Q linea AB

STO:QLINEA

Earnings Call Transcript 2019-Q4

[Operator]

Ladies and gentlemen, welcome to the Q-linea Q4 Report 2019. Today, I am pleased to present CEO, Jonas Jarvius; and CFO, Anders Lundin. [Operator Instructions] Speakers, please begin your meeting.

[Jonas Jarvius, CEO & President]

Thank you very much. With that, I'd like to welcome everyone to the fourth quarter report for Q-linea during 2019. We'll move through the presentation, and we look at Slide #2, which is our disclaimer slide, in case we do any forward-looking statements.If we then move into Slide #3. I'm just going to give a brief overview of Q-linea in general. We are a company working with disruptive solutions for faster infectious disease diagnostics. The first product, as you can see to the right, is the ASTar instrument, followed by consumables, with the first focused on sepsis. I would also like to highlight on this Q4 call, we had a very important event after the end of the period and that was announced late last night that we have entered now a global partnership with Thermo Fisher Scientific for the commercialization of ASTar. And I will come back to that at the end of my presentation, but I want to highlight that as a very key event in the company development.If we then look at the company as such, we are located in Uppsala, Sweden. We have the headquarters in Uppsala Science Park. And we're also now moving into a new production facility for consumables. And I will also come back to that a little bit later in the presentation.We are currently, at the end of the quarter, 160 people, employees and consultants. And really, the goal is to present the ASTar system at ECCMID in Paris during this year.If we then move in to Slide #4. This is just a brief overview of the key aspects of the ASTar offering. It's a rapid phenotypic AST platform which can give results in 3 to 6 hours from positive blood cultures. The platform is also capable of running other sample times much faster. For instance, we have been analyzing urine samples in less than 45 minutes.The key really with ASTar, it's going to be a simple-to-use system. It's going to be fully automated. And the goal here has been agreed in that anyone at the lab at any given time point should be able to start an AST analysis using ASTar. The hands-on time is less than 1 minute per sample, and you can run up to 12 different patient samples in parallel in the system. It's a random access architecture and the capacity is up to 50 samples of patients a day.If we then move on to our consumables and sample types. We have been analyzing positive blood cultures, clinical samples such as isolates and also urines, and really one key benefit is the breadth of the panel we can have on our AST panel disk. So we can feed up to 48 antibiotics in 5- to 11-fold dilutions.If we move on to Slide #5, the key highlights, as we can see in our ASTar offering, is we can really have a broad panel coverage. This is important to escalate treatment when needed, but also to deescalate and use a narrow spectrum antibiotics. Also having a broad panel will really minimize the need for follow-up testing. We have been testing and showing successfully that our method can analyze gram-negative, gram-positive bacteria as well as fastidious and non-fastidious pathogens, and we think that this is a true important capability for, say, pneumonia infections in the future. The system, as I mentioned, high throughput random access over a relatively small footprint, so up to 50 patient samples can run on the course of 24 hours. The way we had designed our consumables is really to be able to address various sample types. You can address fully automatic sample types such as blood cultures. But you can also use parts of the consumables to run isolates, either in manual or semiautomatic mode. And the way we have segmented our consumables gives us what we believe are possible to address various sample results and also various competitive pricing. We have also tried to develop our consumables as small as possible, but still being able to handle large volumes such as urinary tract infections, up to 50 mls of urine, but the footprint is still relatively small if you compare it on the same number of antibiotics systems on the market.If we then move into Page #6 and really look at some of the key highlights in the fourth quarter, we did attend the FIS Conference out of Zurich during the autumn, and we received continued very positive feedback on the ASTar product. One key really is to be able to offer the 24/7 operation by anyone in the lab. It's truly simple to use, the system. You don't need much experience of training to start an analysis. But also the capability of providing a broad panel, but also the variable of MIC ranges is something that is very positively looked on by our customers, also, the way that it's going to handle various sample types in the same instrument with more or less the same workflow.Also, of course, we are progressing ASTar through testing. We have around 10 systems now currently going through various stages of testing. We are working on the latest instrument generation from Sanmina, our instrument manufacturer. We also made a couple of very key important goals towards the CE-ivd approval. We did pass the EMC, or Electro Magnetic Compatibility testing, with flying colors on the system. We have also started the initial shipment and vibration test according to the toughest condition. And everything, so far, looks very promising on the system. So we are happy with that.If we then move to Slide #7. We announced, as you may have read our press release during the autumn, that we had a key component failure that actually made us move our clinical study into the future. We have been working together with our supplier. We did identify a couple of problems, made corrective actions to those problems. And where we are today is that we have now a solid system that has been running smoothly for more than 2 months. Although this looks very encouraging, and we're really happy about that, we really want to see more systems under testing before we announce the problem as fully solved. This was an intermediate problem -- or intermittent problem, I should say, so we want to have various statistics before we actually flag it as solved. But where we are currently, it looks very promising.Also on the future clinical study, we are doing the in-house reference MIC testing. It's run according to plan. And here, of course, we want to have all isolates tested before we start our clinical studies, but that work is progressing according to plan.If we then move into Slide #8, looking more on the commercial part of the operation. We have now started to move into our new production facilities for consumables. The work is ongoing during the spring. We're now building a close to 400-square meter ISO8, Class C clean room. The building is 1,500 square meters in total. We see this as a very big and important step to move all our consumer production into a dedicated facility, but also have the access to good loading docks and overall transportation around the building.We have also been moving towards a commercial organization, having our first field service engineer hired. And we are progressing according to plan with getting more people into the service organization, but also, of course, customer care organization. So again, this is also very positive.If we then move to Page 9. A key event after the end of the period, as I mentioned in the beginning of my talk. We are very proud today to be able to announce that we've signed a global partnership with Thermo Fisher Scientific for the commercialization of ASTar. It was announced in the press release late last night. And really, we have had discussions with several partners. The way we feel with Thermo Fisher is a global reach partner. We have a shared common view on the market and how we think that infection diagnostics can be improved. And this is very important for us. So we really look forward to that and we're actually taking on the next step, together with Thermo Fisher, towards the launch of ASTar. Some key aspects that was announced in the press release is that Thermo Fisher will have an exclusive right to distribute ASTar worldwide, and Q-linea have also the possibility to approach the Swedish market. The agreement is mutual exclusive for AST analysis, and I think this is also very good for both companies to really focus on the ASTar platform and taking that out to market. We are working in a close collaboration. We will share customer data, share experience. And this is, of course, very important for Q-linea to be able to have a sort of an ear to the customers, see if we need to change something with the system or if we need to make adjustments for the future. So we think this is truly important. There are some more information in the published press release. But even though it happened after the end of the period, this is such a significant event that we wanted to have it under our Q4 call. We're really looking forward to taking the next step there.So that was the end of the more commercial part. And I will now hand over to Anders Lundin, our CFO, to discuss the financial part of the Q4 call.

