Devyser Diagnostics AB (publ)

Thank you, and again, welcome to the Devices Q3 2024 earnings call. It's a real pleasure to have you all here. Today, you will listen to me, Fredrik Alvsten, the Devices CEO, and Thijs Kipling, our Chief Commercial Officer and responsible for business development. I have also asked our CFO, Sabina Berlin, to join us during the Q&A session. It's very gratifying to see the impact we are having in the field of diagnostics at the moment. We have just returned from the ASHE event, a major transportation conference in the US, and it's clear that many things are going our way at the moment. This applies not only to transportation, but also to our other areas of operation. Several milestones were reached during the quarter, We moved all our production and development to our new proud premises. A number of product registrations were granted around the world, while the development of new products is continuing unbeaten. The positive signals that we are seeing mean that we invested significantly more during the quarter and the period last year. Today we embark on a journey through our Q3 results. The second part of the presentation will be dedicated to the highlights and the key achievements from the quarter, and we will also discuss the commercial outlook. Organic growth for the quarter was low. Revenue amounted to 48.7 million, which is an organic growth compared to the same quarter of last year of 4% in SEC and 7% in local currency. This is lower than we would have liked, but as we have explained, I think in more or less all our quarterly presentations during the recent years, the figures for some individual quarters may be better or worse than others. The most important thing is that we are expecting the strong growth trend that we have seen in recent years to continue. I would also like to comment Q3's It's a holiday quarter for Southern Europe. And as you know, we have quite much sales in the Southern part of Europe. However, last year, suddenly we had the best quarter ever during Q3. And that's one reason is the inventory built up by Thermo Fisher during that quarter. With our innovative products, high market growth, a well-suited commercial organization that we heavily invested in over the last quarters, and some of the best commercial partners, we are confident that the positive sales trend we have seen over the last years will not only continue, but also strengthen. As said, we may face individual quarters that do not perform as well, but the overall trend is crystal clear. Our sales are still on a significant upward trajectory, with most quarters expected to be record breaking. During the quarter, we performed well in our direct markets in Europe, and we can see continued opportunities to grow even further here. Our performance in our distributed markets in Europe, the Middle East, Africa and Asia remains strong. The collaboration with Thermo Fisher is developing very well and we are very satisfied with the collaboration. The low sales during the quarter should not be interpreted as a reduced commitment on Thermo's part, but rather as irregular purchasing patterns. We see a continued strong focus from Thermo Fisher on our products and our collaborations. Europe grew by 27% compared with the previous 12 months. Asia Pacific grew by 43% compared with the previous 12 months. During the last 12 to 18 months, we have signed up quite a few new distributors in Asia, and some of them have now started to generate revenue. The sales in North and South America were low compared with last year. However, we are very optimistic about North America and they invest at the moment a lot in this market. The potential in North America is massive and we have just started to penetrate this market. North America will be one of our top priorities for the near, mid and long term. Our direct sales represented about 75% and our distributed sales represented 25% of total revenue for the quarter and for the last 12 months. However, as sales through Termo Fisher are increasing and new distributors in the regions like Asia and the Middle East are added, we may see an increased distributed share of revenue going forward. Talking about thermo, I'm glad to report today also that we in October got our best order ever and that will be reported as revenue in Q4. One of devices strengths is its business model. We have very high gross margins because we only sell consumables and software, not equipment. Over the last years, we have increased the gross margin from around 75% to about 80%. The reason is a scalable production process and our ability to increase prices. As early communicated, we decided in spring 2023 to move to a bigger facility to enable higher product volumes and automate the production processes. The move to our new great facility has taken place mainly during the second and third quarter 2024. We have worked extensively to build up the production R&D part of the facility. As with all certified and regulated industries, this must be done by the book, documented, validated and verified. It must be approved by the regulatory authorities and notified by others when ready. Everything is now ready and we will have the inauguration of the new facility on November 6. All work to finalize the new facility has been costly. Cost was negatively impacted both on the second and third quarter. That's the reason why the gross margin has decreased from 85% to 72%. The investment in our new facility will help us to drive down production costs in the future even further and help us to continue automating the production processes and accordingly increase our gross margins in the long run. It should also be mentioned that to minimize risk, we decided to rent both facilities, both the old one and the new one during the full year of 2024. This means that we go into 2025, we will not pay rent for the old facility. The quarter's EBIT was more or less in line with our expectations. It amounted to minus 24 million SEK compared with minus 8 million, same quarter last year. The lower result is among other things caused by cost associated with the moving to the new premises. The lower result can also be derived from increased costs for expansion in North America and costs for incentive programs resulting from the favorable share price development. However, we are not totally happy with the overall expense development. As a rapidly growing company, it's sometimes difficult to maintain total cost control, to speed up the route to profitability. We have reviewed the cost base in the company during the third quarter and carried out some certain organizational changes. Costs for this have been charged to the quarter's result. We are convinced that the positive earnings development that we saw in 2023 will continue and that we will reach our financial goal of an EBIT margin exceeding 20% sometimes in 2024 to 2026. Devise has a very strong financial position, 171 million SEK in cash at the end of the quarter and no interest bearing debts. With that, I leave over to Thijs.

