Devyser Diagnostics AB (publ)

Thank you for that. And again, welcome to the Devicer Q1 2024 earnings call. It's a great pleasure to have you all here. And as I said, today you will listen to me, Fredrik Alkestin, the Devicer CEO, and our Chief Commercial Officer, Thijs Kipling. I have also asked our CFO, Sabine Wallin, to join us during the Q&A session. Before we go into our Q1 numbers and talk about the nice developments we are seeing, I want to take five minutes to repeat what Devizor is to our new and potential new shareholders. Devizor is becoming increasingly well known as a reliable, high quality, next generation sequencing reagent provider. Through our high growth, innovative products and collaboration with industry giants like Thermo Fisher and Illumina, Our name and brand are getting a lot of additional recognition. The VISA was founded and driven by the value of a fast and accurate diagnosis. It's the foundation for everything we do to ensure every patient has access to a correct diagnosis in the shortest possible time. Genetic tests can still require a very long time for patients before they get their results, causing worry and potential harm for the patients. Ultimately, we want to enable faster response times for genetic tests and early detection of diseases to help people live healthier and longer lives. More than 100,000 people were tested with our product in Q1 2024. That is something I and my colleagues are very proud of. Divisor is on a journey. As you may know, we have had a very nice development over the last years. including average organic revenue growth of 36% per year, gross margins well above 80%, launches of many very innovative products and commercial expansions, both by setting up direct sales organization and entering into collaboration with some of the most successful global companies. However, we are confident that we are just beginning out a fantastic journey. Over the last 9-12 months, we have taken some very important steps to build a global, fast-growing, highly profitable diagnostic company. Our mission is to be the pioneering leader of diagnostic solutions and provide fast, accurate and easy-to-use solutions to labs worldwide. Our vision is a world where personalized medicine is universally available thanks to simplified and reliable genetic tests. So what do we do? We develop and market genetic test solutions to guide targeted cancer therapies, fast diagnosis of hereditary diseases and post-transplant follow-up. All development and all mind tracking are taking place in-house in our facility in Stockholm. We sell our products, library prep kits and software to clinical diagnostic labs via our own sales reps and via partners or via distributors. We also provide test services to labs and pharmaceutical companies. We have developed and launched more than 35 IVD and IVDR registered products. We are active in three diagnostic areas, hereditary diseases, oncology and post-transplantation. We're based here in Stockholm, but we have subsidiaries, sales offices in eight countries, plus a CLIA certified laboratory in Atlanta, Georgia. We have around 120 employees. Our customers select devices because we provide simple, accurate, and efficient genetic testing solutions. Our kits and software are easy to implement, maintain, and use for the laboratories. This has been the foundation for our successful growth because we design our products with a deep understanding of the clinical laboratory workflow to put the genetic laboratory team in focus. We currently sell in over 65 countries, the blue countries on the map. We have four sales channels, direct sales, partners, or a clear lab, and distributors. You will hear more about that a bit later on in the presentation, and Thijs will cover that. Today, we sell directly in some 15 countries, all in Europe and North America. We currently have one partner, Thermo Fisher, selling our transportation products exclusively exclusively in North America, Europe, Brazil, and Saudi Arabia. We have 50 plus distributors that are selling a product in some 50 countries. Our CLIA lab in Atlanta offers test services for some of our products for the US market, but it also offers test services to pharmaceutical and diagnostic companies. Europe is still our dominating market, with 88% of total sales for the last 12 months. America, however, is growing fast. 9% of total sales in the last 12 months, compared with 3% the year before. EPEC is still a rather small area for us, with only 3% of total sales. For the last 12 months, 75% of revenue came from direct sales, including Del Piala. and 25% from distributed sales, including the sales departments. The growth in the company is high, I would say even very high. Organic growth has been 36% in average since 2015, that despite the big hiccup in 2020 due to COVID. We reached 180 million in revenue for the last 12 months. So let's move over and talk about the first quarter. Sales developed well during the quarter and amounted to 51 million SEK, a new record. The earlier record was from Q3 2023 when we reached 47 million SEK. Sales growth consisting entirely of organic growth was 28.5% in SEK and 27.7% in local currency. Although these are high numbers, we are optimistic about increasing the growth rate even more in the future. Growth in some of the direct markets in Europe and the distributed markets in Asia was lower than decided during the quarter. Europe grew by 22%, while Asia had a negative development, primarily due to uneven purchasing patterns from our distributors. However, we assess that Europe's, I would say, mother's growth is only temporary. The strong development we saw in 2023 for Europe should soon return as several of the important steps we took in 2022 and 2023 materialize fully. You also see the negative development in Asia as temporary. During the last 12 to 18 months, we have concluded several distributed contracts in Asia, and the expectation is that these will start generating sales in the second half of 2024. Most gratifying is that the growth in North and South America continues to be strong. The first quarter showed a sales increase of 291%, although from a low level, of course. Our main focus in 2024 and 2025 will be in North America and Europe. we will continue to expand and strengthen our market shares in both markets expect continued strong growth from from these regions in the future as well all our product areas are growing strongly particularly however the transportation products which continue to develop very very well the gross margin amount is Sorry, I jumped a bit further. The gross margin amounted to 82.7% compared with 85.2% in the same quarter last year. The low gross margin can primarily be derived from increased production capacity built up to take advantage of our business opportunities and meet future expected volume increases. Significant investment has been made both in production capacity and in new employees. However, we are positive about the gross margin development over time, partly because we have a scalable manufacturing process where the increased volume will soon absorb the increased fixed costs, and partly because we still have the opportunity to increase our prices continuously. The result for the quarter was in line with our expectations. The EBIT increased to minus 12.2 million SEK, compared with minus 19.1 million SEK in the same quarter last year. As announced in the report for the third quarter of 2023, our move to new premises has entailed some extra costs that burden the fourth quarter of 2023, and to some extent, the first quarter of 2024. Despite this, the operating expenses in the first quarter compared with the first quarter 2023 only increased by 9.7%. We are convinced that the positive earnings development we saw in 2023 will continue and that we will reach our financial goal of an EBIT margin exceeding 20% during the period 2024-2026. Deweiser has a very strong financial position, 250 million SEK in cash at the end of the quarter and no interest-bearing debts. As we have moved to a new facility, we have invested quite much in our production capacity during the quarter. The investment in production equipment amounted to roughly 17 million during the quarter. You will not see any such investments during the rest of 2024. we will see a nice future sales development with our innovative products high market growth a very professional commercial organization and some of the best commercial partners at the moment we do not see anything that can change this of course we may have single quarters that will not perform that well but the trend is crystal clear sales are increasing much and most quarters will be a record quarters High volumes will give high gross margins even if we were affected in Q1 by our move to the new facility. The yellow bars show quarterly sales and the orange line shows quarterly gross margins. So with that I leave over to Thijs Kipling our Chief Commercial Officer and he will give you a commercial outlook.

