from a number of these studies. I will not go through them in detail, but they are in the presentation with references. So if you want to do a deep dive yourself, you can, of course, do so.

This is just one study from France and the statement is very simple. The performance is high and can really put a value to detection of multidrug-resistant or extensively drug-resistant bacteria. We can see also that we have a great coverage and it performs well when we compare it to the standard workflow.

Moving on. This is another study for a daytime open lab, and they can see that they significantly shortened the time to actionable results by using ASTar. So we can also see that the performance is very, very high compared to the standard practice of the hospital. And we have a great coverage. So yet again, very positive evaluation from this site.

This is another poster from the U.K. and we can see here that it has a great impact on pathogens where you have unpredictable antibiograms, meaning difficult, resistant mechanisms, which is hard actually to spot with the current standard practice. But we can also here again yet see that we can have a high performance and you can have a high escalation or de-escalation. The small image you can see on the bottom left, this is an example of a Klebsiella pneumoniae at a patient with a very severe resistance mechanism.

And if you look closely in the ASTar antibiogram, you can see that there are only 3 antibiotic class to use for this particular bacteria. So for these patient cases, it's absolutely crucial to be able to very rapidly change therapy to something that works. And even better, since you have also the MIC values from ASTar , you can choose one with the least side effects for the patient, but still will be effective. So yet another example of what ASTar can bring to the value for the hospital or the patients.

Continuing here. It's another hospital, which could actually reduce time by more than half in their particular setting. And again, the performance is very, very strong.

And the reason I show these different results is, of course, depending on the hospital setting, if they are 24/7, if they are daytime, when they do reports, ASTar can have a high impact in all of these settings, and in some cases, it's quite dramatic if you can see the time you save with an ASTar versus standard of care.

And here, I think the key is for the daytime lab is to have the results the same shift because if they come after the day shift, sort of go home, you will have to wait until the next morning and that can be absolutely detrimental to these patients.

Just having a couple more. This was a very small study that is now expanded, but they can also see that it's a valid tool to not only act for patients, but also investigate severe and difficult gram-negative resistance mechanisms. So the value of ASTar is not just purely based on patient's antibiogram, but it could be expanded even further.

This sort of to conclude from another study is you can see that it provides a rapid and fast tool for AST directly from blood cultures, and the hands-on time is truly minimal. So you don't have to spend a lot of time learning how to operate ASTar. You don't have to spend a lot of time using ASTar. So this, I think, is important particularly in the light of the pandemic. We know that these labs are overwhelming with work already and having something that makes it easy to integrate and generate results is, of course, of a high value for the hospital.

So of course, there are many more of these publications now coming out and being presented. But very briefly, we can say that ASTar has performed very well in all these trials. And the value of rapid AST is very clear, either in change of therapy, which is, of course, the key. But we have also seen in some of these studies that apart from providing correct and timely antibiotic treatment, you can also reduce spread of multi-resistant bacteria much, much faster than you can do with standard practice. And that is, of course, very good for patients in the hospital without bacterial infection of receiving that most commonly, but also, of course, the cost because isolating patients is very, very costly.

We also know and also see from our competitors in the field that it will take some time still before customers are ready to buy based on other people's results. I'm 100% positive that, that will happen at some point in time, but we are not there yet and -- nor are the other companies in the field. So I think that what we have been doing very successfully this year is making these evaluations, and we see that ASTar comes out strong in all of them and that's really to lay the foundation for the next year.

But not everything is next year, we do also expect to see some commercial sales in this year. And the most likely scenario is that Italy where we started first could be the first country out, maybe then followed by the U.K. and France. Because we also have to realize that many of our distributors have not been working with ASTar for so long period of time, and it will take time to march through this process from initial interest to purchasing an ASTar.

But I'm still happy with what we see, and I think also happy to now show you and demonstrate the performance of ASTar. So this is really, really great material.