Thank you, Fredrik. Q3 was another quarter with a lot of progress across the organization and especially within the US, which I have been looking forward to be sharing with you today. Devizor attended the annual ASHI meeting last week, which is a pivotal event within the transplantation field. This was our third time attending the event, and beyond the many data presentations featuring our products, it was great to hear from customers, and not least to see how Devizor's transplantation products is now a cornerstone of Thermo Fisher's transplantation business. We had an impressive number of posters and scientific presentations featuring our products, and we're now starting to see large institutions publish their own and independent research. One highlight was a study done by the University Hospital of Copenhagen. which compared the performance of devices and KDXs, NGS-based assays for monitoring donor-derived cell-free DNA in kidney allografted patients, which, amongst other things, concluded that the divisor kit has a slightly lower limit of detection and overall is a robust assay on par with the established KDX assay for monitoring donor-derived cell-free DNA as an adjunct biomarker in organ transplanted patient. And concluding that our product is non-inferior compared to the current market standard, I can tell you is not to be underestimated. Beyond our currently available products, we also presented posters, including some new product launches within transplantation plans to come out during 2025, and we expect these products will significantly boost our growth and also cement our position as a clear leader within the transplantation field. This week, you may have seen that we have announced a very instrumental agreement with Thermo Fisher. as we now will team up to bring our solid organ monitoring test through for FDA approval. And hence, Devizor now will benefit from Thermo's highly successful track record of working with the FDA. We will collaborate around the preclinical and clinical data developments and share the costs associated. We initially will pursue the kidney indication But this has the potential to expand across multiple indications over the years. This is probably one of the most important agreements made in the history of our company, as it enables this alliance between divisor and Thermo Fisher to disrupt the current market in the US. Hundreds of millions of dollars are spent every year in the united states just on post-transplantation monitoring led by a few send out testing service providers simply due to the fact that there today is no available fda approved product for post-transplantation monitoring of solid organs the vision behind developing the device of transplantation products is to democratize testing which will shorten turnaround times and lower the general expenses to society related to running these tests compared to today's standard. Enabling hospitals to bring back testing into their own laboratories not only improves turnaround times, but also enables hospitals to benefit from these significant revenue streams that today is sent out to external companies. We believe that this approach is the recipe for long-term revenue success for us in the United States and will become a leading revenue driver for Devison. While it will take some years before we realistically can obtain FDA approval, we have worked diligently on finalizing the validation process for our solid organ transplantation test in our US CLEAR certified laboratory, including preparing for reimbursement in accordance with our go-to-market strategy. We anticipate to obtain reimbursement during Q2 to Q3 of 2025 and will provide more guidance on how we will commercialize the product during our capital markets day planned for November. We are gradually increasing our test menu in the lab while expanding our commercial engagements, which came a long way during Q3 of this year. The past months, I can tell you, have been hectic but exciting as several very large US companies have noticed that Divisor are now open for business in the US. And thus, I expect that I can share news about new large wins during the months ahead of us. our fastest growing products globally beyond our transplantation products, or our tests for cystic fibrosis, Rhesus D, and thalassemia, which all are poised for success in the US. We're on track to secure reimbursement for our RHD test in the lab, and we'll continue our work to secure reimbursement for all these products. RHD continues to take market share And beyond Hema Quebec in Canada, which we have already announced, we are now today also working together with Canadian Blood Services and hence have a solid future growth platform in Canada once these accounts is expected to reach clinical routine testing during second half of 2025. I have earlier on been bullish on behalf of the potential that our RHD tests has also in the US, which remains unchanged. During Q3, we made significant headway in the commercialization within the US, and I'm confident that you'll see RHD will be one of our best selling products in the US. We do see consistent demand and potential for both our cystic fibrosis and thalassemia test within the US. And we are actively pursuing a number of opportunities, including securing regulatory access and reimbursement. With the IVD agreements signed together with Illumina during Q3, we now have a pathway also towards getting these products through for FDA approval, which we will be guiding on in more detail later on. On Monday this week, we received the good news about regulatory approval of Devizor Compact in China, which has been a very long process together with our local distributor in China. We have now taken a lot of learnings with us that we will be using to gain an increased number of product approvals in China, which is a great market, as you all know, and equally much represents a great opportunity for Devizor. Based on the complexity in the market, the language barriers and so forth, we have been cautious up until now, not focusing too much on China. However, on the back of this approval, we accelerate our focus here, including hiring a second headcount to help the distributor in China to penetrate the market while getting more products through for approval. While today has been focused on our growth developments in mostly North America, I'm happy to share that business is following plan in all our territories, with the exception, as Fredrik mentioned, with the facing of Thermo Fisher orders. We continue to add more talent to our European business in response to the consistent growth we're seeing. In several of these markets, excluding Italy, We've had only one employee on the ground, but today we're at three to four salespersons knocking on doors with customers and growing fast in alignment with our revenue expansion in these markets. We continue to also see double-digit growth in Italy across our product portfolio and even within segments where we in Italy already are the clear market leader. Across the other large European markets, we expand our market share and post high double-digit growth on a year-to-day basis. Lastly, we covered a lot of ground during Q3, which positions us well for Q4, as Patrick already alluded to, and 2025. And I'm excited about the potential that we have and to be sharing the wins as they come in during the coming months ahead of us. And with that, Fredrik, I'll pass it back to you.