Thank you Fredrik. I'm very pleased to be adding some more context to the device of commercial successes that we've had here during Q1. In fact, I'm today calling in from Atlanta in the US, where I'm here meeting with new customers, as well as reviewing the impressive growth brand that we have for North America together with our great US team. As Frederick already mentioned, we are commercializing through four channels. And I want to give you a little bit of perspective here. The first channel is our direct sales for established markets where we have our own team and our own divisor legal entity. Our direct sales will continue to increase, although we expect the share versus total sales to likely reduce gradually due to the increased utilization of partnerships. Because partnerships is our second channel and the revenues coming from partnerships will grow faster than any other channel that we have. As we increase the number of partnerships. Partnerships are typically exclusive. It's a broader and very attractive collaboration. And today we have one partner, as already mentioned, being one Lambda, a part of Thermo Fisher. But we do expect several more to come. Our third channel is our lab services, utilizing our certified laboratory, which is a strong platform for continued growth. We do both patient testing on our own products on behalf of other companies, and not least, do we pursue projects together with pharmaceutical companies. Our fourth is the distributor channel. Today, we have, as mentioned, about 50 distributors, which is a number that actually has increased a lot during the past two years. Distributor contracts can be both exclusive and unexclusive and is typically used for us to enter a new geographic market. And once we see a large enough demand in a distributor market, we're typically converting that market to become a direct sales market. Our agreements with One Lambda is progressing plans, and we're very pleased with both their progress and our collaboration. At least once per quarter, we have a face-to-face joint steering committee meeting with the management on both sides, but currently we're actually meeting a lot more often. Our test for solid organ post-transplantation, the accept CFDNA, was initially launched, focused just on kidney as an indication. However, during 2024, we are broadening the intended use to also include heart, liver and lung transplants. Significantly expand the market simply by the increased number of patients that our tests can reach and help, which we're very excited about. In addition, We have two new, rather substantial new product launches coming up, and we are currently in dialogue with 1NAMDA about these, and they may become part of the existing contract that we have with them. All in all, it's a very, very positive story, and I'm confident to say that we have a lot more to be said within this market during the coming years. Now onto our device genomics laboratories here in Atlanta, which is our clear certified laboratory. We have signed our first commercial contract with the UK based on quality company cited. Which came nice. One. And as already communicated, this has the potential of generating up to 25 million Swedish kronor over the first two years. Currently, both our RHD and Chimerism tests have been validated in the lab, while we're still working on validating SFCFDNA and our test for specific purposes. As of April 29th, we hired a Vice President of Market Access, Reimbursement and Public Affairs here in the US, which we are very excited about, and I'm confident that you'll soon be hearing about the results from this capacity within our divisive team. During our Q4 earnings call, we mentioned the updated guidelines made for cystic fibrosis here in the US, changing the guidelines from detecting 23 variants to variants. And I'm happy to report, as press released already, that we have brought on our first larger account the University of North Carolina, the UNC as we refer to it, with an estimated total order value of up to 10 million Swedish kroner over four years. And to give you some perspective on the significance of the market opportunity here in the US, then the UNC account has a volume of a few thousand tests annually in a market that we estimate to be holding approximately 1.4 million tests annually in the United States. Some of you may already have picked up on the announcements on April 29th made by the FDA on the long awaited final rule around the regulation of laboratory developed tests, LDTs. As expected, the final rule is more or less consistent with the proposed rule communicated by the FDA on September 29th of 2023. So for Devizor, this was as expected. Just like in Europe, the FDA wants to increase patient safety by regulating the many non-regulated tests available here. Devizor is an advocate of increased patient safety, and thus we do embrace the change. And we do also believe that Devizor is actually very well positioned based on our experience taking products to IVDR approvals already. The final rule of laboratory developed tests is a heavy document covering 528 pages. And together with our consultants, we have gone through it over the past week. And so far, our conclusions are the following. There will be an up to four-year long phase-in period. It is expected that some suppliers the suggested FDA rule, which may lead through further delays. Selling of divisor products will not be affected in the short term. Over the long term, some of divisor's products, depending on its risk class, may need FDA approvals, but that work has been going on in divisor for already quite some time. A cornerstone in our commercialization is to be claim-based and differentiated. across both europe within ibdr and the us with fda and this is another change during the past two years to how divisor have otherwise been working in the past this means that we are investing more into clinical and regulatory programs than ever before and already today we are seen and recognized as a leader within europe our ibdr certification and the track record that we have, which is an approach we are now also bringing to the US. In this regard, we welcome the partnership as announced with Illumina being a key component for us to commercialize on their DX platform as required by the FDA. A few words on the Illumina partnership and the agreements we press released earlier in Q1. This agreement enables us to develop and commercialize end-to-end solutions on the Illumina MySeq DX. The DX instrument has a preset software that can't be altered and thus is a guarantee for consistent reproducibility, being a requirement by the FDA. For a smaller company like Divisor, this is a very significant achievement to strike such an agreement. And yes, instrument provider globally. And we're excited to see this grow even further during the coming years. We plan to have our transplantation products and our product for cystic fibrosis to become FDA approved as the initial ones. And with that, Fredrik, I give the word back to you.