Another part, which is, of course, very important for us, we see the U.S. market as being one of our key markets. And we have seen that the discussion with the FDA sort of end of the third quarter, just coming into the fourth quarter, has been very active, very frequent, basically weekly discussions. And of course, that is now on the additional data we supported from our 510(k) application in June.

So we do expect to submit our final application here in the fourth quarter. And that, of course, then is based on the discussion we have with FDA on how do they see clearance, what limitations do they see. And then from -- we've submitted that to clearance, it's, of course, difficult to predict. But of course, the idea is that, that application is basically already in agreement with FDA. So hopefully, the next process will not be too long. I will not provide any more guidance on that, but we are definitely coming much, much closer to the U.S. market.

As also mentioned in the beginning of the talk, as you know, we have put Podler a bit on pause in active development, focusing our resources on ASTar. But from a business perspective, we have not done that. We have been very much active in looking at different alternatives for Podler.

And why do we do that? Well, of course, first of all, we see the interest and the positive feedback we see from Podler we've seen a lot lately on the U.S. market from our U.S. team, either in trade shows, but also in direct customer discussions where we are now discussing to put an ASTar on their early valuation. But then, of course, also see how that value could be brought to the hospital and particularly the satellite spoke settings that we see a lot of in the U.S.

So we have had several discussions with potential strategic collaborations during this period. And internally now in the company within the Board, we are looking at various options for Podler. It could be a collaborative development effort. It could, of course, be out-licensing part. But also it could potentially even be a spin-out to really put focus on this and actually leverage on the value that we have built over these last number of years at Q-linea. So hopefully, we can also come back with more news regarding Podler.

And also, of course, I think it's quite obvious that in these discussions, of course, the whole Q-linea is being discussed, so not just only Podler, but of course, also ASTar.

And with that, I would like to hand over to Christer who will go through the financial highlights for the third quarter. So...

[Christer Samuelsson, executive]

Thank you, Jonas. Moving to the financial section, as you said, starting off with some highlights in the third quarter. As you probably are aware of, we have completed the rights issue that brought SEK 263 million before transaction costs to the company, that was done in July. And we also, based on that -- because of that, we increased the number of shares quite dramatically, basically a fourfold of the number of shares, as you can see in the presentation.

Also a highlight in the third quarter, we have lowered the costs, the operating costs, thanks to the cost saving program we decided and now have completed during the third quarter. We took the costs, as you might be aware of, in the second quarter, but the cash-out has been paid out during the third quarter for this program.

Also, we have decided at the Annual General Meeting to start a new LTIP program that was done June 30, but we have now decided to scrap it because it doesn't fulfill the main purpose anymore. It has been -- the primary reason is that it's been diluted quite a lot, due to or thanks to this rights issue.

Moving on to the consolidated statement of profit and loss. We are on par with net sales and here, you can see, as you are aware of, last year or third quarter 2022 numbers. The operating result is better, thanks to the cost saving program. And the same goes for the profit and loss after tax.

And thanks to the -- or due to the stock issue, rights issue, the result per share has now been lower, it's minus SEK 0.56 per share, which is primarily due to the number of shares that has increased fourfold, as I said.

Now looking at the consolidated statement of financial position, you can see our cash and cash equivalents are SEK 54.9 million. Together with the short-term investment, that makes almost SEK 135 million in cash or cash equivalents. We have made this short-term investment, obviously, because we wanted to have, as high yield as possible.

Inventories are on par with last year or end of last year. The numbers you see in parenthesis is end of last year, end of 2022.

Equity, SEK 244.1 million right now, which is more than last year -- in the last year, thanks to, obviously, the rights issue.

And ending the last slide with a cash flow statement. And here, you can see we are on par with the -- from operating activities, SEK 54.5 million, compared to SEK 53.7 million last year quarter. Here, we have 2 things affecting this one: we have a better operating result, but obviously we have also paid out the cost for the laid-off people.

Second bullet is the investing activities. Here, we have invested in this short-term interest-bearing assets this year, SEK 80 million. And then last year, we had the divestment of the same type of investment that made this positive last year.