Thank you, Thijs. 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 optimistic about the future. With our innovative products, a high market growth, a well suited commercial organization that we have heavily invested in over the last quarters, and some of the best commercial partners, we are confident that the historical development we have seen can continue and even enhance. However, as important as high growth, it is to continue our way to profitability, our main focus. As announced last week, we will, for the first time ever, have a capital market day on November 25. See our homepage for more information. And welcome to that day. With that, I open up for questions. We move over to the operator.

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 Ludwig Lundgren from Nordia. Please go ahead.

Hi, Frederick and Thijs. A few questions from my side. First of all, you mentioned here that you received the largest order ever from 1 lambda, if I heard you correctly. Would it be possible to quantify this or at least maybe quantify the historical order values from them?

No, we respect our collaboration with Claremont and we cannot disclose numbers. Sorry for that.

No worries. But then maybe on the visibility then in the distributor channel, how would you say that this typically is like, do you know in advance of an order here in like looking into Q4 and maybe into 25, how this will develop moving forward?

Maybe it's a question for you Thijs.

Yeah, absolutely. And Ludvig, just to clarify, you refer to distributors here by also including Thermo Fisher or the distributors excluding?

Yeah, I was thinking specifically about Thermo Fisher.

Yeah. No, we have, you know, with Thermo Fisher, as we're building up a market, it will be a little bit lumpy, right, as we're seeing. So we have, as they have a building, inventory on their side, that means that it will be lumpy and you should expect it to be lumpy. That said, you know, I also as expected, though, but I'm very pleased to see that we are now receiving the largest order ever from Thermo Fisher and One Lambda, right. And that is a trend that will continue. But you should expect that it will be lumpy month to month, quarter to quarter, as they are building stock, selling more. And until we get a few years in, we won't see easily projectable revenue streams in this respect, aside at rapid growth. I hope that answers.

Maybe I can add, they have also channel partners. So they have also an up and irregular sales from them. They have their directs, their organization in the Europe and especially in US. But outside there, they have working with the channel partners.

Got it. Then maybe on the gross margins, you state here that it was negatively affected by the move here. new premises. Could you quantify the moving costs in Q3 and also looking ahead if you expect any further costs in relation to this in Q4?

We are very careful giving forecasts but we are confident that we soon will be back above 80% which is our financial target. Maybe we can stay with that.

Okay great and then final one just here on yesterday's news with the One Lambda collaboration on FDA approval if you could maybe walk us through the timeline and also like if can we expect an approval already in late 25 or is this more a 26 event?