Thank you for that, Thijs. At our earnings calls, we speak very much about the nice sales development we have and our earnings development. We do not speak that much about the world class and I would say the world leading development of products that are taking place in the company. And that is important for our future sales growth. As you may know, since the company was founded 20 years ago, we have developed and registered and launched over 35 products. We expect this nice development to continue. We have more than 30 employees within development, and they are contributing a lot. Just over the last 12 months, we have launched seven, eight new products. In addition to the work on upgrading products from IVD to IVDR, we did that in addition to that, of course. We expect to launch five to 10 new products in the next six to eight months, including three, four transplantation products. In addition, we are investing a lot in our clinical affairs group and we are running quite many clinical studies at the moment. As you know, over the last two years we have taken some very important steps to build a global, fast-growing, highly profitable diagnostic company. As you also have heard, we are very optimistic about the future. We are focusing on North America and Europe. It is done via all our sales channels, direct sales, partners, clear lab and distributors. We are very glad that the investments in the US market have given results and that America now represents 9% of our total revenue. I'm also very proud of the to the work at the company like devices that we year after year can develop and launch many new innovative products. I'm optimistic about the same interesting about some very interesting product launches within the next six to 18 months. However, as important as high growth is to continue our way to profitability, and that's our main focus in 2024. So with that, I open now up for questions.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Ulrich Trattner from Carnegie. Please go ahead.