And the last bullet is the cash flow from financing activities is now SEK 163.9 million this quarter, which is the net of the rights issue and also the repayment of a loan to the principal owner that was used to buy shares in the rights issue.

And that was actually the last slide on the financial part. I hand over to you, Jonas.

[Jonas Jarvius, executive]

Thank you very much, Christer. And that concludes our presentation for the third quarter. But we will, of course, be happy to answer any questions you might have. So I hand back to the coordinator.

[Operator]

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

[Johan Unnerus, analyst]

A few to start off with. Interesting with the U.S. discussions and potential partnerships, of course. Should we expect that these potential partners are doing their own evaluations, and has that already happened?

[Jonas Jarvius, executive]

So thank you very much for your question, Johan, and welcome into the call. I would like to say that I think, when we talk about potential partners, collaborators, I think they are very satisfied with all the results that are now actually coming up and building up from Europe. So I think that the questioning of us, our performance is, not really a big topic in these discussions. I think that has been well proven. Then, of course, when you are very much into the field, you can quite easily assess this type of publication and what they mean.

So no, that's not the big topic in these discussions, to have an internal evaluation. I think we have sort of passed that point with the performance.

[Johan Unnerus, analyst]

That's helpful. And the sales process that was also useful in your presentation. And Italy seems to be the more advanced and it's also an area where you do more direct sales. Can you provide a bit more color on where -- what to expect. It's 2 months to go for this quarter.

[Jonas Jarvius, executive]

Yes, of course. And I think you're absolutely right, Johan. I mean, Italy is a country we early on decided to have our own sales force, of course. We hired Franco Pellegrini, he came in into the summer. But of course, we -- as a company, we're already active in Italy and setting up the company and so on. So that means, of course, we have a bit of a head start compared to other distributors. And of course, we see the sales funnel traction moving on.

So I think it's fair to say that the most likely outcome is to see Italy growing first and then basically followed by the U.K. and France just because of where you are in the time line from evaluation, time to processing, acquisition discussion. So I think that's fair to say.

And I think it's also going to be very interesting now to, during next year, see how we perform compared to our distributors. So that's also going to be a very interesting point to see.

But I'm happy with the activity we see in Italy right now. And you are right, it's 2 months left of this year and we do still think that we will see commercial traction during this year. So that is true.

[Johan Unnerus, analyst]

And just to clarify, presumably you will provide a press release when you get an order in Italy?

[Jonas Jarvius, executive]

That is correct. We will be transparent to the market when we see commercial sales. Of course, Italy, we have 100% control where we use distributors. We, of course, need to align that with our distributors. But as we said to the market, we think it's important because we are in this early phase when we start seeing commercial traction. So we will be happy to do that when we see commercial sales. But there will come exactly -- we are not in control of that time line. We have to do it together with our distributors because it's, of course, a big news for them as well.

[Johan Unnerus, analyst]

Yes. And the U.K. market is the next stage. Is it possible to provide any feel for where your partner is in terms of perhaps number of evaluations.

[Jonas Jarvius, executive]

Yes. So it's been a number of evaluations ongoing in the U.K., so around a handful of them so far and that's, of course, continually expanding. We are, as we speak, planning for more evaluations to be done there. I think the results we have seen for these evaluations, as you know, Italy -- U.K. has quite difficult resistance problem. And really that highlights the value.

So we are running more evaluations. And we're also from Q-linea AB looking in how we can even support running more evaluations because that is some way to even further improve the [ panel policy ].

[Johan Unnerus, analyst]

Yes. And that brings us to this next question. Your ability to speed up this process, 9 to 15 months supporting your partners.

[Jonas Jarvius, executive]

Right. No, I think that -- so what we have seen is that today, all of us see that you have this "try before you buy" type and there's quite long sales cycles. But also since we've been active in Europe now, we also anticipate actually that some hospitals will reserve money in their budget for next year. That will not be all of them. I would be happy to if that were the case, but that could also mean that we could have some, but also have to wait for the budget cycle to complete before accelerating a tender.