We have decided not yet communicate the timeline We would like to have come a bit further before we disclose that. My experience is that if you then get the delay, so we would like to be firm about the timeline before we communicate it. So we will be a bit hesitant for the time being. I don't think we will communicate anything this year. We will communicate earliest beginning next year about the timeline.

Okay. And with this new collaboration, will it come with additional costs to what you previously had expected?

No, it's the opposite. Now we don't need to take all costs ourselves. We will share the cost.

Okay. Thank you. I'll get back into the queue. Thanks. Thanks.

The next question comes from Ulrich Trattner from Carnegie. Please go ahead.

Thank you very much and good morning. And I have a ton of questions. So I'll just fire them off. Again, if we can talk a bit about, well, first of all, it sounds extremely optimistic about this Canadian blood service beyond sort of what's already been awarded in your tenders. Can you give us some more information on your optimism here and your expansion on RHG in Canada and what that would entail in terms of volumes roughly versus the tender you already have been awarded?

I can take that question, Frederik.

Yeah, yeah, yeah.

Yeah, you're right. I mean, between HEMA Quebec and Canadian Blood Services, we should be able to cover most of the nation of Canada and their RHD testing. I will be a little bit hesitant giving you more firm guidance because we're waiting. There's a pretty large tender that yet is to be clarified in the largest region of Ontario. And the latest news we have is that that will be confirmed by late November has already been delayed and should have been communicated late October. And that will be changing the outlook. So I'll keep the forward-looking guidance to myself for the time being, but I'm very optimistic. Between Hemocoberg and Canadian Blood Services, we will have most of the market in Canada. And I think that is a fantastic position beyond the other nations that we are the clear market leader for RHD screening, also in Europe. And as I mentioned, that's part of why I remain being bullish on the potential in the US.

And just to follow up, are you still the only product in the market for RHD screening in Canada that would fulfill the mandatory requirements of tenders as well as still the only product that is validated by Blood Canada?

That's the intelligence that we have at least.

Okay, great. And then follow up on phasing of revenues into Q4. You have been awarded large tenders in Italy, record tender on your end. The awarded tender for RHD screening in Canada, that remains to be delivered on. Decided CLIA lab agreements. And then of course, you talked about this is the largest order ever up from one lambda into to q4 so how should we think about facing up revenues obviously you have a stellar q2 now we're looking at a soft q3 but how should we be facing into q4 yeah we are you know we are a bit hesitant to give guidance

But of course, we are more positive about Q4 than we were about Q3, if that helps.

If I were to rephrase my question, then yeah, sure, Fredrik. And if I were just to rephrase my question and going back to these are previous comments on your end where you were expecting to see H2 showing acceleration in growth versus H2 of last year. Now we have seen this for a week or Q3, does that sort of comment still stand that you're expecting to see growth acceleration in the second half of the year?

Yeah, we have not changed our outlook. I didn't follow what you said, but what we have said earlier, it remains. Okay, great. Which indicates a good Q4 because Q3 was bad.

Maybe I can just add a supporting comment, Ulrik. I mean, the good thing with Divisor is that we don't honestly lose customers. And it's so that all the customers we had last year, we have today and then some. So that's why, you know, as Fredrik mentioned in the Q2 call, that we firmly believe that

h2 will you know continue that strong growth we have posted also in h1 so that you're not seeing q3 and i think that should answer what what we are also aiming to to be posting for q4 and beyond but could you give some uh some clarification on deliverance on on the site that clear lab agreement for q4 as well as the rhc tender that's already been awarded on your end and been validated Did that have an impact on Q3 and how should we view that into Q4?

Let's start with the cited agreement in the CLEAR lab. There we had lots of traction in Q2, less in Q3, expecting that to go back in Q4. And also expecting that I will be coming out with more updates and news on that whole collaboration. So that's absolutely still there, doing well. Himmel-Quebec, as we have mentioned also during the Q2 call and previously, that has been delayed, right? And we're expecting that to be really kicking off during the second half of 2025, as I also mentioned during my update today.