[Anders Lundin, Chief Financial Officer]

Thank you, Jonas. So if we move into Page 10, we have a summary of the income statement for the quarter, fourth quarter. So in this phase of the comp is we don't have any -- we have basically no revenue streams at this point. We have an operating result that came in on SEK 62.1 million compared to SEK 39 million in the same quarter last year. It is a significant increase of costs, and it's basically driven by we have now more people on board compared to last year. We have also in-house consultants working for us, and we have built more prototypes of the AST and the consumables to the AST during the quarter.So we reported a loss after tax of minus SEK 62 million and the earnings per share in the quarter was minus SEK 2.71.So moving into Slide 11. We have the balance sheet by the end of the year or the end of the fourth quarter. In the cash equivalents in the bank, we have SEK 26 million. And we have invested some of our -- of the cash that we invested in short-term investments. So that's a balance, together with the current portion of our noncurrent asset which is made up of listed bonds. We have 180.5 million compared to 150 million by the end of last year. And we have noncurrent asset, which is the listed bonds, the noncurrent asset. Part of those are SEK 121 million.So moving into Slide 12, we have the cash flow. So from the operating activities, we had minus SEK 52.1 million, and we have investment of SEK 57 million plus -- SEK 57.4 million. And we have financing activities, which is SEK 1.4 million. So the increase of the cash outflow from operating activities, that is, of course, because of the larger operating loss compared to the last year, of the last quarter last year. So if we add up the cash, cash equivalents and the other financial assets that we could quite easily convert into cash and cash equivalents, we end the year with SEK 327.5 million.So that is my last slide on the financial part of this Q4.

[Jonas Jarvius, CEO & President]

We'll say thank you for that and open up for questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Arvid Necander of Redeye.