The second part, I think where we can be more helpful is looking at -- on the business case for these type of systems because it's a new technology into the market and there are many parameters to look into. Of course, this is what we do in our health economic study. But I think we can leverage some of that knowledge also in the commercial discussions.

So we are, of course, actively looking and trying to see what could we do more, what could our distributors do more to speed it up. But I think the key for this year was really to get a good solid coverage in Europe and really do a high amount of evaluations for sort of the next year's success. And the second part, of course, building a team, preparing the market, although in a small scale in the U.S. so that when we do see FDA clearance, we can really start working with that market because there's little bit different dynamics, in my opinion, in U.S. versus Europe.

[Johan Unnerus, analyst]

Is it to -- I mean, you have stock of some completed solutions. Is it feasible to allow them to use the ASTar during the test evaluation in a different business model initially?

[Jonas Jarvius, executive]

Yes. So -- and that's really what we're doing in the U.S. now. We are in active discussion with several hospitals in what we call early access programs and that is really to provide them the ability to help integrate ASTar in their lab, looking at the results and performance, so that when we have clearance we can have a much more rapid -- we basically have done the evaluation part already.

And I'm also -- I think it's a positive sign that we see many of these quite big institutions that they are [indiscernible] system even before approval because, of course, that's a question mark for them. So -- but that will also be something that we will announce [indiscernible] performing these types of studies.

So of course, we will do the best use of the instruments we have in stock and balance that between commercial orders and of course, accelerating evaluations and so on.

[Johan Unnerus, analyst]

Great. And finally, regarding the OpEx, is this the level we should expect on Q3 in terms of personnel and external costs?

[Jonas Jarvius, executive]

So when we see that, as Christer described, I think that on a high level, you might expect in the order of that. But also some of the cost savings program hasn't really been fully implemented. We haven't seen all of those effects. Some of that might be offset with more people on the U.S. ground. So in my high-level opinion, it would be similar numbers, but not dramatically up. Definitely, not up, if we say it like that.

[Operator]

[Operator Instructions]

[Jonas Jarvius, executive]

So until we're waiting to have an additional, we also have a question in the forum and that question is really related to why we are expressively silent by financial agreements with -- between the company in the countries we work in. I do hope that it's not been the impression. We do announce when we enter a partnership with a new distributor. And of course, depending on what type of country it is, it will look different, right?

So if this is a country where we see that they need to buy an instrument to perform evaluation, that is, of course, something also that distributor needs to agree to. So we have announced signing of agreements with distributors. We have also announced if they buy instruments for evaluation purposes or commercial purposes. Of course, the specific terms with each distributor is something we cannot disclose right now.

But one thing that is the same for all distributors is that Q-linea AB always have the right to access that market alongside with the distributor. And we have also, of course, built, based on historical experience, the possibility if a large company would be interested in Q-linea and they would like to take access to that market, there is also an ability to do so.

But our focus right now is really helping our distributors and see that they're making good traction, and we're really happy with the work we have seen so far. So we're super excited about them. And we will announce, of course, sales from the distributors.

So if we have been unclear, that was not our intentional purpose. I think we have been able to be as clear as we can with these type of collaborations.

[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. So me and Christer will thank you for joining this call. I do encourage you to go into deep and also read more about the evaluation results.

Also, while we are concluding here, we had one question about me stepping down as the CEO. I will, of course, give more information about my successor over the next coming period. But that is, of course, coming from the Board. And there are very good discussions ongoing, so I'm confident that Q-linea will have a nice transition and a good 2024 as well.

But I would also like to conclude that what we have seen so far is following our business plan. And I do hope the fourth quarter will come with some very interesting and positive news so that we can all look into 2024 with a good feeling.

But with that, I would like to say thank you and wish you all a nice weekend. Thank you very much.

[Christer Samuelsson, executive]

Thank you.