Thank you very much, and good morning to you all. And a few questions on my end. And perhaps we will start off with the regulatory change in the US regarding lab-developed tests as being more of a stringent take on the industry from FDA. And just a follow-up on the comments from you there, Thies, in regards to how much of your current work that you've done in IVDR can be recognized in the U.S., as well as giving the regulatory change. Are you planning to accelerate FDA approval of certain tests in the U.S.? And I recognize your collaboration with Illumina and their platform being one of very few to be approved by the FDA already, which then in turn, I guess, would enable you to recognize FDA approval for a certain test. That would be my first question.

Do you take it that high?

Yeah, I can do that. By saying that the Illumina agreement that we announced during Q1 was a deliberate and strategic intent to pursue FDA approvals. And that means that we are not seeing this rule change anything, to be honest, of the way that we are working. We have a pretty ambitious on the US and the FDA.

And as you understand, Ulrik, maybe I can add, we were expecting this. So this is not a surprise for us.

And just to follow up, but do you expect this to carry any additional cost on your end? I know that you've undertaken measures already in terms of quality assurance and regulatory buildup internally, but will this be required for you to accelerate these processes that you've already implemented, or do you feel that your current operations are already scaled to a sufficient level?

I can answer that. Yeah, we do not expect any higher expenses due to this. We can use some of our studies from Europe. We may need to to run one or two small studies in the U.S. to fulfill some requirements for the U.S. market. But we do not see any big increase in expenses due to this issue because we are scaled up already for that and have planned for that already.

Great. And just on, again, sort of a follow-up there on some comments and then both you, Fredrik, as well. Because I do also recognize cystic fibrosis being an interesting market there. And your test looks to be competitive. But could you help us outline what is sort of the current competitive profile of your test and the competitors out there? And what is still sort of lacking before we see all of this work that you've done translating into commercial contracts?

Maybe you can answer that, Thijs.

Yeah, I can do that. So the cystic fibrosis test that we have is one in a handful of tests here in the US that meets the guidelines and the changes of the guidelines. And that in itself should speak well for the potential that we see here with this test. uh and that goes together with the the competitive challenge or the improvement and the position we have with how all our tests are made with regards to the workflow so we know that our workflow across our tests within ngs are much more seamlessly and by customers and now we have this specific process that with that unique workflow plus being uh covered by the guidelines right as only one in, I think there are probably five here in the market, roughly, who actually does that. So we do expect a lot. We're exploiting the social energy over here in the U.S. day in, day out, all week.

Great. And just a follow-up question on cystic fibrosis. You've historically showcased the workflow benefits in in thalassemia and in RHD screening. So just by comparison here, how does your test on the workflow stack up to the current competition for those who actually are in line with the new guidelines?

