Biotage AB (publ)

Welcome to Biotage Q1 2025 report presentation. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing pound key 5 on their telephone keypad. Now I will hand the conference over to CEO and President Frederick Vanderhagen and CFO Andrew Kellett. Please go ahead.

Thank you. Good morning, everyone. Welcome to our Q1 report. Thank you for your flexibility today and to accommodate our time changes very recently. Today's call is about our Q1 release. We will not comment on the recent announcements made by KKR. We would encourage anyone who has a question to reach out to Tobin Jorgensen, who is our chairman of a subcommittee that will answer your questions onwards. Let me talk about our Q1 results. As expected, our Q1 revenue was softer than the prior year, primarily due to the volatility within our bioprocessing, which we had previously commented upon. Our relatively large exposure to the plasma business has impacted our overall performance. However, we did see growth in our non-plasma revenue and our bioprocessing growth margin continued to expand sequentially to reach 73.5%. We continue to build a strong foundation for future bioprocessing successes, expanding our customer base. In this quarter, we added 37 new customers in the early phase of drug discovery, and over the past two years, we added more than 220 new customers. Our sales pipeline is strengthening, and we focus on partnering with our customers as they progress their modalities into late, large-stage development, which is going to be key as a leading indicator for future growth. In the quarter, we took decisive actions to ride size of bioprocessing cost base and drive strong integration with the benefit of this starting to flow from quarter two onwards. In our core business, revenue contracted very slightly year over year. This has been driven by a slowdown in our analytical testing activities, primarily due to a rationalization in one of our customers' operations and also some delay in purchasing decisions for systems coming mostly from the U.S. as a consequence of the microeconomics factors and recent announcements made by the Doge. We were, though, encouraged by rebounding demand within the drug discovery segments, particularly in the North America area. We also saw growth in the Asia Pacific regions, with China reporting quarter-over-quarter growth now. Our demand continued to outstrip manufacturing capacity when it comes to our peptides. Had we been able to supply the current peptide backlog, we would have been able to report mid-single-digit growth in revenue for the core business. Our gross margin in the COVID-19 grew sequentially quarter of a quarter and has reached now 61.7%. Although we do recognize that the Q1 results are disappointing and we also are not satisfied with them, we were pleased that March saw the improvement momentum with mid-single-digit growth in consumable orders, which is very promising for onwards revenue. We remain confident in our futures mid- to long-term outlook while managing the short-term headwinds with the right size cost base. Let me now turn it over to Andrew, who's going to walk you through more details on our financials. Thank you.

Thank you, Fred. Good morning, everybody. So the Q1 report, along with the presentation that's on the screen now, is on the biotage website under the investor section and then financial reports. So in Q1, as Fred has just commented, our revenues were softer than Q1 2024, primarily due to the volatility within bioprocessing or large molecules, as was previously flagged. Astraea has only a small number of customers who have products in the commercial stage, i.e. released in the market. Fluctuations in demand from these customers can and does have a material impact on its revenue on a quarterly basis. Therefore, as we've repeatedly said, you cannot judge by processing performance on a strict quarterly basis. As our business grows and matures, and we see more of our early stage customers modalities move into late stage development and into production and commercialization, our revenue concentration will ease and with it, our overall volatility. However, this is not measured in quarters though, rather than in years. While we cannot say when and how fast those modalities will move through the pipeline, we are confident that the actions we are taking now will deliver the best chances of future success. Now, our large molecules by processing revenues were significantly down in Q1, as you've seen, due to lower plasma revenue. In Q1 2025, we did not have any plasma revenue compared to approximately 90 million in Q1 2024. However, our non-plasma revenue grew by 3% versus Q1 2024. We did see growth of 3% in our small molecules revenue. Additionally, we saw growth in China of 16% in the quarter after a few years of consistent heavy declines. As we've noted in the Q1 report, we continue to see robust demand for our peptide systems with demand outpacing manufacturing capacity, which has improved itself year on year. We saw headwinds in our analytical testing where revenues declined 8% year on year. This was driven by both specific micro factors, rationalization, one of our customers operations, and more macro factors of delays in purchasing decisions for systems. Particularly later in the quarter, we did see an increased nervousness and reluctance of some of our customers to place orders. And by processing, we continue to acquire new customers. We acquired 37 new customers in Q1 in early stage research. We are adopting a much more rigorous approach to pipeline management, classifying our customers by clinical stage to give us better visibility of future revenue streams. Although we cannot predict when and if a customer will progress through the pipeline, the more customers we acquire and the more we partner with them in solving the problems, we increase our chances of future success. This, as Fred has always commented, is a numbers game requiring a medium turnout look. While we're on this journey, we can still expect some significant short-term revenue volatility. As Fred has commented, our gross margins in the quarter were actually very strong. On a group level, they were just under 63%, broadly on par with a very strong comparable Q1 2024 and up 1.1% sequentially on Q4 2024. In bioprocessing, our Australia business, quarter one margins were 73.5%, up 7.8.7 points compared to Q1 2024 and 2.3 points sequentially. In the core, quarter one margins were 61.7%, up 5.1 points sequentially, and just a small decline from a very strong comparable Q1 2024. Total operating costs in Q1 were 254 million compared to 236 million in Q1 2024. However, when you adjust for one-off non-recurring costs which were 22 million in q1 versus 14 14 million in q124 and the impact of effect translation costs which took we took an 8 million charge in q1 versus a 5 million credit in q1 2024 they were much higher in q125 due to significant swings in the fx rates in march mainly centered around the us dollar then our adjusted OPEX at 224 million was actually lower than Q1 2024 of 227 million. So in Q1, we delivered an adjusted EBITDA of 50 million. This was weighed down with the softness in the bioprocessing revenue. To mitigate this, we have taken decisive action to streamline our bioprocessing cost base and drive further integration. The benefits of this will start to flow from Q2 this year. In the quarter, we delivered adjusted cash flow from operations of 76 million, again down on the comparable quarter due to revenue softness. However, we continue to deliver adjusted cash flow from operations ahead of adjusted EBITDA. We finished the quarter with gross cash of 434 million and net cash of 182 million on par with December 2024. To conclude, Like Fred has said, we recognize these quarters results are disappointing, none more so than to us. However, we are very focused on putting in the building blocks for future growth. Doubtedly, we're facing challenging headwinds, which will make 2025 quite a volatile year. But we remain confident that the actions we're executing now will put us in a good position for future success, recognizing the executional as well as the market risks that lay ahead of us. We're now open to take any questions.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Matthias Hegblom from Handelsbanken. Please go ahead.