Okay. Great. And strategically here, you talk about a lot of focus, both near-term, mid-term, and long-term, on expanding your commercial operations in the U.S. I just want to get your sort of mindset here on where we're moving, giving yesterday's news on you, aiming to obtain FDA approval for the kidney monitoring kits and as you mentioned on the call, and then I think it's fair to assume that you would pursue that for your RHD and cystic fibrosis tests as well. But once you entered into the FDA approved space, you're going against a very large market, like all hospitals, all generalized labs. Would that in turn position you more towards going for a distribution partner

rather than then going yourself and i guess this overall would increase your your attractiveness to find a big distribution partner versus previously you can take that the ties yeah i mean let's start with what we have done with thermal fissure uh i think that um i can only encourage you obviously to to attend some of these conferences uh within the transplantation field and had you been there a couple of years back you have noticed that we're absolutely known by everybody now. And that's given and due to the fact of the partnership with Demo Fisher, which has accelerated the penetration, you know, much, much beyond what we could have done ourselves and at a much lower cost. So I think that that is a proven success model for Devizor. Whether that's going to be the same model we will pursue for system proposals or RxD, I will remain unanswered. For the time being, I think you will see more guidance on on that, but I will leave you with the conclusion that we're really happy with what we're doing together with North Fisher in the transplantation space. And I think that is a confirmation of how we as a company are commercializing and the strategy behind.

Great. And just on the news coming out of ASHI, I read a few application notes published by One Lambda and Thermo Fisher on both upstream workflow as well as downstream workflow on DNA extraction as well as on results on different types of sequencers. How important are these application notes? I know that they did examples of Kyogen and Promega, and I guess that would help achieve a higher penetration or user rate. compared to not having these applications. So, just sort of your take on how important this is.

Yes, absolutely correct in that conclusion, Ulrik. That's exactly, you know, the easier, what they are also, they should be speaking on their behalf, but what I am pleased to see is that they are actually lowering the barriers to take on Thermo Fisher as a provider. And they think holistically end-to-end throughout the workflow.

and you know both pre and post transplantation including in that workflow so from my side i i can only salute what they're doing yeah great uh and last question on my end and i'll get back into the queue and stop bothering you guys um but on on fda approval um again and and sort of i guess this plays a lot into your recent collaboration with Illumina, given that MiSeq is the only FDA-approved sequencer on the market today. Just how does that lean to creating barrier of entry, as well as, as you mentioned, going into potentially approving cystic fibrosis? In my view, or at least what I know, is that one of the main competitors to your test kit for cystic fibrosis is a test kit from Illumina. So how would this complicate things?

It could and it could not. Let's come back on that one. I can leave you with the teaser that whenever we are up against Illumina on a head-to-head, I usually come back with an order.

Okay. I'll have to leave you with that concluding remark then, Veit. Thank you, Frederik and Veit.

Thank you, Ulrik.

The next question comes from Philip Weiberg from Pareto Securities. Please go ahead.

Hi, I've got two additional questions. Most of them have been answered, but just one on and what makes you so confident returning to the growth trend that we've seen in the past. So you mentioned that you had this thermal order now in Q4, but my question is then if you have seen any positive indicators in this Southern Europe now post the holidays as well, or for that reason in other regions in Europe that makes you confident that those geographies will perform well in addition to this thermal order.

Maybe you can answer that, Thijs.

Yeah, I mean, I'm full of confidence that we are, as I said, if you exclude this lumpiness in building up this market with it together with Thermo Fisher, year to date, we're on track across the channels. Got no reason to believe that that should in any way change.

Okay, but if you then look at this southern Europe as well, have you seen any positive indicators now post the holidays in those regions?

Yeah, I mean, especially our largest market of Italy, right? That's usually the leading indicator that I refer to when I want to see how the business is overall tracking. And those guys are still on fire. They're doing fantastic. They did well. They also Q3. They have closed additional tenders and The Q2 success that we also communicated will now take some time before it really kicks in and those tenders are coming into full effect. And I think the more we get into Q4 and Q1 of next year, the more we will see that increased traction to happen in Italy. And that is a leading indicator of how the general market in our large European territories are also developing.

Okay, thanks. And the other question I had was on the gross margin. And you did not want to answer any specifics regarding the breakdown of this extra cost regarding the move to new premises. But just if I could phrase the question like this, I suppose that the gross margin would have been about this 80% target that you have without these additional costs. Would that be fair to assume?

Yes, that's correct.

Okay. Yeah, that's all for me. Thanks a lot.

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 calling in and listening to our earnings call. Please be aware that we have a capital market day on November 25th. So if you are interested to participate, go to our homepage and send us a message about that. So with that, thank you. Bye-bye.