On the workflow, I'd say we're still in the lead. That's typically one of the realizations whenever we convert customers to our test. When we break for lunch after having done the demo, they ask, now what? What do we do now? And we tell them, now we're done. Now we wait for the results. And they're completely relieved. That also applies for the cystic fibrosis test here in the US. And I'm super confident this is going to carry its weight. And we will be very successful in the States as we are successful with both cystic fibrosis, thalassemia and so forth here and in Europe as well.

Great. And if we keep our focus on the North American market, obviously sales growing from a low base and we're still awaiting for delivery on the Canada tender. So what's the current update on delivering on the already awarded tender. And I know from last call that you were very optimistic in the short term that there will be an outcome in a larger tender from Blood Canada, which you obviously are favorably positioned towards. Any update on that as well would be helpful.

Yeah, I can take that. We still have the only RSD tests that are approved by Health Canada, which is in itself quite a strong position to be in. We are entertaining the dialogue with the different providers and in various dialogues, actually, focused on RSD in Canada. So I remain very hopeful that this is going to be a great test covering most of Canada, as we are doing in the Nordics. We're covering all of Wales with our tests. And I'm, you know, this will go into Canada. I can build and say, I have high belief that this is going to be a pretty interesting and unique test and opportunity in the United States even. But that said, we're still awaiting the already awarded tender to start taking off. They're still in their internal preparations.

Okay. So most likely towards year end where we should see first deliveries.

Yeah, maybe you can comment on that, but that's a reasonable timeline.

Yeah, as we have communicated earlier, it's not due to us that it has been delayed starting, the already boom tender, but we expect something around year end, I would say. And hopefully, as Tai said, we believe that the new and much bigger tender that we are waiting for now, that we can share more about that at the next earning course. Great.

Two more questions from me and I'll get back into the queue. You talk about a bit of a softer market in Asia and in Europe. And I know that you're seeing, at least you're commenting very positively on market recovery. And yes, I know that you're adding distributors in Asia as one leading indicator. but could you help us sort of understand what are you using as your leading indicator on recovery in Europe? And is this mainly an external market thing, or is there any sort of internal limitations?

Can you comment on that, Thijs?

Yeah, I can cover that. So let's start in APAC. As I already mentioned, we have actually on board quite a number of distributors and we're seeing, I'd say, pretty strong. Some of those are really coming on board quite fast and quite strong. So this will rebound for sure. That said also, APAC is for now less of a priority for the advisor. We're investing and focusing, I'd say, the majority of our efforts in Europe and North America. And then I can turn the focus to Europe. I think we're still seeing quite strong growth in Europe. But as Fredrik said, we obviously expect that that's only going to increase and strengthen. And that's due to we're still in the very early days of going live with our countries that we have in Europe, being Spain, France, UK, Benelux, Germany. region as we refer it we're adding more people also during uh we already have done that and we're adding more people during the year and we will see in an increased effect from those and our ambition is to replicate what we have done very successfully in italy for the past years in all the large european markets and i'm saying that with great belief because i know that we are competitively very strong we're very well positioned and we When we get up against competitors, we usually win those demonstrations also. So I'm confident.

Is there any market in Europe where you're not really satisfied with the development? I know that you've been awarded tenders out of the UK. Italy has been your largest market. I'm guessing it still is your largest market in Europe and overall. Looking at larger geographies such as Germany and France, Are you happy with the current development in direct sales in these regions or are additional efforts needed to accelerate these markets?

Maybe you can comment a bit about France.

In France, we're adding our first employee now. So in France, that's a market that we haven't really unlocked yet that is only starting now um and and and that's you know said we will see the impact of that during next year um initially there will be some coming in uh this year uh but uh we see france being a great opportunity uh we have gone well in germany uh and we're uh but we are far from done right so uh working with with the team we um internally have a doubling inspiration for all of our markets here in the coming years um in in in europe right uh so that said also in spain we have made some incremental gains uh engaging some new partnerships i have high expectations that that's gonna unleash and unlock additional growth for the uk so you saw the wales center that we announced with rhd um i think there's i'm confident i think Obviously, I'm an ambitious guy, I would like things to move even faster, but when I look at what we have done in the past couple of years, I can only be very happy.