Good morning. Thanks so much for taking my question. I have first a clarification. So you state in the report that if you had been able to deliver at demand for peptide systems, it would have translated into mid-second needed growth. It's not clear to me if that was for biotash group or only for biotash. If it references the group, it's a delta.

Yeah, please. It's the core for the core business.

Okay, and I'm not sure I saw that in the report, but could you remind me what the organic growth for core was so we can back out and understand the magnitude? Or if you can help me then in absolute terms, how large the backlog then would be, which I guess is what we're trying to get to here.

Well, if you can think, we kind of think of the backlog as in just under approximately 20 million sec for peptide systems.

Yep, that's helpful. And remind me, what alternatives do customers have when you can't deliver? And secondly tied to that, when do you expect to be able to produce to meet demand?

Yes, so Matthias, we are working with the third-party providers. So I think there are two impacts. First, we can't recognize revenue, obviously. The second one is that our lead time is substantial relative to the demand. So if we look into the second part, we are clearly recognizing we're missing opportunities in the market since customers are looking to expand their peptide purification. So our mitigation plan has been to work with our third party providers to unleash the potential from access to the parts. That is the first step. And we are working with them to resume back to the output that we had last year in quarter three and quarter four. But that's the maximum we can get to. So I think we have to look for alternative paths to accelerate our market reach there, which we're exploring right now.

That's helpful. Two more questions, please. So on slide seven, with customer numbers for us three, it's a nice contribution to help the outside world understand the nature of your business. Unfortunately, maybe the only time we'll get to see it as well. But I wanted to understand the math here better. New customers, is that a net number of won and lost during the year? Or have we actually not lost a single customer since 2022?

It is a net number, but effectively, we're not losing customers. The amount of lost customers, I can't think of any really off the top of my head. So effectively, that is new customers we're winning. The level of losses is negligible.

That's clear. And my final down, still on slide seven, great with the breakdown of customers per stage. But with only resins in commercial stage and more or less all of columns and fiber in preclinical to other stage, can you help me understand the revenue split between resins, columns, and fiber? Was majority of revenues from resins then, or how should we think about that breakdown?

Yes. So in that, Matthias, the majority of it, you can broadly think about fiber, obviously, is a new technology. The revenue from that is very small, almost negligible from an Australia perspective. And you can think of the resin columns, broadly about 85 to 90% in resins, 10 to 15% in columns.

That's very helpful.

Thanks so much.

Thank you.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

So thank you, operators. So thank you for those of you who have joined this call. So again, we want to reiterate that we are not commenting on to the announcements, and we want to encourage any of you who have questions about that topic to reach out to Tobin Jorgensen, who is acting as a remitter of the board. or to reach RU to KKR. So as we said, we recognize that Q1 was a challenging quarter for us, mostly driven by the situation that we had in our bioprocessing spaces. We entered the years with a very weak backlog. But we are committed in working on expanding our customer base and addressing the opportunities, bridging the short-term revenue gap with our packing column strategies out of our Canton side that is now commissioned and operational. And that would help us to accelerate our momentum onwards. And in the meantime, we continue driving our drug discovery process as well as our applied market. As an organization, we build the new strategic vectors for us to proceed forward. And we will be happy to share that with you as we're progressing onwards on the journey. Thank you all for joining us today and looking forward to speaking to you next week.