[Arvid Necander, Analyst]

And congratulations on the partnership agreement. Just a quick couple of questions related to that. Are you able to provide a somewhat more granular view of the agreement in terms of the revenue split? Are there any sales targets with minimum levels? Are there any developments or sales-related milestones included? Yes. Can you give us any info on that?

[Jonas Jarvius, CEO & President]

Yes. Hi, and thank you, Arvid, for your questions. So currently, what we can disclose is what we have disclosed in the press release. So we can't, at this point, go into any further detail of the contract as such. We'll, of course, have a discussion together with our partner, Thermo Fisher. And if we decide that we can open up some more aspects, we'll do so in the future. But currently, I can't go into detail. I can say that we are very pleased with the overall agreement, the structure of the agreement and this period that it has been negotiated in. So we are very happy, but unfortunately, I can't go into any details at this point.

[Arvid Necander, Analyst]

Okay. Yes. And then just a second question on the problem solving, related to the third-party component. Can you give us a slightly more detailed view there? Is this level of progress in line with what you guys were expecting to do? Are you ahead of sort of the associated forecasted schedule? And also, can you say anything about when you are expecting to initiate the testing with the additional systems that you mentioned?

[Jonas Jarvius, CEO & President]

Right. Sure. Of course. Well, first of all, I mean, when you have a problem, of course, of this type, it's very difficult to predict when you're going to solve it. You can just put the best team on to solving the problem and work according to that as fast as you can. We also work together with a partner. Now I think we quite quickly identified and made corrective actions to this specific part. And we have done -- since then have been running 2 systems, more or less full-time since December, but as you may recall, this was a rather intermittent problem, so it could fail either once a day or once a week. So what we want to do before we sort of say that everything is solved, we want to have more systems running for a longer period of time.Where we are currently, I mean, we'll have a number of systems running for more than 2 months. We have several additional systems that are in testing. We're going to move them into the microbiology lab and run them full scale there. When we did the announcement, we actually saw it push about 6 months for the clinical study. And where we are today, we feel that we are working well onto that time line. So, so far, so good. And we are, of course, moving towards -- in the right direction, so we feel very positive at the moment.

[Operator]

[Operator Instructions] And we have one further question coming through that's from the line of Ulrik Trattner of Carnegie.

[Ulrik Trattner, Research Analyst]

If you can just sort of -- if you could please, in more in detail, explain when you are expected to start the clinical study, and when we should expect the first sale of ASTar? Has that changed given your commercial partnership with Thermo Fisher? And just in regards to the U.S. launch, do you share the same view as Thermo Fisher in launching this? Or is there any difference in terms of your previous communication?

[Jonas Jarvius, CEO & President]

So thank you for the question, Ulrik. When we look at sort of the future upcoming launch, what we are now doing, of course, is working together with Thermo Fisher. I'm estimating that we've spend a lot of time now, up until ECCMID, which is an important date for the ASTar development. But what we need to do now is really consolidate our view of go-to-market together with Thermo Fisher because while we view this as a partnership, we're, of course, also going to launch it as a partnership. So today, I would not really like to disclose any changes or amendments to our current plan, but this will be really the next level of discussion. And as soon as we have a common ground thinking about this, we will communicate that, of course.Coming to your first question, the clinical studies, as we said, the goal was to start them during this second half of this year. Nothing has changed according to that plan. So that still stays. But really coming to the go-to-market strategy, how we approach that, I would really like to have a good sitdown together with the Thermo crew, and then together, do the announcement if there will be changes or if it will stay the same. But today, it's a little bit too early to say. We just announced the agreement late last night. And now, we really look forward to having a lot of work to do together taking the next steps.

[Ulrik Trattner, Research Analyst]

Great. And we all know that ECCMID is coming up soon. Will you do any sort of joint efforts together with Thermo Fisher at ECCMID?

[Jonas Jarvius, CEO & President]

Yes, of course. I mean, the plan is now that we have announced a partnership. And of course, we're together going to do the best ECCMID possible in Paris. So really going to be there together. Exactly how those details are going to be, that's also still to be discussed. But we'll definitely be there together in some way, shape or form. And I really look forward to Paris this year.

[Operator]

[Operator Instructions] Okay. That seems to be the last question. So I'll hand back to our speakers for the closing comments.

[Jonas Jarvius, CEO & President]

So thank you very much to all. Thanks for the questions. And I would say this will be the end of our Q4 call, and we look forward to talking to you for the next report. Thank you very much.