And maybe I can also add that we are still growing quite much in Italy, even if that's our biggest market. As you saw, for 2023, we had a growth in excess of 20% in Italy, where we are market leader for many products. We have also seen, we will not share any numbers here about Q1, but also this year, Italy has done great when it comes to revenue growth.

Okay, great. And last question on my end, and it relates to the cost base. And if you can, you sound very confident in reaching high margins here in line with your financial targets, although it is spanning a few years. But can you help us decipher the costs of one-off character here in Q1 attributed to new facilities, ERP systems, CRM systems. How much of your current cost base is what you would consider one-off character?

Yeah, we have not shared the exact number because it also reflects how do you define these expenses because some are Some are due to expanded production capacity and some are due to the move to the new facility. But I think it's important to remember what we said already in Q3 report 2023, that we had higher expenses in Q4. and some higher expenses also in Q1 2024. We do not foresee any such switching expenses now going forward so I think we have taken more or less all of that during the first quarter and the fourth quarter. As we have communicated earlier we have double rent for example for the full 2024 so that we will That's something we have to live with. That's to minimize the risk if we have problems moving or if we have delays moving. We have taken that as a cost. I'm sorry I didn't give you any exact numbers here, Ulrik, but I'll stop here.

Just a quick follow-up on that one. If we were to have excluded, I know that you don't want to define one-off costs, but if you were to exclude the things that you would consider one-off costs, would we have seen a linear trajectory like we did see from Q1, Q2, Q3 last year in terms of the earnings improvements?

Probably, yes. As you saw here, I think what's important to remember on the Q1 numbers, we had a quite high decrease in the gross margin. And that, of course, mainly because we have now used consultants for validating our new site. And that's expensive. And even if you have one, two, three million consulting costs with a revenue of 50 million it suddenly it decreased the gross money quite substantially but yes by adding a couple of consultants but that's a one-time cost we do not expect to see that going forward okay great I'll get back into the queue thank you for taking my questions thanks

The next question comes from Oscar Bergman from Redeye. Please go ahead.

I just have three short questions. The first one relates to the US pipeline and I'm wondering if it's likely that a contract such as the one with Sited, if that is likely to come similar size contracts during the year or if that was more of an exceptionally high order value of such a contract.

You want to answer that, Thijs?

Yeah, I can say that without giving any promises of whether we will get similar contracts like the one we have with Sighted during the year, I can say that we are actively pursuing it and actively also taking inquiries for potential new collaborations. So it is a part of how we are operating and utilizing our lab here in the US.

Okay. And I'm wondering about the European market also, because I think roughly half of your sales come from Italy, right? Does the other large European markets, how do they differ from Italy in any sense? Or is it more or less a similar playing field?

i can i can answer that product maybe um that much i mean it's all within europe italians are obviously different than germans and or french people but they still work under the same regulation it's it's uh very much the same right and that's that being said uh i do believe we will be able to do the same as we have done key differentiation of the difference really is We have a very significant large team that is a great team in Italy, but the products are the same, customer types are the same. So I do believe that we are able to replicate what we have done in Italy. And I believe that Q4 earnings call that when we look at the growth trajectory we have, for example, in Germany and other markets, it does look like we are about to replicate what we have done in Italy.

Okay, thanks. And just a final question. There were some investments related to the move to the new premises in Q1. Are those finished now, or could we expect some additional investments in Q2?

They are more or less finished now, so we will not see such huge investments anymore. I cannot promise. Maybe we will buy one or two instruments, but we're talking much smaller amounts.

All right, thanks. That's all for me. Thanks.

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.

Thank you for participating and thank you for good questions. Looking forward to meet you again. This time we will publish the Q2 report already in July. So hope to meet you there. And as always, do not hesitate to reach out if you have a more specific question. Thank you.